By Ben Leubsdorf and Jeffrey Sparshott 
 

WASHINGTON--A key measure of profits at U.S. companies continued to gain traction in the final months of 2016 as broader economic growth remained steady and modest.

Corporate profits after tax, without inventory valuation and capital consumption adjustments, rose 3.7% from the prior quarter to a seasonally adjusted annual rate of $1.741 trillion in the fourth quarter, the Commerce Department said Thursday. It was the fourth consecutive quarter of profits growth.

Profits jumped 22.3% in the fourth quarter compared with the same period in 2015, when earnings had plunged amid a slump in energy prices and jitters about global growth. That was the largest year-over-year gain for the measure in nearly five years, since the first quarter of 2012.

For all of 2016, profits rose 4.3% from the prior year after falling 8.5% in 2015--the strongest calendar-year profits growth since 2012.

Overall U.S. economic growth in the fourth quarter was revised up from earlier estimates. Gross domestic product, a broad measure of the goods and services produced across the economy, expanded at an inflation- and seasonally adjusted annual rate of 2.1% in the final three months of 2016, according to Thursday's report.

The Commerce Department had earlier pegged fourth-quarter GDP growth at a 1.9% rate. Economists surveyed by The Wall Street Journal had expected a smaller upward revision to 2.0%.

Consumer spending in the fourth quarter was stronger than previously thought, offset in part by downward revisions for business investment, net exports and spending by state and local governments.

Household outlays drove overall GDP growth in late 2016, contributing 2.4 percentage points to the quarter's 2.1% growth rate. A wider foreign-trade deficit subtracted 1.82 percentage points but another volatile category, private inventories, boosted growth by 1.01 percentage points. Business investment, government spending and the housing sector made smaller contributions to fourth-quarter growth.

U.S. growth has appeared to slow in the current quarter, depressed by a widening trade gap and soft consumer spending. Some economists also think seasonal-adjustment problems have caused first-quarter growth to look weaker than the true trend in recent years.

The first quarter ends Friday, and the U.S. government will release its initial estimate for first-quarter GDP on April 28. Forecasting firm Macroeconomic Advisers on Wednesday projected a GDP growth rate of 1.1% in the first three months of 2017.

U.S. growth has been stuck near 2% since the recession ended in mid-2009. Many economists believe underlying forces, including sluggish productivity gains and the aging of the U.S. workforce, will continue to constrain growth in the coming years. The median projection by Federal Reserve policy makers in mid-March saw the economy's long-run growth rate at 1.8% per year.

President Donald Trump, who took office in January, has said he wants to boost annual economic growth to 4% through a combination of tax cuts, regulatory rollbacks and other policy changes. Gauges of U.S. consumer and business sentiment have surged since the November election. But there has been little sign of acceleration in hard data on economic activity and some economists are skeptical about the prospect of a significant, sustained boost for growth.

For U.S. corporations, earnings deteriorated in 2015 as companies were pressured by forces including the strong dollar, falling commodity prices and weak global growth. But oil prices stabilized last year and the global outlook has brightened, helping bolster profits in the U.S.

"In recent quarters, the environment has become more favorable," Fed governor Lael Brainard said in a March 1 speech, citing an upturn in profits among other evidence of renewed health in the business sector.

The Commerce Department's latest report on GDP can be accessed at: https://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com and Jeffrey Sparshott at jeffrey.sparshott@wsj.com

(END) Dow Jones Newswires

March 30, 2017 08:45 ET (12:45 GMT)

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