U.S. Profits Up 19% in 2003

Corporate profits posted a second straight double-digit annual gain in 2003, the Commerce Department said Thursday, but a lackluster job market suggests firms remain hesitant to hire.

The Commerce Department said after-tax corporate profits rose 7.6% in the fourth quarter, a slowdown from the 10.1% gain in the third quarter. For all of 2003, the department said after-tax profits were up a hefty 19.2%. That increase was less, however, than the 24.6% rise in 2002.

The department also said a price index for personal spending outside of food and energy was revised upward, to a 1.2% annual rate from a previously reported 0.7% pace in the fourth quarter. It is the Federal Reserve’s favored measure of inflation, and the unexpected revision could make it harder to justify keeping interest rates at current 46-year lows.

The data appeared in the third reading on fourth-quarter economic growth, which showed that gross domestic product rose at a 4.1% annual rate, the same as reported last month and half the pace of the third quarter.

It was the first time since 1996 and 1997 that U.S. companies enjoyed back-to-back double-digit gains in full-year profits.

In a separate report, the Labor Department said new claims for unemployment benefits rose by 1,000 to 339,000 in the week ended March 20. That was slightly above economists’ forecasts.

Economists were impressed by the improvement in corporate bottom lines. Higher profits usually lead to increased spending on new plants and equipment and, eventually, jobs.

But Jared Bernstein, senior economist with the liberal-leaning Economic Policy Institute, said the GDP report showed that the share of income going to profits hit 21.9% in the fourth quarter, matching a high seen in 1997, but that the increase came at the expense of workers.

“It’s very difficult to sustain a robust recovery ... without more compensation to the labor market,” Bernstein said.

Labor market weakness has led the Federal Reserve to keep its benchmark short-term interest rate at 1%, the lowest level since 1958.

In another report, the National Assn. of Realtors said sales of existing homes in February rose 2% to a seasonally adjusted annual rate of 6.12 million homes, close to analysts’ expectations.