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Corporate profits increase as GDP remains sluggish

August 26, 2011 |  1:11 pm

Apple
The nation's gross domestic product may be growing at just a crawl, but corporations aren't doing so badly in this economy, according to data released from the Bureau of Economic Analysis. Corporate profits increased in the second quarter, as did the amount of cash businesses had available for investments, as taxes decreased.

Corporate profits increased $57.3 billion in the second quarter, according to the BEA. They had grown $19 billion in the first three months of the year. But that growth didn't play out in the labor market, which experienced an unanticipated slowdown in May and June. The nation added just 316,000 jobs in the second quarter, according to data from the Bureau of Labor Statistics. That number is only slightly more than economists say we need to add per month for a real recovery.

The amount of internal funds available for investment grew $83.8 billion in the second quarter, after growing $21.1 billion in the first quarter. Tech companies were among those with growing profits in the second quarter. Last month, Google Inc. announced second-quarter net income of $2.5 billion and Apple made $7 billion over roughly the same time period, doubling its earnings from the same period a year ago.

Overall, corporate profits grew 8.3% over a year ago.

Business growth was slowed by turmoil in the financial industry, however. While overall, corporate profit rose, profits at financial institutions decreased $54.2 billion after falling $38.7 billion in the first quarter. Nonfinancial corporations saw profits grow $84.4 billion.

Still, the overall growth in profits was a piece of good news in an overall lackluster data release, according to analysts with IHS Global Insight. The corporate profits data were released with the second estimate for the gross domestic product, which the government now says grew at a rate of 1% in the second quarter, rather than the 1.4% previously projected. The widely expected revision was largely due to a decrease in exports.

Now, economists say they'll look to data in September to determine whether or not the country is headed for another recession -- which could happen whether or not corporate profits continue to increase.

"The U.S. is stuck in this low-growth rut and will be for some time to come. The outlook for employment and personal income growth, by extension, is equally poor as well -- whether the economy prints a negative GDP growth number or not," wrote Steve Blitz, Senior Economist for ITG Investment Research.

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-- Alana Semuels

Photo: A customer at an Apple store in April. Tech and other companies saw profits boom in the second quarter. Credit: Don Kelsen / Los Angeles Times

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