Corporate Profits Pop on Lower Tax Bills
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Your Money Briefing. Money and Market Stories from The Wall Street Journal. I'm J.R. Whalen in New York. Corporate America is turning in the best earnings performance since 2011, but economists are baffled as to why that success hasn't fueled the overall economy. Details in a moment, but first, these money headlines. U.S. worker productivity grew at a familiar modest rate to start the year, and that raises a potential flag against hopes for stronger overall economic growth in 2018. Non-farm business productivity, which is a measure of the goods and services Americans produce per hour worked, advanced at a seasonally and inflation-adjusted annual rate of 0.7 percent in the first quarter. That's up from the fourth quarter, but is slightly below the gain economists had forecast.
Productivity gains would need to accelerate significantly for growth and economic output to maintain the 3 percent growth rate that President Trump has set as a goal. The economy, it turns out, has expanded at a little better than 2% pace since the recession ended in 2009. A study from North Carolina State University says the type of financial support that parents give their children can have an impact on their children's success. The report pooled the data of more than 7,500 adults ages 18 to 28 and finds that when parents give their children money, especially college graduates, those kids go on to have greater professional success. But when parents provide their children with financial assistance in other ways, letting them live at home for free, for instance, the opposite is true.
This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. We're in the midst of the best earnings quarter since 2011, but it's a new recipe for success that has corporate America observers buzzing. And Wall Street Journal reporter Tao Francis joins us with details. So, Tao, we're seeing corporations report larger pre-tax profits while dealing with smaller tax bills.
How are productivity and wage data framing growth expectations?
That's fairly unusual, right?
It certainly is. Usually when a company sees its pre-tax profits go up, its taxes are going to go up at least a little bit. They may not go up as fast, but they generally don't go down. And that's what we're seeing this quarter.
And for investors, this is also good news. As you point out in your story, companies in the S&P 500 index are seeing the seventh straight quarter of per share profit growth and the strongest gains in more than seven years. That's really remarkable.
It really is. And at the same time, you're also seeing revenue grow. So sales are growing. They're just not growing as quickly as profits. And there's a reason for that. Part of it is this is the new tax policy. Essentially, what you're seeing is that companies got a big enough tax cut that not only kept their taxes from growing much along with their free tax profits, it actually brought their taxes down below where it was previously. in the same quarter a year ago.
But while the new tax policy is helping to line the pockets of corporate America and many investors, it really hasn't reached out and had a pronounced effect on the broader economy.
That's right. And exactly why isn't clear, despite a number of indicators suggesting that consumers have more money in their pockets, in part from the tax bill, despite the fact that wages are doing a little bit better. You just haven't seen the same kind of consumer spending growth that I think a lot of advocates of the tax bill would have hoped. Now, I think even some skeptics will point out that it's early days. It does take time for the benefits of a tax cut to really kind of be felt, whether that's by a company that's deciding how to spend its tax savings. whether on capital equipment or repurchasing shares, or whether it's by consumers who might wait a few quarters before they go out and spend.
That remains to be seen.
And for a lot of these companies with these lower tax bills, they have more money to play with. And you alluded to this in your last answer. It's given them a lot of options as to how to spend that money or to maybe...
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