Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $21.8 billion in the second quarter, in contrast to a decrease of $53.0 billion in the first quarter, according to the “third” estimate released by the Bureau of Economic Analysis.
Current-production cash flow (net cash flow with inventory valuation adjustment) — the internal funds available to corporations for investment — increased $6.0 billion in the second quarter, in contrast to a decrease of $169.8 billion in the first.
Taxes on corporate income decreased $10.3 billion in the second quarter, in contrast to an increase of $83.2 billion in the first. Profits after tax with inventory valuation and capital consumption adjustments increased $31.9 billion in the second quarter, in contrast to a decrease of $136.2 billion in the first. Dividends increased $20.4 billion, compared with an increase of $9.2 billion; current-production undistributed profits increased $11.6 billion, in contrast to a decrease of $145.5 billion.
Domestic profits of financial corporations decreased $39.7 billion in the second quarter, compared with a decrease of $12.3 billion in the first. Domestic profits of nonfinancial corporations increased $27.8 billion in the second quarter, compared with an increase of $7.3 billion in the first. In the second quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real value added increased. The increase in unit profits reflected an increase in unit prices and a decrease in unit nonlabor costs that were partly offset by an increase in unit labor costs.
The rest-of-the-world component of profits increased $33.6 billion in the second quarter, in contrast to a decrease of $48.0 billion in the first. This measure is calculated as (1) receipts by U.S. residents of earnings from their foreign affiliates plus dividends received by U.S. residents from unaffiliated foreign corporations minus (2) payments by U.S. affiliates of earnings to their foreign parents plus dividends paid by U.S. corporations to unaffiliated foreign residents. The second-quarter increase was accounted for by an increase in receipts and a decrease in payments.
Profits before tax with inventory valuation adjustment is the best available measure of industry profits because estimates of the capital consumption adjustment by industry do not exist. This measure reflects depreciation-accounting practices used for federal income tax returns. According to this measure, domestic profits of financial corporations decreased. The decrease in financial corporations was primarily accounted for by a decrease in “other” financial industries. Domestic profits of nonfinancial corporations increased, primarily reflecting increases in wholesale trade, in manufacturing, and in information industries. Within manufacturing, the largest increases were in computer and electronic products and in “other” durable goods.
Profits before tax decreased $16.3 billion in the second quarter, in contrast to an increase of $188.1 billion in the first. The before-tax measure of profits does not reflect, as does profits from current production, the capital consumption and inventory valuation adjustments. These adjustments convert depreciation of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to the current-cost measures used in the national income and product accounts. The capital consumption adjustment decreased $1.7 billion in the second quarter (from -$200.7 billion to -$202.4 billion), compared with a decrease of $230.3 billion in the first. The large decrease in the first-quarter capital consumption adjustment mainly reflected the expiration of bonus depreciation claimed under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The inventory valuation adjustment increased $39.7 billion (from -$23.7 billion to $16.0 billion), in contrast to a decrease of $10.8 billion.