Corporate profits hit record high as economy boomed in fourth quarter of 2023

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 U.S. economy.

GDP came in at a 3.4-percent increase, below the massive bump of 4.9 percent in the third quarter, but still above recent forecasts of 3.2 percent, according to Commerce Department data.

Adjusted profits after taxes hit a record high of $2.8 trillion, beating the previous record of $2.7 trillion in the third quarter of 2022. Profits increased 3.9 percent on the quarter above expectations around 3.3 percent.

“Today's report … revealed that corporate profits rose substantially in the fourth quarter to a new record high,” EY economist Lydia Boussour wrote in an analysis. “Before-tax corporate profits rose by the most since the second quarter of 2022, up $133 billion following a $109 billion advance [estimate].” 

“Profit margins expanded for a second consecutive quarter, up 0.3 percentage points to 12.2 percent of GDP as faster productivity kept a tight lid on unit labor costs,” she wrote.

Inflation during the fourth quarter as measured by the “core” personal consumption expenditures (PCE) price index, which excludes food and energy categories and is an important metric for the Federal Reserve, fell to 2.0 percent in the third estimate compared to 2.1 percent in the second.

Updated monthly core PCE data, which stood at a 2.8-percent annual increase in January, comes out Friday.

Expectations for a slowdown in the U.S. economy toward the end of 2023 were ubiquitous, with some predicting large spikes in unemployment, making the final estimates for fourth quarter performance all the more surprising.

Market commentators welcomed the news of Thursday’s numbers.

“This reflects the continued resilience of the U.S. economy,” Michelle Cluver, head of ETF portfolios at Global X, wrote in an analysis.

“It is encouraging that this upward revision primarily came from consumer spending and nonresidential fixed investment,” she said.

The numbers from the Commerce Department also showed a surge in gross domestic income (GDI) of 4.8 percent, which is another way of measuring production that looks at sales instead of receipts.

GDP and GDI should in theory be equal, but a mismatch between the two metrics has led some market commentators to see indications of a coming downturn. The 4.8 percent rise in GDI in the fourth quarter marks the first time since 2022 that GDI has overtaken GDP growth.

The average of the two measurements, which is another leading indicator for the economy, was 4.1 percent, which analysts described as “robust.”