Profits Up at U.S. Firms

“America’s biggest companies are reporting some of the strongest earnings growth since the recession, boosted by lower tax rates and a robust U.S. economy that is fueling demand across industries.” This according to an article in The Wall Street Journal.

The article explains that robust consumer and business spending, along with higher commodity costs and tariff concerns have prompted companies to raise their prices.

While profits are being supported by the recent corporate tax cut, the article says underlying businesses are also performing well. The article cites comments from Jim Russell, portfolio manager at Bahl & Gaynor, who said that many companies are using the windfalls to reduce debt, and he believes the underlying earnings growth will persist as firms benefit from years of costs cuts, reorganizations and share buybacks.

The article reports that the U.S. economy grew at its “fastest annual rate in nearly four years this spring, with GDP rising 4.1% in the second quarter on a seasonally and inflation-adjusted basis,” but adds, “Still, investors remain wary of rising interest rates, trade tension and increasing costs for labor and supplies.”

While boosting prices can hurt demand, the article concludes, the “strong economy paired with growing revenue have emboldened companies to push through increases to customers.”