Historically Low Jobless Claims & Strong GDP Results Amid Lower-Than-Expected 4Q17 Corporate Profits

​Generally positive economic news, including record low jobless claims, overshadowed weakness in corporate profits in last week’s economic news, and markets became nerved over potential backlash from China regarding a potential trade war.

• Last fall, tax reform expectations hinted toward potential increased corporate profits and spending during fiscal year 2018. While the tax reform's total effect on after-tax incomes for the current fiscal year have not been determined yet, the final quarter of 2017 was quite sluggish for corporate profits. According to the St. Louis Fed’s Federal Reserve Economic Data (FRED) database, preliminary after-tax corporate profits fell 6% year over year in the fourth quarter of 2017, compared to the third quarter’s 9.8% year-over-year increase and the 22.3% year-over-year increase of the fourth quarter of 2016. After-tax corporate profits are not adjusted for inventory valuations or capital consumption.

• The U.S. labor market witnessed historic lows for the number of new unemployment insurance claims filed for the week ended March 24, 2018. These initial new jobless claims fell 12,000, or from 227,000 to 215,000, which is the lowest level in over 45 years. Furthermore, the four-week moving average was roughly 224,500, which parallels the jobless claims trends during February. Consistently low claims seem to be a result of minimal layoffs and strong labor demand. In a similar note, the consumer confidence index continues to remain strong at 127.7, though it did dip slightly from February's 130.8. Concerning the current assessment of the labor market, only 14.9% of those surveyed believe jobs are hard to obtain.

• According to the Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annualized rate of 2.9% during the fourth quarter of 2017, slightly down from an annualized rate of 3.2% in the third quarter.
  

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• The National Association of Realtors’ Pending Homes Sales Index jumped 3.1% during the month of February, significantly up from its decrease of 5% in January. February home sales jumped 10.3% in the Northeast market, whereas the West increased 0.4%, the Midwest increased 0.7%, and the South increased 3%. Pending home sales, or signed contracts which have not closed, are the leading indicator of existing home sales.