THE ECONOMY: The Great Profits Deflation

When the stock market took a depressing plunge last year, investors found out that advance estimates of rapid earnings growth were often the hallmark of imaginative stock promotion and simple overoptimism. Many an earnings report turned out to be disappointing indeed. The scandals that followed such discoveries are still rocking the accounting profession and the world of corporate finance. Now the Commerce Department's Office of Business Economics has revealed that profits have been even weaker than originally announced.

Last May, on the basis of public reports by companies and some tax returns, the OBE estimated that corporate gross profits in...

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