Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

Still Strong


The recessionary perma-bears need to revisit their forecasts following yesterday’s GDP report. Goldilocks lives according to the updated numbers’” we have unbelievably strong profits, a very healthy beige book and a roaring stock market.

Bonds are telling us there’s no future inflation and the Fed is too tight; while the stock market is predicting a soft landing and more growth next year.

As investment strategist Jason Trennert said on last night’s program, the stock market can sometimes give off false positives on recessions, but rarely does it give you false negatives. In other words, it’s very rare that the stock market goes up in anticipation of a recession or a significant slowdown.

Pretax corporate profits (these are the profits recorded for the IRS tax collectors, so nobody overestimates them) are up a staggering 31 percent, year on year, through the third quarter. After tax they’re up 25 percent’”truly remarkable numbers.

With the exception of housing, this GDP report says the economy is hitting on all cylinders. Consumers up nicely, business building up nicely, business capital goods up nicely. And inflation is coming down. I mean, for heaven’s sakes, the GDP deflator is now under 2 percent. And, because of oil, it might even be negative in the fourth quarter, which would boost real GDP.

According to yesterday’s report, the GDP deflator in the third quarter was 1.7 percent. In the second quarter, it was 3.3 percent. In the first quarter, it was 3.3 percent. In other words, inflation according to this broad measure has fallen by almost 50 percent. The fourth quarter number is going to be lower.

If you take a point or so off due to the housing slowdown, you’re left with about 2 to 2


Subscribe to National Review