US DATA: Corporate Profits, Employee Income Drive GDI Acceleration In Q4
The third reading of Q4 2025 GDP showed real gross domestic income (GDI) soared to 4.5% Q/Q annualized (there was no consensus), up from 1.4% in Q3 for the highest since Q4 2023. For 2024 as a whole, GDI rose 3.0% (vs GDP 2.8%) vs 1.7% in 2023 (GDP was 2.9%).
- While more volatile than GDP lately, the upturn in GDI provides a sign that overall economic activity was very robust at the end of last year. The strong quarterly GDI outturn brought the average of GDP and GDI to 3.5%, likewise the fastest since Q4 2023. (The "statistical discrepancy", or the difference between the two, was 0.6pp, lowest since Q1, so the data were telling a fairly consistently solid story across both measures at year-end.)
- Current dollar GDI rose 6.9% (which with current GDP 4.8% made for a 5.9% average for the quarter).
- The underlying data shows a large jump in corporate profits (ex-inventory valuation/capital consumption adjustments) helped GDI gains, rising 5.4% Q/Q annualized in the latest quarter in a major reversal from -0.4% in Q3. After taxes, profits grew by 5.9%.
- Both quarterly profit readings were the strongest since Q2 2022. and one of the strongest quarters of growth in the last decade. For the year, post-profit taxes rose 8.0%, up from 6.7% prior.
- Employee compensation - the lion's share of national income - rose 5.0% in nominal terms, the strongest since Q1. Disposable personal income grew 4.3% Q/Q in current dollars, and 1.9% in real-terms - again 3-quarter highs but well off the heights of 2022-23. But this was already known via the monthly PCE data.
- Overall, private sector income momentum looked strong going into 2025.
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GERMANY: CDU's Merz 'Rules Out' Debt Brake Reform In Near Future
Following the 23 Feb federal election, speculation has swirled regarding the prospect of reform to the constitutional debt brake (see 'GERMANY: CDU/CSU Figures Voice Unease At Decisions Being Made By Outgoing Parl't', 1026GMT). There are notable divisions within the centre-right Christian Democratic Union (CDU) on reform, with some fiscal conservatives in favour of finding spending cuts elsewhere rather than reforming the brake. Reuters reports comments from Freidrich Merz, CDU leader and the presumptive next chancellor, saying that "It is much too early to say anything concrete" on a reform of the debt brake, but it "is ruled out in [the] near future", saying that "this is a complex task".
- Incumbent Finance Minister Jörg Kukies from the centre-left Social Democrats (SPD) says in an interview with Stern that parliamentary groups "must hold talks quickly" on the issue. Says that he has "nothing in principle against [an] expedited procedure" for reform.
- Speigel reports First Deputy chair of the CDU/CSU in the Bundestag Thorsten Frei "has ruled out reforming the debt brake. In an interview with the Phoenix TV channel, he said that amending the constitution would not happen with the Union’s support. However, he indicated openness to discussing a special fund for Ukraine aid and/or military equipment for the Bundeswehr."
- Chair of the SPD parliamentary group Rolf Mützenich has expressed frustration with Merz's debt brake stance, saying "[Reform] was always rejected." He said the SPD will not approve any plan “that isn’t thought through.”
ECB: Pullback In EUR NatGas Weighs On Traded Inflation Metrics In Feb
The pullback in European natural gas prices from Feb 10 highs has weighed on EUR traded inflation metrics. The EUR 5y5y inflation (HICP ex-tobacco) swap is now 2.07%, after reaching a monthly high of 2.12% last week.
- Our commodities team have pointed to warmer and windier weather forecasts, below normal storage withdrawals, signs of progress towards a possible Ukraine peace agreement and record US LNG exports as drivers of the natural gas price action this month.
- Meanwhile, Brent crude futures also track close to year-to-date lows.
- The 1-year inflation swap has fallen 22bps to 2.01% since February 11, while the 2- and 5-year swaps are back below 1.90%.
- The February HICP ex-tobacco inflation swap fixing is currently priced at 220bps.
- MNI’s full February Eurozone inflation preview will be released tomorrow.
