Corporate profits looked good in the fourth quarter, partially because of the comparison to third quarter, which was weakened by hurricane Katrina. Still, it’s a good number, and on trend.
However, look for less growth in 2006. GDP growth will be a hair lower and labor costs are rising, leading to a profit squeeze.
Business implication: Profits won’t be easy to grow in 2006. That will require good strategy and execution, because the economy isn’t going to do it for you.