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The Worker Adjustment and Retraining Notification (WARN) Act gives 60 to 90 days advance notice in cases of plant closings and mass layoffs. Looking at WARN notices for CA, FL, NY, OH, PA, and TX shows upside risks to jobless claims over the coming weeks, see chart below.
Source: Department of Labor, Haver Analytics, Federal Reserve Bank of Cleveland, Apollo Chief Economist. Note: The Worker Adjustment and Retraining Notification (WARN) Act helps ensure 60 to 90 days advance notice in cases of qualified plant closings and mass layoffs. WARN notices summed for CA, FL, NY, OH, PA, TX. See important disclaimers at the bottom of the page.
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Looking ahead, investors will need to monitor what is going on in regional banks with deposits and lending to consumers and lending to corporates. Once a week, when the Fed data for the banking sector is out, we will update and send out a chart book to monitor the situation.
See important disclaimers at the bottom of the page.
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When the facts change, my view changes. A financial accident has happened, and we are going from no landing to a hard landing driven by tighter credit conditions, see chart below. Small banks account for 30% of all loans in the US economy, and regional and community banks are likely to now spend several quarters repairing their balance sheets. This likely means much tighter lending standards for firms and households even if the Fed would start cutting rates later this year. With the regional banks playing a key role in US credit extension, the Fed will not raise interest rates next week, and we have likely seen the peak in both short and long rates during this cycle.
Source: Federal Reserve Board, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The Bloomberg measure of financial conditions consists of the S&P500, VIX, money market spreads, and credit spreads, and looking at what financial conditions have done since last Thursday shows a tightening, see chart below. But the tightening in financial conditions is relatively limited compared to the tightening seen in 2008 and 2020, and not big enough to generate a sharp slowdown in the economy or in inflation.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Sixty percent of all mortgages outstanding were issued in the past four years at much lower mortgage rates than today, making the US housing market less vulnerable to rising interest rates than in other countries, see chart below. The implication for markets is that the Fed may have to raise interest rates more to get housing inflation under control and get overall inflation back to the FOMC’s 2% inflation target.
Source: Bloomberg, Apollo Chief Economist. Note: Data comes from MTGS screen on Bloomberg See important disclaimers at the bottom of the page.
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The Conference Board asks US households about their travel plans, and the latest survey from February shows an all-time high in vacation plans to a foreign country, see chart below. The US consumer is showing no signs of slowing down spending on consumer services such as spending on restaurants, hotels, and air travel, see also our chart book with daily and weekly indicators for the US economy here.
Source: The Conference Board, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Immigration is likely the main reason the labor market is gradually moving from very overheated to less overheated.
Over the past 2½ years, immigration into the US labor market has increased by 4 million workers, and the working age immigrant population is now back at its pre-pandemic trend, see chart below. This number can be compared with the 4 million people in the US who are out of work because of long covid, see also this Brookings paper.
High immigration contributes not only to strong job growth, including in leisure and hospitality, but also to limiting the upside pressure on wages, see the second chart.
The bottom line is that high immigration is helpful for the Fed as it tries to cool down the labor market and slow down inflation.
Our employment outlook chart book is available here.
Source: BLS, Haver Analytics, Apollo Chief Economist 
Source: BLS, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Credit card debt outstanding has been increasing because of high inflation and the economy reopening, but the increase in household incomes has been faster. The net result is that credit card debt is declining as a share of income, see chart below. Combined with strong job growth, solid wage growth, and high excess savings, the bottom line is that the US consumer is in good shape, and there are no signs this is about to change anytime soon.
Source: FRED, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Our latest credit market outlook is available here, highlights include (see charts below):
– Fewer and fewer high yield bonds are being traded, currently at the lowest levels in decades relative to IG
– IG spreads remain tight despite rising Fed uncertainty
– 92% of IG bonds outstanding trade below par
– 15% of high yield bonds trade with a yield higher than 10%
– Retail investors have in recent weeks been selling IG and HY, and put volumes on IG and HY ETFs remain very elevated
– Corporate leverage has been declining since the pandemic
– IG and HY index durations are coming down; i.e. credit is becoming less sensitive to rising rates
– Measures of bond market liquidity show liquidity is much worse in UK bond markets than in the US, EU, and Germany
– Default rates on credit cards and auto loans are normalizing to pre-pandemic levels
Source: FINRA Trace, Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist. Note: Data used for members in the LBUSTRUU Index as of 1st March 2023 
Source: Bloomberg, Apollo Chief Economist. Note: HY bond universe is H0A0 Index 
Source: Bloomberg, Apollo Chief Economist. Note: Tickers used HYG US Equity and LQD US Equity 
Source: Bloomberg, Apollo Chief Economist 
Source: ICE BofA, Bloomberg, Apollo Chief Economist. Note: Index used C0A0 Index 
Source: FRB, Haver Analytics, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist. Note: The measure used is modified duration, which measures the expected change in a bond’s price to a 1% change in interest rates 
Source: Bloomberg, Apollo Chief Economist. Note: The measure used is modified duration, which measures the expected change in a bond’s price to a 1% change in interest rates 
Source: Bloomberg, Apollo Chief Economist. Note: The index displays the average yield error across the universe of government notes and bonds with remaining maturity 1-year or greater, based off the intra-day Bloomberg relative value curve fitter. When liquidity conditions are favorable the average yield errors are small as any dislocations from fair values are normalized within a short time frame. Average yield error is defined as an aggregate measure for dislocations in Treasury securities across the curve. 
Source: S&P, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The consensus expects nonfarm payrolls on Friday to come in at 225,000, but recent readings for the employment components of ISM suggest there are some upside risks to that forecast, see chart below.
Source: ISM, BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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