Brad DeLong challenged an Apollo estimate that rapid S&P 500 earnings growth signals a path to 10% nominal GDP growth, arguing that income distribution may be driving the gap instead.
Apollo’s Daily Spark placed nominal GDP growth at about 6% and S&P 500 earnings growth at nearly 40% year over year. The analysis by Torsten Slok compared the current spread with earlier pairings of the measures and put the implied nominal GDP pace at 10%.
In his Nov. 3 post, DeLong disputed the inflation implication of that estimate. He said he did not see a demand surge large enough to produce the spending acceleration and rapid inflation the scenario would require. Instead, he argued that income was moving from labor toward capital, a shift he associated with Trump.
DeLong also raised company accounting as another possible reason earnings and nominal GDP might diverge. He wrote that earnings tend to move more sharply than nominal GDP when income distribution is steady and companies’ accounting is reliable. The post offered no evidence of accounting misconduct.
Gerard MacDonell, a commenter on DeLong’s post, corrected the comparison, saying it should pair S&P 500 index revenue with gross value added (GVA), rather than index earnings with nominal GDP. He cited about 12% index revenue growth “as of now” and about 8% GVA growth in second-quarter national accounts data. MacDonell said the index’s lower exposure to services might explain one or two percentage points of the gap. He also pointed to timing, overseas activity and currency movements as possible contributors.
The debate concerns both interpretation and measurement. Apollo and Slok used earnings growth as a guide to nominal GDP, while MacDonell argued that revenue and GVA were the relevant pair. DeLong’s post offered income distribution and accounting as possible explanations for why the usual relationship might not hold in this case.
