Companies in the western United States are expected to see profits grow faster than anywhere else in the nation this year and next, according to a study produced for The Associated Press.
Midwestern corporations should report the least improvement.
While not necessarily an indicator of regional economic performance, since many large companies do business far from their headquarters, areas that are home to corporations with fast-growing profits stand to benefit from the influx of funds.
“To the extent that a firm is profitable, from whatever source, it’s also going to support the local economy,” said Paul Bishop, a senior economist at Wefa Group Inc., an economic consulting firm in Bala Cynwyd, Pa.
Corporate earnings can find their way into local economies through workers’ paychecks, plant expansions, taxes and the like. On the flip side, slowing profit growth can hurt towns, cities and whole regions.
Companies in the western United States are expected to see profits grow 30.8 percent this year from 1994 levels, according to the study, done by Chamberlin & Pearson Research Associates Inc., a research firm based in Vero Beach, Fla.
Next year, the West should remain No. 1 with 21.7 percent growth, despite slowing significantly as will profits for the whole nation.
The regional figures are based on the estimates of Wall Street analysts as of the last week in August. They were compiled by I/B/E/S Inc., a New York-based provider of corporate earnings information.
Strength on the part of western corporations did not surprise analysts who follow regional economics. Since the West was the last region to emerge from the recession of 1990-91, profits are apt to grow more quickly.
For example, defense cutbacks in California hurt the earnings of many contractors. As profits begin to recover, they are improving off very low levels. Thus, the year-to-year improvement looks strong.
The opposite is proving true for the nation’s midsection.
“The Midwest didn’t really go through a significant slowdown in the early 1990s, so the Midwest has been doing really pretty well all through this economic expansion,” said Sung Won Sohn, chief economist at Norwest Corp., a Minneapolis-based banking company.
“Starting from a high plateau, comparisons are not as exciting.”
The study found earnings for Midwest companies are expected to grow at 13.3 percent this year and 15.6 percent in 1996. The South and Northeast will stay in second and third positions for the next two years.
In 1995, southern corporations are expected to show profit growth of 23.6 percent, second to the West. Northeastern companies should see earnings expand 20.4 percent. In 1996, the Northeast is expected to be up 16.4 percent, with the South expanding at 16.8 percent.
For the nation as a whole, profits are expected to rise 20.5 percent this year and 17 percent in 1996. Individual states should show some wide variations.
Idaho companies are expected to report the greatest profit growth of the 50 states and the District of Columbia this year at a whopping 174.5 percent.
Leading the way, Chamberlin & Pearson found, were strong improvements by Boise Cascade Corp., a large paper and lumber company, and semiconductor manufacturer Micron Technology Inc. in a state with relatively few publicly traded companies.
South Carolina is expected to post the nation’s second-strongest growth at 76.7 percent, followed by South Dakota, 47.1 percent. Rounding out the top five are Arizona, 39.1 percent, and West Virginia, 35.9 percent.
At the bottom of the list is Hawaii, with earnings this year expected to decline by 4.9 percent, preceded by New Mexico with a 4.8 percent decline.
Just above those states are Michigan, with expected profit growth of 0.1 percent, Alaska, at 2.9 percent, and Maine, with a 3.1 percent improvement. Figures were not provided for Wyoming, as no analyst estimates were available for companies based there.