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With a 9-month lag between rents starting to come down until OER moves lower, we are getting closer to the peak in housing inflation, see chart below. The fact that inflation is coming down before we see any deterioration in the labor market is very important for markets and for the outlook for a soft landing. The Fed hitting the dual mandate with first a decline in inflation and then an increase in unemployment increases the likelihood of a soft landing. If we had first an increase in unemployment with inflation still going up, it would increase the probability of a hard landing because then we would need more demand destruction from the Fed. The bottom line is that the sequencing of how the Fed reaches its dual mandate is key for markets.
Source: Zillow, BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Early in the pandemic, a lot of people retired early. But the size of the retired population is now back at the pre-pandemic trend, see chart below.
Source: CPS IPUMS, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The labor force is currently 4 million below the pre-pandemic trend, see chart below. This is a high number when considering that the total number of unemployed is presently at 6 million. The bottom line is that it is difficult to find workers and the labor market remains tight, and the upward pressure on wages will likely continue.
Source: BLS, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Normally households move to another house within 15 miles from where they used to live. In 2022 the median distance between the home that recent buyers purchased and the home they moved from was 50 miles, see chart below. The increase is likely driven by covid and affordability considerations.
Source: NAR, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Supply chains are normalizing, and the costs of transportation by ship, truck, and train, are coming down, see charts below. The only exception is air freight rates, they are still at $5.5 per kilo, up from $2.5 before the pandemic. Our collection of supply chain charts is attached. The bottom line is that supply chains are normalizing, which will continue to put downward pressure on inflation.
Source: WCI, Bloomberg, Apollo Chief Economist 
Source: Shanghai Shipping Exchange, Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: Census, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The difference between inflation in the US and Europe is noteworthy, see chart below.
Europe is experiencing stagflation with high inflation and the economy in a recession.
The US is seeing falling inflation and still solid growth.
Our set of daily and weekly indicators is available here.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The decline in inflation is good news for the Fed and markets, and there are good reasons to believe this is the beginning of a downtrend. How long will it take before we return to the Fed’s 2% inflation target? The pattern seen in the early 1970s suggests that it will take another two years, see chart below. The bottom line is that inflation is starting to come down without a sharp increase in the unemployment rate, which all points to a higher probability that we will get a soft landing, which should be bullish for credit and equities.
Source: BLS, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Hiring for the holiday season is generally done in October, and adding up new jobs created in the BLS-defined holiday season retail sectors in the latest employment report shows that retailers expect a significantly weaker holiday season than in 2020 and 2021, see chart below. This soft outlook is consistent with growing inventories at many retailers. The BLS defines holiday sectors as furniture, electronics, personal care, clothing, sporting goods, general merchandise stores, miscellaneous store retailers (e.g., florists, office supply stores, gift shops, and pet shops), and non-store retailers (e.g., online shopping and mail-order houses, vending machine operators, and direct store establishments).
Source: BLS, Apollo Chief Economist. Note: Non-seasonally adjusted data shown. Holiday season sectors defined by BLS here: https://www.bls.gov/opub/btn/archive/holiday-season-hiring-in-retail-trade.pdf See important disclaimers at the bottom of the page.
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Passive investors only see the overall movements in the index, but many things are going on inside the S&P500, IG, and HY indexes, which active investors are paying attention to. With inflation being a multi-year problem and the Fed raising rates, the tech sector continues to underperform, and the continued divergence in performance between growth and value in the S&P500 and credit indexes is very significant. In fact, the spread between the best and the worst performing sector of the S&P500 is currently at the highest level on record, see chart below.
Source: Bloomberg, Bureau, Apollo Chief Economist. Note: Spread = Best minus worst performing sector in the S&P500;. Data as of 11/7/2022 See important disclaimers at the bottom of the page.
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Layoffs in tech are being offset by hiring in Health care, Leisure and hospitality, Manufacturing, and the Government, see the first chart below.
The second chart shows that job cut announcements have increased recently but remain at pre-pandemic levels.
The bottom line is that the Fed wants to slow down hiring, and they will eventually succeed, but the labor market is not slowing down fast enough.
Once the labor market starts slowing, then the Fed will pivot. But the slowdown in the economy could be so fast that the pivot would be associated with a sell-off in credit and equities.
In other words, the pre-condition for a Fed pivot is a weaker economy. But a weaker economy means lower corporate earnings. Which means that a Fed pivot could result in a stock market sell-off and wider credit spreads.
Source: BLS, Haver, Apollo Chief Economist 
Source: Challenger, Gray and Christmas Inc, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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