Dividends and US corporate profits soared in 2nd quarter

Every government around the world looks at its corporate partners and plays a balancing act between corporations doing very well and its citizens doing well. It is no different in the US, although under the previous administration, the emphasis was helping the corporate sector first. In President Biden’s administration the emphasis is helping people first.

In an article by Lucia Mutikani of Reuters, the Department of Commerce reported US corporate profits surged to a fresh record high in the second quarter. Profits from current production increased by $234.5 billion or up 9.2% to a record $2.8 trillion. Non financial corporations were up $169.8 billion.

Jay Bryson, chief economist at Wells Fargo aid elevated margins suggest higher costs have not yet meaningfully eaten into firms’ profits, as firms appear to have more pricing power today than they would typically would this early into an expansion. (it appears firms have the ability to raise prices).

Economists polled by Reuters expected the the 2nd quarter growth would be 6.7%, the economy grew at 6.6%. The previous quarter growth was up 6.3% and the combination has recouped the steep losses suffered in the COVID recession.

Consumer spending which accounts for 2/3’s of the US economy appears to be cooling. Credit card data suggested spending on services such as airfares, cruises, hotels, motels has been slowing.

Bank of America Securities has cut its projection from the 7% growth to 4.5% growth in the 3rd quarter.

Growth is expected to pick up in the 4th quarter as business must replenish its inventories.

On the employment sector, there was a record 10.1 million job openings in June and it the 25 states led by Republican governors, they have stopped the federal government funding including an extra $300 payment. Business groups claimed the money encouraged people to stay home rather than work. In the other states, the $300 payment is scheduled to expire on September 6, affecting 11 million people.

Linking to dividend paying stocks, when you invest in profitable companies which can pay a dividend it is entirely possible to have money coming into your account without doing any work for it, however it is investment income. If you listen to politicians who say people need to work, if you have dividend income that means you can have meaningful work or have options what you do or do not do.

There are more questions than answers, till the next time – to raising questions.

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