US corporate profits jumped a record $495 billion in the 3rd quarter as the economy reopened

  • US corporate profits surged to a record $495.3 billion, or at a 27.1% annualized rate, in the third quarter as consumer demand bounced back and firms reopened, Commerce Department data published Wednesday showed.
  • The climb comes after 12% and 10.3% declines in the first and second quarters, respectively.
  • The sharp rebound in earnings joins an overall murky picture of the nation's economic recovery. While some areas including housing and consumer spending have bounced back well, labor market data including weekly jobless claims show lasting damage.
  • Soaring COVID-19 case counts across the country pose a growing risk to near-term growth, and major banks have already revised their GDP forecasts lower accordingly.
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US corporate earnings climbed at the fastest pace on record in the third quarter as economic reopening and rebounding demand lifted spending.

Profits jumped $495.3 billion, or at a 27.1% annualized rate, over the three-month period, according to Commerce Department data published Wednesday. Domestic profits of financial corporations leaped $24.5 billion.

The profit increase comes after 12% and 10.3% declines in the first and second quarters, respectively. The first-quarter decline was the largest seen since the financial crisis.

The Commerce Department's report details the initial bounce-back in economic activity as virus cases waned through the summer and businesses enjoyed a rebound in consumer demand. Gross domestic product grew at an unchanged 33.1% annualized rate through the period, a record increase that retraces much of the second quarter's plunge.

Read more: An innovation-focused portfolio manager at a $158 billion firm shares 8 disruptive stocks across multiple industries he thinks could grow 30% every year over the next decade.

To be sure, the third-quarter recovery didn't retrace all of the economy's pandemic-induced losses. And forecasts for near-term growth have been revised lower at major banks as the US contends with surging COVID-19 cases. With widespread vaccine distribution several months away, the pace of recovery is likely to slow significantly through the end of the year and early 2021.

"More than ever, we should be conscious that aggregate economic figures tell but a partial story," Gregory Daco, chief US economist at Oxford Economics, said. "While a double-dip in the first quarter of 2021 seemed unlikely just a few weeks ago, it is a sad but non-negligible possibility today."

The corporate-earnings data joins a slew of other indicators that, together, paint a blurred picture of the US economy's trajectory. Consumer spending climbed 0.5% in October, narrowly beating economist estimates. Yet personal incomes fell 0.7%, more than forecasted.

The housing market continues to show strength, with new-home sales dipping slightly to a still-elevated 999,000 annualized pace. That reading beat the median estimate of 975,000 from economists surveyed by Bloomberg.

But the labor-market recovery stumbled again as jobless claims rose for the second straight week. New filings for unemployment benefits rose to 778,000 last week, landing handily above the 730,000 estimate. The recovery's disjointed nature suggests the coronavirus's resurgence will keep the US from staging a complete rebound in the coming months.

Read more: A senior portfolio manager at Morgan Stanley's $665 billion investment-management business shares his playbook as stocks run higher in 2020 — and 3 non-COVID threats that will occupy his attention in 2021

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