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  • There are 10 million participants in defined benefit plans and 90 million in defined contribution plans such as the 401(k), see chart below.

    Significant increase in the number of defined contribution plans
    Source: Department of Labor, Apollo Chief Economist

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  • Is Monetary Policy Restrictive?

    Torsten Sløk

    Apollo Chief Economist

    Many FOMC members argue that the Fed funds rate at 5.5% is very restrictive because the Fed’s r-star model says that neutral monetary policy would mean a Fed funds rate at 3%.

    But maybe this r-star estimate of the terminal Fed funds rate is wrong. At least that is what the incoming data suggests.

    If monetary policy is very restrictive, why are default rates going down, see the first chart?

    If monetary policy is very restrictive, why is the Atlanta Fed GDP Now estimate for third quarter GDP at 2.5%, well above the CBO’s estimate of long-run growth at 2%, see the second chart?

    If monetary policy is very restrictive, why is weekly data for consumer spending still strong, see the third chart?

    The bottom line is that the Fed funds rate at 5.5% does not seem very restrictive.

    Our latest chart book with daily and weekly indicators is available here.

    Default rates declining
    Source: PitchBook LCD, Apollo Chief Economist
    2024 Q3 GDP estimate from Atlanta Fed: 2.5%
    Source: Federal Reserve Bank of Atlanta, Haver Analytics, Apollo Chief Economist
    Weekly data for same-store retail sales
    Source: Redbook, Haver Analytics, Apollo Chief Economist

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  • Strong Foreign Demand for US Credit

    Torsten Sløk

    Apollo Chief Economist

    Foreign demand for US credit is near all-time highs, see chart below.

    Foreign net purchases of US credit at record high levels
    Source: US Treasury, Haver Analytics, Apollo Chief Economist

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  • Visitors to the Statue of Liberty

    Torsten Sløk

    Apollo Chief Economist

    Visits to the Statue of Liberty and Ellis Island are back at pre-pandemic levels, see chart below and here.

    The number of visitors to the Statue of Liberty is back at pre-pandemic levels
    Source: National Park Service, Apollo Chief Economist

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  • The Probability of a Recession Is Declining

    Torsten Sløk

    Apollo Chief Economist

    The yield curve is no longer inverted, and the recession probability is declining, see charts below.

    To understand if a recession is coming, it is a better idea to look at the incoming data than to look at the yield curve because long rates are not only a reflection of the business cycle but also foreign demand, fiscal policy, and the term premium. And the incoming data continues to look just fine, see also here.

    Recession fears subsiding and the yield curve is normalizing
    Source: Board of Governors of the Federal Reserve System, Bloomberg, Apollo Chief Economist
    Consensus: 30% probability of recession in the US, and 30% probability in Europe
    Source: Bloomberg, Apollo Chief Economist

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  • US Housing Outlook

    Torsten Sløk

    Apollo Chief Economist

    Our latest US housing outlook is available here, and we remain constructive.

    Why?

    Because we only get a recession when the economy experiences a big shock such as Covid, Lehman, the IT bubble bursting, and the commercial real estate crisis in the early 1990s.

    Today is not such a shock.

    Today, we are experiencing a gradual slowdown engineered by the Fed. The Fed raised interest rates to slow down the economy to slow down inflation.

    Inflation has now come down, and the Fed can begin to focus on other parts of the economy, particularly the labor market but also the housing market. If the Fed doesn’t like what they see, they will lower interest rates faster.

    The bottom line is that the ongoing soft landing in the economy also implies a soft landing in the housing market.

    US Housing Outlook

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  • Air Conditioning Across Countries

    Torsten Sløk

    Apollo Chief Economist

    According to data from the International Energy Agency, 90% of homes in the US have air conditioning, but only 10% of homes in Europe and 5% of homes in India, see chart below. For China, the number is 60%.

    The percentage of homes with air conditioning
    Source: The Future of Cooling Report (2018) – International Energy Agency, Apollo Chief Economist

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  • Response Rates Declining

    Torsten Sløk

    Apollo Chief Economist

    The unemployment rate is calculated based on the Current Population Survey, and the response rate for the Current Population Survey was 90% in 2012, and now it is around 70%.

