Corporate Profits

On a yr/yr basis, my business sales models have improved in recent months from the
low 2-3% range seen around the turn of the year up to the 4-5% through March. The
growth is a little uneven but is volume driven. Pricing power remains muted and my
price / cost model has slipped, particularly for the more basic materials and
manufacturing companies. The recent slippage in business hiring may help some
companies offset reduced pricing power.

From a macro perspective, profits were again subdued in the recent quarter although
the trend month-to -month improved significantly so that March may have bailed out
more than a few performance comparisons for businesses. My expectation for full year
profits is for moderate progress based on an eventual move up in top line growth to 6%
or a little better. To get there, we may need to see a stronger inflation and pricing power.

Revision of production series data by the Fed shows there is a little more slack in the
system than was indicated last year. The new Fed data also show a little faster growth
of productive capacity. This suggests that if the economy does regain more growth
momentum, the eventual development of cost inefficiences will be milder.