Corporate profits in the US took a nose dive in the first quarter of 2014 according to the Bureau of Economic Analysis (www.bea.gov). Profits in the first quarter of 2014 came in 3.0% below the first-quarter of 2013 and a steep 9.8% below the fourth-quarter-2013 figure. The 9.8% drop is the second steepest in the last 65 years (only 1982 provided for a worse first quarter result). Other than that you have to go to 1959 to see a similar onset of profit decline. Those dates do not bode well for the 2014 economy, but they are consistent with our forecast of slower growth in the US in the second half of 2014.
I realize it will be tempting for a lot of people to blame the poor profit performance on weather. Even if that is the case, it doesn’t change the fact that the profits year-over-year comparison has been in general decline since March 2012. The decline in the year-over-year comparison (12/12 rate-of-change) is a negative signal for employment, the stock market, and Nondefense Capital Goods New Orders. In this case, negative does not mean recession, but I suggest you plan on a milder rate of growth and a softer second half to your year if you are positively correlated to the economy.