U.S. profits fall, Q4 GDP growth nearly stalls

WASHINGTON (Reuters) - U.S. corporate profits fell a steep 3.3 percent in the fourth quarter of 2007, according to government data on Thursday that also confirmed U.S. economic growth nearly slowed to a halt in the same period.

A view of New York's lower Manhattan from the Staten Island Ferry March 10, 2008. U.S. corporate profits fell 3.3 percent in the fourth quarter of 2007, the Commerce Department said on Thursday in a report that also confirmed U.S. economic growth slowed to a meager annual pace of 0.6 percent in same period. REUTERS/Brendan McDermid

In more positive economic news, a second government report showed the number of U.S. workers filing new claims for jobless benefits fell by 9,000 last week and the number of people remaining on benefits rolls after receiving an initial week of aid also declined.

The jobless data initially buoyed investment sentiment and helped boost stocks in early trading, before being overtaken by concerns of a downturn in business spending on a revenue shortfall at Oracle Corp. ORCL.O, which drove stocks to close sharply lower.

U.S. Treasury debt prices, which often rise on a safe-haven bid when stocks decline, fell as a hefty round of new bond offers made investors reluctant to buy in a market that has been rallying for the better part of nine months.

The data on gross domestic product was in line with expectations.

“We’ll take any upside surprise we can get at this point,” said Rhonda Power, corporate trading manager at Travelex Global Business Payments in Toronto. “But there are still some significant concerns about the economy.”

Wall Street analysts had forecast only a 0.1 percent drop in corporate profits, despite a crisis in the U.S. subprime mortgage market that has hobbled U.S. economic growth.

The drop in corporate profits was the first in a year, and the Commerce Department said profits of both financial and non-financial companies fell.

The department said non-financial company labor costs rose, but were partially offset by price increases.

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Profits rose just 2.6 percent for all of 2007, compared with a 12.2 percent gain in the prior year.

The Commerce Department report confirmed the U.S. economy grew at an annual rate of just 0.6 percent in the fourth quarter, unchanged from a previous estimate and down sharply from 4.9 percent in the third quarter.

The U.S. economy grew 2.2 percent for all of last year, the slowest since 2002, the Commerce Department said, as economists were forecasting a possible recession this year.

“The good thing is that we saw this coming late last year” and the Bush administration worked with Congress to pass a $152 billion economic stimulus package for 2008, Commerce Secretary Carlos Gutierrez said in an interview.

Because of that, and other steps the Federal Reserve has taken to shore up economic growth, “most forecasts suggest the first quarter will be the most difficult of the year and that in the back half of the year ... we will see the economy perform a lot better,” Gutierrez said.

The GDP data helped push the dollar higher on Thursday after steep losses in the last two sessions.

Spending on new homes plunged 25.2 percent in the fourth quarter, the biggest drop since 1981, the Commerce Department said.

The housing market woes have rattled worldwide financial markets, forcing the Federal Reserve to aggressively cut its key interest rate by 3 percentage points since mid-September.

The gloomy economic news continued into this year with data on Wednesday showing sales of new U.S. single-family homes fell to the slowest pace in 13 years while orders for durable goods tumbled unexpectedly last month.

“Anyone who thinks we’re not in a recession is living under a rock. Let’s just get it over with,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

Gutierrez urged Congress to swiftly pass legislation to modernize the Federal Housing Administration, which he said would help hundreds of thousands additional families, and to give housing finance agencies Fannie Mae and Freddie Mac more oversight authority.

Gutierrez said he did not see a need for additional government action to bail out the housing market.

“Imbalances and excesses normally lead to corrections. We had some excesses in the housing markets -- in pricing, in sales, in the number of people who bought who perhaps should not have been buying,” Gutierrez said.

Editing by Tom Hals; Editing by Leslie Adler