Why Corporate Profits Could Be Weaker Than They Seem
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What is the main topic discussed in this episode?
Your Money Briefing Money and market stories from The Wall Street Journal. I'm J.R. Whalen in New York. At first glance, the first quarter was strong for corporate profits. But coming up, we'll explain why a second glance may be needed to bring the full story into focus. First, these money headlines. Despite what seemed like unending market volatility and gyrating reactions to ongoing tariff threats, May was an upbeat month for the major stock indexes. The Dow Jones Industrials finished the month up just a hair over 2%. Meantime, the Nasdaq Composite registered a 5% gain for the month, and the S&P 500 turned in a roughly 2.9% gain. The National Federation of Independent Business Employment survey indicates the number of small businesses raising wages hit a record high in May in the U.S.,
Thirty-five percent of owners of small firms report increasing labor compensation. It's the highest percentage since the Federation started asking businesses about that in 1986. The survey also finds that 23 percent of business owners now cite the difficulty of finding qualified workers as their single biggest challenge. JPMorgan Chase CEO Jamie Dimon is the highest paid banking and finance chief executive in the S&P 500. Dimon has run the bank since late 2005 and made $28.3 million in 2017. That's up 4% from $27.2 million a year earlier. The median pay for the 43 banking and financial CEOs in the Wall Street Journal's analysis was $12.1 million.
How did major U.S. stock indexes perform in May and why does it matter?
That matches median pay for the S&P 500 as a whole. The top spot in the list is familiar territory for Dimon. He's ranked as the highest paid among the group of 43 banking and financial CEOs in three of the past four years. The 62-year-old said in January he plans to run the bank for another five years. This is your Money Briefing from the Wall Street Journal. Welcome back, everybody. You've heard the saying, things aren't always what they seem. Well, that could apply to corporate profits reported in the first quarter. And Heard on the Street columnist Justin Layhart is here to explain. So, Justin, measuring the strength of first quarter corporate profits essentially comes down to who you ask. S&P 500 company data indicates profits rose on average more than 26%, but the government says profits were nearly flat.
How can there be such a steep discrepancy?
Yeah, so the data are a little bit different. When you look at S&P 500 companies, right, that is profits, you know, earned all over the place for these big companies, right? So they're multinationals, they make money in Europe, they make money in Asia, and they make most of their money here, but still, they make a lot of money overseas. There are also, you know, another thing that happens with these S&P 500 companies is, A lot of times the profits they report or the profits that they want people to use exclude a lot of one-time charges. They say, well, you know, that was not a normal part of business, so we're going to exclude that. And that's something – so the government also does profit numbers, and they're a little bit different.
First thing, they don't exclude all of those charges. And also it's for profits from just U.S.
What do small-business wage and hiring surveys reveal about the labor market?
production, so mostly what's being earned here. So there's a little bit of a different definition there. But it is interesting that we've seen this big discrepancy between what the S&P 500 companies are saying and what the government is saying because this discrepancy wasn't there a couple of quarters ago.
So if a company has operations throughout the world, it's just the U.S. operation that the government tends to put into its numbers?
Yeah, just that. So it needs to be, it's economic data. It's about the U.S. economy. It's about, you know, what's being produced here. So if you produce something and then send it abroad, that counts, right? But if you have a factory in Europe making cars, that doesn't count.
All right. And the tax cut has a lot to do with the numbers being reported also.
Well, we see the tax cut effect in both instances. So one reason the S&P 500 numbers are up so much is because of this tax cut.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–1:32
2
How did major U.S. stock indexes perform in May and why does it matter?
1:32–3:11
3
What do small-business wage and hiring surveys reveal about the labor market?
3:11–5:23
4
Who is the highest‑paid banking CEO and what does executive pay data show?
5:23–7:16
Speakers
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