Corporate profits hit a record high in the fourth quarter of 2023 as the economy picked up

Gross domestic product (GDP) and corporate profits both smashed expectations in the fourth quarter of 2023 as the knock-on effects of pandemic stimulus juiced the US economy.

Gross domestic product came in at a 3.4-percent increase, below the massive 4.9 percent growth in the third quarter, but still above the latest forecast of 3.2 percent, according to Commerce Department data.

Adjusted profit after taxes hit a record $2.8 trillion in the third quarter of 2022, beating the previous record of $2.7 trillion. Profit for the quarter rose 3.9 percent, beating expectations of 3.3 percent.

„Today's report … showed that corporate profits rose significantly in the fourth quarter to a new record high,” EY economist Lydia Bowsour wrote in an analysis. “Corporate profits before tax rose the most since the second quarter of 2022, rising to $133 billion following a $109 billion advance. [estimate].”

„Profit margins widened for the second straight quarter, rising 0.3 percentage points to 12.2 percent of GDP, as faster production kept unit labor costs tightly contained,” he wrote.

Inflation in the fourth quarter, measured by the „core” personal consumption expenditures (PCE) price index, which excludes food and energy items and is a key metric for the Federal Reserve, fell to 2.0 percent, compared with 2.1 percent in the third estimate. Second.

Updated monthly core PCE data comes out on Friday, up from a 2.8-percent annualized increase in January.

With expectations of a U.S. economy slowing toward the end of 2023 becoming ubiquitous, with some predicting big spikes in unemployment, final estimates for fourth-quarter performance were more surprising.

Market commentators welcomed the news of Thursday's numbers.

„This reflects the continued weakness of the US economy,” Michelle Cluver, head of ETF portfolios at Global X, wrote in an analysis.

„It is encouraging that this upward correction came primarily from consumer spending and non-residential fixed investment,” he said.

Numbers from the Commerce Department showed gross domestic income (GDI) rose 4.8 percent, another way of measuring production that looks at sales rather than receipts.

GDP and GTI should in theory be equal, but the mismatch between the two metrics has led some market commentators to see signs of an impending downturn. GDI rose 4.8 percent in the fourth quarter, marking the first time since 2022 that GDI outpaced GDP growth.

The average of the two gauges, another leading indicator for the economy, was 4.1 percent, which analysts described as „strong.”