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'Sensational' Rise Credited to Dollar : After-Tax Profits Climb 5.2% in Quarter

November 25, 1987|Associated Press

WASHINGTON — After-tax profits of U.S. corporations posted their best showing in a year when they rose 5.2% in the July-September quarter, the government said Tuesday.

The Commerce Department said the third-quarter increase compared to a 4.3% gain in the second quarter and was the strongest performance since an advance of 6.5% in the third quarter of 1986.

Analysts credited the improvement to the falling dollar, which has boosted sales of American exports and increased the costs of imports in the United States, allowing domestic manufacturers to boost prices at home.

"Corporate profits so far this year have been sensational," said Allen Sinai, chief economist for Shearson Lehman Bros. "The profits outlook has been very positive despite a big increase in taxes on corporations."

Lawrence Chimerine, president of the Wefa Group, formerly Wharton Econometrics, said that the rise in profits has been aided by the fact that wage increases in the United States have been moderate, but he said the strong profit gains will not continue.

"We are already beginning to see weaker profits in financial services, health care and retailing," he said. "We expect weaker profits in the future because the economy is going to slow down."

The rise in after-tax profits left them at an annual rate of $141.5 billion.

Among other details in the report:

- Before-tax profits rose 5% in the third quarter to an annual rate of $282.1 billion after a 4.6% increase in the second quarter.

- Corporate profits, after adjusting for depreciation and for inventories, rose 5.7% in the third quarter to an annual rate of $313.7 billion following a 1% second quarter gain.

- Corporate cash flows, a measurement intended to show the funds corporations have for investment, rose 3%, a strong increase that followed three consecutive quarterly declines. This put cash flows at an annual rate of $375.6 billion.

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