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Households still have plenty of excess savings left, see chart below. That is the reason why consumer spending remains so strong, in particular consumer spending on services such as airlines, hotels, restaurants, etc.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Consumer spending on goods is significantly higher than before the pandemic, and consumer spending on services is only modestly higher, see chart below.
The implication for markets is that there are still upside risks to consumer spending on services. And hence upside risks to service sector inflation.
Source: BEA, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Goods inflation is coming down and approaching pre-pandemic levels. Service sector inflation is still not showing signs of moving lower, see chart below.
The debate in markets is whether a significant increase in the unemployment rate is needed to get service sector inflation down, and this new Fed paper says that the labor market is not a key driver of service sector inflation.
In other words, there is a risk of inflation becoming more sticky even if the labor market starts weakening.
Source: BEA, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Inflation has been more sticky than the FOMC expected when they published their latest forecast in March, see chart below.
This argues for higher costs of capital for longer, which increases the probability of a harder landing.
Put differently, sticky inflation requires more demand destruction, which increases the downside risks to corporate earnings.
Source: BEA, FRB, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Delinquency rates for credit card borrowers are approaching 2008 levels across all age categories, see chart below.
Source: New York Fed Consumer Credit Panel/Equifax, Apollo Chief Economist See important disclaimers at the bottom of the page.
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As the Fed has been raising rates, US households have been big buyers of US Treasuries, see the first two charts below.
The appetite for Treasuries from foreigners has been more limited because of higher hedging costs. Foreigners have instead increased their holdings of equities by $3 trillion during the pandemic, see the third chart.
With a 5% budget deficit combined with QT and the Treasury’s need to replenish cash in the Treasury General Account, markets will soon begin to focus on who will be buyers of US government debt.
Source: FFUNDS, Haver, Apollo Chief Economist 
Source: FFUNDS, Haver, Apollo Chief Economist 
Source: FRB, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Indicators of restaurant activity are starting to show signs of weakness, see charts below. This is important because consumer services have so far been quite strong.
Source: National Restaurant Association, Haver, Apollo Chief Economist 
Source: OpenTable, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Auto loan transitions to serious delinquency are rising and approaching 2008 levels, in particular for younger borrowers, see chart below.
Source: FRBNY Consumer Credit Panel, Equifax, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The average number of working hours per year has for decades been declining in Germany and moving sideways in the US, see chart below.
Source: Penn World Tables, OECD, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Key supply chain indicators are now fully back at 2019 levels, see charts below and in this presentation.
Source: Freightos, Bloomberg, Apollo Chief Economist 
Source: WCI, Bloomberg, Apollo Chief Economist 
Source: Shanghai Shipping Exchange, Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: The Marine Exchange of Los Angeles and Long Beach Harbors, Haver, Apollo Chief Economist 
Source: Haver, Apollo Chief Economist 
Source: Pacific Merchant Shipping Association, Apollo Chief Economist 
Source: Haver, Apollo Chief Economist (Note: Average of unfilled orders is average of Richmond Fed Mfg Survey: Current Manufacturing Order Backlogs, Philly Fed Mfg Business Outlook: Current Unfilled Orders, Empire State Mfg Survey: Delivery Time) 
Source: NY Fed, BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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