Why is the stock market continuing to make new highs? It's doing so because corporate earnings are doing the same, as the economy continues to speed along without stopping for a recession. The latest batch of data certainly drove the stock market higher today, confirming that we are still riding the rails on the Roaring 2020s Express. Nothing seems to stop or derail this train.
(1) GDP. The US economy grew at an inflation-adjusted annual rate of 2.0% in Q1 (chart). Final sales to private domestic purchasers, the cleanest read on underlying demand, came in at a solid 2.5%. Business investment surged at its fastest pace in nearly three years, driven by spending on AI-related equipment and software. Exports jumped sharply. Consumer spending was up only 1.6%, probably because the weather was very bad during January and February. It should grow faster in Q2. The big drag was imports.
Our homemade real GDP growth model suggests that the pace of economic activity picked up in March and April, along with the growth rate of S&P 500 forward earnings (chart).
(2) Consumer Spending. Real disposable personal income (DPI) dipped slightly in March as the energy price surge eroded nominal income gains (chart). Real DPI has been relatively flat over the past year. Yet inflation-adjusted consumer spending is still growing. We attribute this development to the retirement of Baby Boomers.
