Only earnings in banking, chemicals, and from the rest of the world were able to avoid declines. The volatile durable manufacturing registered a 25 percent profit decline from the previous quarter, but declines were apparent even in trade, transportation, and utilities. Without legal settlements, tobacco profits should rise when the winter results are posted. Banks may continue to make gains while earnings from abroad will continue to rise, but at a much slower pace than the previous quarter. Despite these gains, another 5 percent plunge in nonfinancial domestic profits is almost certain for the winter.
Further declines are likely in the spring as well.
Indeed, my best guess is that operating profits before taxes probably will decline between 6 and 7 percent for 2001, a far cry from the 10.5 percent profits gains for 2000. Even if the stock market did not develop a speculative bubble early last year, a decline in values would have been almost certain this year. Stock values almost always decline ahead of profits recessions. Three factors appear to be responsible for the weakness in profits. First, excess capacity and international competitiveness have prevented most companies from fully passing cost increases forward to their customers.