What you’re not hearing… five fun facts about the US economy

The 10-year Treasury yield approaching 5% is a by-product of accelerating growth. Q3-2023 real GDP is now estimated to top 5% at an annual rate. This might have destabilizing side effects, especially for banks. But it is the result of endogenous growth, reflected in five key facts. First, forward earnings estimates for the S&P 500 have recovered to make new all-time highs after an adjustment in the wake of last year’s aggressive Fed tightening. Estimates are not pointing to negative earnings consequences of higher borrowing costs. Second, the US debt-to-equity ratio has been improving for over a decade, and confirms that today’s high levels of debt are supportable. Third, real GDP growth is far outstripping payroll growth, revealing a post-pandemic productivity-led boom. Fourth, payrolls continue to grow even without suspicious adjustment for seasonality and birth-death factors. Fifth, inflation properly measured has already more than returned to the Fed’s target. A too-hawkish policy error is still a concern, but the important reality is that a dangerous inflation episode has now successfully concluded. Economic shocks only cause recessions when the economy is vulnerable. Today’s economy is extremely strong.