Tags: Corporate | Profit | us | Economy

Carr: Corporate-Profit Slowdown Confirms Euro Could Sink US Economy

Thursday, 31 May 2012 10:19 AM

Corporate profits showed a growth rate of 6.5 percent but the taxes corporations paid on those profits jumped more than 15 percent. A number of tax breaks related to accelerated depreciation schedules expired. This could be the first glimpse into what the looming "fiscal cliff" will look like.

As corporations struggle to keep up with rising taxes, they may be facing a significant slowdown in foreign markets. Profits from foreign operations fell 15.5 percent, an indication that the euro drama is hurting the global economy and growth in China really is slowing.

Stocks moved higher in the first few months of 2012 on hopes that profits would increase. Earnings reported by S&P 500 companies for the first quarter of the year were generally in line with expectations but stocks have backed off the highs seen in March. Traders seem to be considering whether or not earnings can continue growing.

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This latest data from the Bureau of Economic Analysis show that earnings growth is likely to slow. The government report theoretically includes all of the corporations in the country. Accounting changes can impact the earnings reported by the publicly traded companies in the S&P 500. That means those earnings can be more volatile, but the two sets of earnings generally move up and down together.

Thursday's data is a warning for stock market investors that profits may be declining. Earnings growth before accounting adjustments is slowing. After corporate accountants factor in special charges and make allowance for the impact of higher taxes, public companies could report earnings growth that lags inflation.

Stock prices generally fall when profits decline. A drop in the S&P 500 would be expected given the trend in corporate profits.

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