Another Look at the Macroeconomic Information Content of Aggregate Earnings: Evidence from the Labor Market
55 Pages Posted: 28 Jun 2017 Last revised: 28 Aug 2019
Date Written: August 2019
In this paper we examine the macroeconomic information content of aggregate earnings from the labor market’s perspective. We use insights from the labor economics literature to characterize the information contained in aggregate GAAP earnings and its components that is relevant for predicting aggregate job creation and destruction. Our results suggest that not only does aggregate earnings news convey information about future labor market aggregates, but its information content is incremental to other macroeconomic variables at near-term horizons. Further, the source of this information stems primarily from two earnings components: aggregate core earnings and special items. Core earnings news signals persistent changes in economy-wide profitability that anticipate aggregate job creation up to four quarters ahead, while special items contain news only about job destruction at horizons of up to one quarter. Taken together, our results suggest that aggregate GAAP earnings contain useful information about future labor market conditions, with the nature of such information varying across earnings components.
JEL Classification: E37, E44, G17, G24, M41
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