GAAP vs. Street Earnings: Which One Has More Predictive Power Over Future GDP Growth?

Abstract

Previous research shows that aggregate GAAP earnings growth helps predict future U.S. GDP growth. Unlike GAAP earnings, street earnings are a non-standardized measure that often includes more relevant and persistent components. This study expands prior research by examining the role of street earnings in forecasting GDP and comparing their predictive power to GAAP earnings. Our findings confirm that, like GAAP earnings, street earnings can predict future GDP growth. More importantly, street earnings have stronger predictive content than GAAP earnings, providing more accurate forecasts over longer time periods.