Equity analysts are not particularly sanguine about earnings results for U.S. public firms in the third quarter. In fact, according to a recent report from FactSet Insight, the consensus analysts estimate is for a 5.5% year-over-year decline in third quarter earnings in the S&P 500.

FactSet Senior Earnings Analyst John Butters, however, argues that past history says the S&P 500 earnings slump is very likely to be somewhat less than the 5.5% that Wall Street analysts are projecting

S&P500 S&P 500

S&P 500 – Above-estimate earnings boost earnings growth rate for entire index

As Butters points out, when S&P 500 firms report actual earnings greater than estimates in an earnings season, the total earnings growth rate for the index moves up as the higher actual EPS numbers replace the lower estimates when you calculate the growth rate. As an example, if a firm is anticipated to come up with an EPS of $1.05 relative to last year’s EPS of $1.00, it is estimated to report earnings growth of 5%. However, if the firm’s actual EPS is $1.10, the actual earnings growth rate for the business for the quarter moves to 10%, which is 5% greater than the original estimated growth rate (10% – 5% = 5%).

Butters also notes that over the last four year period, just over 72% of S&P 500 firms reported actual EPS greater than the mean EPS estimates on average. When you do the math, the earnings growth rate has trended upwards by 2.9% on average over the past four years from the end of the quarter through the end of the earnings season because there have been so many positive earnings surprises.

Taking this 2.9% average increase and applying it to the estimated earnings decline at the end of Q3 (September 30) of -5.1%, the actual earnings decrease for the quarter would come to -2.2% (-5.1% + 2.9% = -2.2%).

Of particular interest, in the second quarter of 2015, the real decline for the quarter of just -0.7% was notably less than the expected decline of -1.6% on July 10 (calculated using the expected average increase in earnings growth).