Statistics Canada reports that the recovery in corporate profits was sustained in the second quarter.

Operating profits rose 10.7% to $38.8 billion, following similar gains in the first quarter. This rebound followed four straight quarterly declines in 2001 and returned profits to second quarter 2001 levels. Corporate profits peaked in the fourth quarter of 2000 at $45.3 billion.

Reflecting the strength of the recovery, second quarter gains were widespread, with almost two-thirds of the 24 broad industry groups showing improvement. The non-financial group of industries enjoyed an 11.9% profit surge, as low interest rates, employment gains and rising consumer confidence sustained growth in the manufacturing and retail sectors. New housing construction remained hot in the second quarter, spawning demand in a host of related industries. Oil and gas producers reaped the benefits of higher crude oil prices in the second quarter and reported much-improved profits.

Profits in the financial group of industries increased 6.8%, led by sizeable gains by depository credit intermediaries. However, profits of funds and other financial vehicles (which are not included in industry totals) fell $0.5 billion, largely the result of realized losses on the sale of investments. Jittery investors withdrew extensively from mutual funds, amid uncertain financial market conditions.

Companies involved in oil and gas extraction benefited from higher crude oil and natural gas prices in the second quarter. Profits of $4.3 billion were 59.7% above first quarter levels. Manufacturers posted their third straight rise in operating profits, as second quarter profits advanced 6.1% to $9.9 billion. The operating profits of petroleum and coal producers increased to $1 billion in the second quarter from $0.7 billion in the first. Wood and paper industry profits recovered to $1 billion in the second quarter, up from $0.9 billion in the first. After plunging to their lowest level in nine years, profits of primary metals producers rebounded for the second straight quarter, rising to $0.4 billion from $0.3 billion in the first quarter and from virtually no profits in the fourth quarter of 2001.

However, manufacturers of computers and electronic products registered operating losses for the fourth time in the past five quarters. Losses of $0.1 billion were slightly lower than in the first quarter, but stagnant markets have forced the industry into extensive restructuring and downsizing, and associated costs have contributed to the string of quarterly losses. Chemical producers’ profits fell 20.4% and profits of other transportation equipment manufacturers dropped 17.7%.

The chartered banks were the big winner in the financial sector. The depository credit intermediaries (mainly chartered banks) earned $3.3 billion in second quarter operating profits, up 23.5% from the first quarter. Despite the gain, profits remained well below the $4.2 billion earned in the second quarter of 2001. In the second quarter of 2002, higher commission and brokerage fees and lower interest expense more than offset a decline in interest revenue. Profits received an additional boost from lower provisions booked in the second quarter for future loan losses, although these provisions remained at historically high levels.

Funds and other financial vehicles suffered a 23.8% profit slide, as second quarter operating profits fell to $1.7 billion. Realized losses on the sale of securities totalled $0.3 billion in the second quarter compared with gains of $0.4 billion in the first. The uncertain financial market conditions have prompted investors to redeem mutual funds at an accelerating pace, resulting in the sale of fund investments to finance the redemptions.

Insurance company profits deteriorated in the second quarter, falling to $0.9 billion from $1.2 billion in the first. Most of the decline was attributable to life insurers, where structural changes within the industry contributed to increased operating expenses and lower profits.

The all-industry return on shareholders’ equity increased to 9% in the second quarter from 8.1% in the first. After-tax profits increased 13.4% to $22.5 billion, while total shareholders’ equity edged up 2.4%. Although much improved, the second quarter return on equity was well under the record 12.3% returns posted in the first quarter of 2000. The operating profit margin advanced to 6.9% in the second quarter from 6.4% in the first. Margins have been on the upswing for the past two quarters, following the recent low of 6% earned in the final quarter of 2001.