GDP Gap versus S&P 500 EPS

Over at Economist’ View he has posted a nice set of charts on the GDP Gap, employment versus the long term trend and other measures of how much excess capacity the economy has that have become very popular among economists over the last couple of years.

But these charts never include profits in their analysis and I would suggest that readers should know how profits look versus their long term trend.

Over the last 50 years the long run growth rate of S&P 500 earnings per share has been about 7%.

Moreover, even if you look at the more recent trend of operation earnings the trend growth rate has been almost this high.

S&P 500 EPS is almost back to its 7% long run trend and the consensus bottom-up earnings forecast has it surpassing the long run trend in either the 4th quarter or the 1st quarter. By way of contrast it will be years before the GDP Gap is closed or the economy reaches full employment.
This really shows how virtually all the gains in income so far in the recovery has gone to profits
rather than labor.

Just to be comprehensive and forestall many questions I’ll also show economic profits vs trend.