Daily commentary: On the lower US nominal GDP growth numbers and the Fed

The GDP numbers for the US came out again and they were weaker than anticipated, coming in at 2.2% for real GDP growth instead of the 2.5% expected. With the GDP deflator also being low at 1.5%, nominal GDP growth was only 3.7%. I should point out that there is a good historical relationship between nominal GDP growth and corporate profit growth. This should make sense in that deviations can only represent aggregate margin growth or compression. Since we know that margins are cyclically high, it stands to reason that the lower nominal GDP path must eventually be mirrored by lower profit growth. At this point in the business cycle, almost all of the productivity gains from cutting have been realised. Therefore, I expect the lower nominal GDP path to be reflected in lower earnings growth.

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