Corporate profits are down in first quarter
CORPORATE profitability deteriorated in the first quarter of 2010 to match the third quarter of 2009, which was the worst quarter since the last three months of 1993.
Companies’ net rate of return fell to 11.1 per cent in the first three months of the year from a downwardly-revised 11.3 per cent in the fourth quarter of 2009, official figures showed yesterday. Corporate profitability peaked in the fourth quarter of 2007 at 15.1 per cent.
Both manufacturers and service sector companies saw their profitability decline in the
first quarter. Manufacturing firms’ net rate of return fell to 6.4 per cent from 6.9 per cent while that of service sector firms fell to 14.4 per cent in the first quarter from 14.7 per cent.
The only sector that enjoyed an improvement in its profitability was oil and gas exploration and extraction companies. They saw their net rate of return rise to 36.4 per cent from 32.3 per cent, fuelled by higher oil prices.
“The weakened profitability figures for the first quarter of 2010 highlight the fact that companies still face very challenging conditions as the economy only gradually recovers from extended, deep recession,” said IHS Global Insight’s Howard Archer.
In terms of productivity, GDP per hour worked rose 1.2 per cent in the first quarter on a year earlier and up 0.3 per cent on the fourth quarter.
However, this should not deter companies from investing. “With capacity use and corporate liquidity rising in recent quarters, we doubt the recent sluggish productivity trend will prevent firms from expanding investment in coming quarters,” said Michael Saunders at Citigroup.