Wednesday, September 3, 2008

Most of the bad news on profits is out

This chart compares the two principal measures of corporate profits as mentioned in my previous post. The NIPA series is much more stable, because it represents economic profits rather than accounting profits. The latter can be very volatile as companies choose to write down (or up) things like goodwill or bad investments. In any event, GAAP profits have taken a pretty big hit, historically, and that suggests that we have seen most, if not just about all, of the bad news. By early next year profits could be rebounding.

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