Corporate operating profits grew marginally in the second quarter following a first quarter decline. Profits of $57 billion were 0.7% above first quarter levels, well below the average quarterly increases of 4.1% registered in 2005.

Profit gains by wholesalers, retailers and mining companies were largely offset by declines in the manufacturing and financial sectors. Nonetheless, second quarter profits were just short of the historic high reported in the fourth quarter of 2005.

The non-financial industries’ operating profits rose 1.4% to $41.9 billion. Among the 17 industries, 8 showed profit gains, 4 were down while 5 remained essentially unchanged.

The financial industries lost ground in the second quarter, as profits dipped 1.1% to $15.1 billion. Depository credit intermediaries (mainly chartered banks) and insurance carriers declined the most.

Operating profits in the manufacturing sector slumped 3.9% to $10.1 billion, following a 5.1% slide in the first quarter. Gains in the petroleum and coal and primary metals industries were overshadowed by declines in wood and paper, motor vehicles and fabricated metal.

Manufacturers have struggled somewhat over the past two years since profits peaked at $12.5 billion in the second quarter of 2004. The Monthly Survey of Manufacturing recently reported that despite a June increase, overall quarter-to-quarter shipments were down for a second straight quarter. Profits continued to be affected by rising input costs and the lofty Canadian dollar, which further strengthened against its U.S. counterpart in the second quarter.

Integrated petroleum and coal producers benefited from strong oil prices and improved refining margins. Operating profits increased 5.3% to $2.7 billion. The value of oil exports swelled in the quarter, propelled by strong global demand and rising crude prices. On the other hand, natural gas prices softened due to high North American inventory levels.

Primary metals manufacturers reaped double-digit gains in operating profits for a second straight quarter. Robust demand and escalating prices lifted profits 10.3% to $1.1 billion, following a similar gain in the first quarter.

Wood and paper producers saw profits tumble 25.1% to $0.8 billion in the second quarter. The value of lumber exports faltered due to sagging home construction in the U.S. and softening wood prices. Domestically, demand from the housing sector appears to be easing, as the value of residential building permits slipped 5.5% in the second quarter. Pulp and paper producers garnered moderately higher prices in the quarter, but continued to cope with lower returns on export sales due to the strong Canadian dollar.
Motor vehicles and parts manufacturers lost ground, as their profits tumbled 20.6% to $0.4 billion. Profits have been volatile over the past several years, but have been on a downward trend since peaking at $2.5 billion in the second quarter of 2000. Domestic new motor vehicle sales weakened in the quarter, as did exports of automotive products. Rising interest rates and skyrocketing gasoline prices may be affecting demand for new vehicles. However, North American consumers’ increasing appetite for smaller, more fuel-efficient vehicles could be a boon for manufacturers in the future.

Fabricated metal manufacturers’ operating profits fell 15.3% to $0.7 billion in the second quarter, following little change last quarter. Wholesalers moved ahead in the second quarter, as profits rose 7.4% to a record high $4.1 billion. Gains were seen in all wholesale industries, but wholesalers of machinery and equipment led the way with a profit increase of 11.1%.

Retail profits advanced for a sixth straight quarter, rising 7.3% to $3.6 billion. Clothing and department stores reported a 12.5% improvement in operating profits, while companies classified as other retailers boosted profits by 12.6%.