    Similarly, the response rate has declined across other important economic indicators, see chart below, and there is a new group of “survey professionals” that make multiple entries into the same survey, which may play a role in private surveys, see also here.

    The bottom line is that the incoming data is more unreliable and creates extra uncertainty for investors and policymakers.

    Response rates declining
    Source: BLS, Apollo Chief Economist

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  • This Is a Soft Landing

    Torsten Sløk

    Apollo Chief Economist

    Looking at the incoming data, the facts are the following:

    1. The unemployment rate declined in August, and looking at the establishment survey and the household survey, it is difficult to see strong signs of a slowdown in job creation, see chart 1.

    2. Wage growth accelerated to 3.8% in August and wage growth remains sticky well above pre-pandemic levels, see chart 2.

    3. Daily data for debit card transactions shows that consumer spending has been accelerating in recent weeks, driven by spending on clothing, food services and drinking places, sporting goods, and motor vehicle and parts dealers, see the following five charts.

    4. Weekly data for retail sales went up last week and remains solid, see chart 8.

    5. Jobless claims have declined for several weeks, see chart 9.

    6. Continuing claims have declined for several weeks, see chart 10.

    7. Default rates and weekly bankruptcy filings are trending down, see chart 11.

    8. The Fed’s weekly GDP model suggests GDP is 2.4% and the Atlanta Fed GDP Now says GDP this quarter will be 2.1%, see charts 12 and 13.

    9. Weekly data for S&P 500 forward profit margins shows that profit margins are near all-time high levels, see chart 14.

    10. The stock price of staffing firms is rebounding, which suggests that we could get a rebound in job openings, see chart 15.

    The bottom line is that the US economy is not in a recession, and there are no signs of a recession on the horizon. Our chart book with daily and weekly data is available here.

    Difficult to see any slowdown in the labor market in the Establishment survey and the Household survey
    Source: BLS, Haver Analytics, Apollo Chief Economist
    Wage growth went up in August and remains sticky above pre-pandemic levels
    Source: BLS, Haver Analytics, Apollo Chief Economist
    Daily data for debit card transactions
    Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist
    Daily data for debit card transactions across sectors
    Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist
    Daily data for debit card transactions across sectors
    Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist
    Daily data for debit card transactions across sectors
    Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist
    Daily data for debit card transactions across sectors
    Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist
    Weekly data for same-store retail sales
    Source: Redbook, Haver Analytics, Apollo Chief Economist
    Weekly initial jobless claims
    Source: US Department of Labor, Apollo Chief Economist
    Weekly continuing jobless claims
    Source: US Department of Labor, Apollo Chief Economist
    Weekly bankruptcy filings
    Note: Filings are for companies with more than $50mn in liabilities. For week ending on September 5, 2024. Source: Bloomberg, Apollo Chief Economist
    The Fed’s Weekly Economic Index, measured in GDP units
    Source: Federal Reserve Bank of Dallas, Bureau of Economic Analysis, Apollo Chief Economist
    2024 Q3 GDP estimate from Atlanta Fed: 2.1
    Source: Federal Reserve Bank of Atlanta, Haver Analytics Apollo Chief Economist
    S&P 500 weekly forward profit margins near record high levels
    Note: The 12 months forward profit margins are calculated by using the weighted average of 1FY (current year estimate) and 2FY (next year estimate) to smooth out fiscal year transitions. Source: Bloomberg, Apollo Chief Economist

    The stock price of staffing firms points to a rebound in job openings
    Source: Bloomberg, BLS, Apollo Chief Economist

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  • Solar and Wind Power Projects Under Construction

    Torsten Sløk

    Apollo Chief Economist

    There are more solar and wind power projects under construction in China than in all other countries combined, see chart below.

    More wind and solar projects under construction in China than the rest of the world combined
    Data for China and European countries to June 2024. All other countries to December 2023. Source: Global Energy Monitor, Apollo Chief Economist

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