The latest numbers on corporate profits show that although profits continued to expand in the third quarter, the rate of growth slowed considerably.

Statistics Canada is reporting that profits rose 2.6% from the second quarter, compared with increases of 9.2% and 13% in the first two quarters of 2002. Despite the recent slowdown, third quarter profits of $40.3 billion were the strongest since the first quarter of 2001. Operating profits peaked at $45.3 billion in the fourth quarter of 2000.

The third quarter gains were concentrated in the non-financial group of industries, where profits rose 3.7% to $32.2 billion. Spurred by rising shipments, manufacturers led the way with a 10.0% surge in operating profits. Retailers continued to reap the benefits of low interest rates and the strong job market, as sales and profits were up in the third quarter. Transportation carriers also saw their profits rise, the fourth consecutive quarterly gain since the third quarter of 2001, when the results were affected by the events of September 11.

The financial group of industries did not fare as well in the third quarter. Operating profits edged down 1.4% to $8.1 billion, following gains of 7.1% and 5.3% in the first two quarters of 2002. In the third quarter, the depository credit intermediaries lost considerable ground following double-digit growth in the preceding two quarters, as profits dropped 11.0% to $3 billion. Lower commission and fee revenue and higher provisions for loan losses contributed to the profit slide.

For the third consecutive quarter, operating profits of funds and other financial vehicles (not included in industry totals) were down substantially. Third quarter operating losses totalled $3.7 billion, compared with losses of $1 billion in the second quarter and a profit of $1.5 billion in the first. As with the earlier quarters, the profit slide was mainly due to losses on the sale of securities, which totalled $6 billion in the third quarter. 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 redemptions.

The all-industry return on shareholders’ equity increased in each quarter of 2002, rising from 8.0% and 8.4% in the first two quarters to 8.6% in the third. After-tax profits – the measure used in this profitability indicator — rose 4.5% to $21.8 billion in the third quarter, and total shareholders’ equity edged up 1.5%. The return on shareholders’ equity peaked at 12.3% in the first quarter of 2000 and had been on a downward trend throughout 2000 and 2001.