US 2017 Economy—What Our First Quarter Stumbles Could Mean

Despite investors’ high expectations after the November election, the US economy appears to be stumbling.

Corporate profits fell 2.5 percent or $40.3 billion in the first quarter of 2017 and US gross domestic product growth rose only 1.2 percent, well below expectations.

At the same time, however, stocks continue trading near record highs, lifted by expectations of corporate tax reform, individual tax cuts, and increased infrastructure spending.

Despite the slower than expected start to 2017, we expect some form of the Trump administration’s business friendly policy initiatives to happen this year. However, such efforts will certainly not make any impact until 2018 and beyond.

The larger issue: How long will US companies and investors wait to see real improvement in corporate profitability? Based on data from the St. Louis Federal Reserve (FRED), the US economy experienced strong gains in corporate profits per nonfarm payroll employee after the Great Recession, increasing from just below $6,000 to more than $12,000 by the end of 2014.

US Corporate Profit per Payroll Employee
After the 2008 recession, corporate profits per nonfarm payroll employee increased substantially. This graphic results from my own calculations of corporate products divided by non-farm payroll jobs.

After the significant drop at the end of 2008, a good portion of the gains came from keeping nonfarm payroll levels lean as the US economy began to improve after 2009. Employment growth normally lags in economic recovery, so total US nonfarm payroll did not rebound to 2008 levels until the middle of 2014. However, since the end of 2014, corporate profits per nonfarm payroll employee has declined six of the past nine quarters and is currently 12 percent below the 2014 peak.

Are We Headed for Another Recession?

The indication of declining corporate profits per worker is concerning since corporate margins peak ahead of an economic recession. In terms of flows, the economy is driven by a series of tradeoffs between capital (investment), labor (wages), and profit. Declining corporate margins happen as a result of cost pressures—usually labors’ share of income increases at the expense of either investment or corporate income.

Without a quick turnaround in 2017, current trends will put more pressure on sustaining job growth as corporations work to deliver on the expectations of investors absent impacts on the expectations created last November.

For more information on economic analysis and progression, contact GAI’s Community Solutions Group Chief Economist Steven McDonald, CVA at 407.423.8398. 

GAI’s Community Solutions Group is a diverse and growing team of experienced planners, designers, economists, and public policy experts. The Group integrates landscape architecture, urban planning, economics, and finance in an idea-driven strategic consulting practice.


Steven McDonald, CVA draws his conclusions and forms his opinions through his own analyses or calculations. The readers’ acceptance of this article is based on his expertise.

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