Corporate Profits

US corporate profits rose by 2.5% yr/yr through Q4 '07 to $1.57
trillion. Domestic profits fell 6.5% to $1.17 tril. and earnings from
abroad surged 42.8% to $397 bil.

The major reason for down US profits was the large $85 bil. hit
to the financial sector reflecting the big loan losses and writeoffs
incurred. That left financial profits down at the$400 bil. level.
But, with a broadening economic slowdown underway, non-
financial profits began to slide over the second half of the year,
declining at a an 8.2% annual rate.

The surge in offshore earnings reflected stronger growth compared
to the US, and the beneficial effects of a significantly weaker US $
via translation gains.

Looking forward, the financial sector will experience additional
writedowns through mid-2008, but could bounce back sharply by
late in the year, since the bulk of the losses were absorbed in the
final months of 2007. With a broadening of the economic downturn,
non-finance profits seem set to weaken further, with a bottom
point not likely until well into the second half of this year.

Moreover, since the global economy is losing growth momentum,
it is difficult to step up and call for another big 40% up year from
foreign operations.

My figuring leaves the outlook for earnings this year more muted
than consensus. By the way, analysts have turned to cutting
estimates again as the year progresses.

Now, if you remember how the game works, if the economy begins
to regain some positive traction by Q3 of this year, The Street will
shift focus to 2009, and will likely put up some dazzling estimates.

For now though, earnings appear on course to lose more momentum.
I'll be particularly interested to see how well offshore profits come
in over the first two Qs of the current year.