Last week, the BEA released its 2024 annual update of the National Economic Accounts (NEAs), alongside the third estimate of Q2 GDP, and its revised estimate of corporate profits for that quarter. The revisions were significant. Both corporate profits and wages & salaries have been revised higher this year, a bullish signal for equities, adding support to the S&P 500’s 20.3% rise YTD. The annual update, with revised estimates for Q1 2019 through to Q1 2024, also included notable upward revisions to corporate profits and personal incomes.
The discrepancy between (softer) real GDI and (stronger) real GDP prints had led many to conclude that real GDP was overstating the resilience of the economy, and that real GDP would eventually ‘catch down’ to real GDI. The BEA’s latest revisions were particularly noteworthy in this regard. Real GDI has been revised sharply higher, and the statistical discrepancy between GDP and GDI has largely been revised out.
The hard data continue to run counter to the view that the US labour market has cracked, and that the economy is slowing. Seasonally adjusted initial claims declined from 222k (revised up from 219k) to 218k in the week ending September 21st. The Fed is cutting rates into a strong economy, signalling it will prioritise the maximum employment side of its dual mandate. This should continue to be positive for equities. But there is even less justification for the pace of rate cuts currently priced in, following the latest revisions.
