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Companies are hoarding labor because during the pandemic they laid off many workers, and firms have since had significant difficulties hiring workers back again.
With this experience in mind, employers are reluctant to let workers go. And with margins near all-time highs, there is room to hold on to workers. That is why jobless claims keep falling, and the unemployment rate remains at its lowest level in more than 50 years.
This labor hoarding effect can be seen in many sectors of the economy, even in the construction sector. There are some layoffs in tech, but even tech firms must be wondering what the right staffing levels are.
The bottom line for markets is that labor hoarding combined with high margins is a crucial reason this is likely to be a soft landing. In other words, we are in a production recession but not an employment recession, see chart below.
With inflation soon back near the Fed’s target, the Fed can over the coming months, again focus on consumer spending, capex spending, and earnings. Instead of focusing entirely on too high inflation.
In short, if the economy enters a mild recession later this year as the consensus expects, the Fed will have room to respond because, by that time, inflation will no longer be a problem.
Source: BLS, Conference Board, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Recession fears are subsiding, and inflation swaps are pricing that inflation will be at the FOMC’s 2% target in July, see charts below. This has very significant implications for markets.
Most importantly, with inflation back at 2% within a few months, the Fed will soon stop being so hawkish. In other words, the market is telling us that the soft landing will be accomplished over the coming six months. And, if inflation in six months is no longer a problem, then the Fed put is coming back. Because then the Fed will again have the flexibility to focus on unemployment, growth, and earnings instead of focusing entirely on too high inflation.
This is all good news for credit, equity, and capital markets.
Source: DTCC, Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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28% of 20- to 34-year-olds in the UK live with their parents, the highest share on record, see chart below.
Source: ONS, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Our latest housing outlook for Europe is available here, covering the euro area, Germany, Spain, France, and UK.
See important disclaimers at the bottom of the page.
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Attached here is our collection of daily and weekly indicators for the US economy, and the data shows some weakening in recent weeks with weaker retail sales, risks of higher jobless claims, and a rise in bankruptcies, see charts below. To be sure, the latest employment report was very strong, with 223,000 jobs created in December and the unemployment rate falling to 3.5%, but the daily and weekly high-frequency indicators are beginning to show some signs of weakness in the US economy.
Source: Department of Labor, NFIB, Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist. Note: Filings are for companies with more than $50mn in liabilities. For week ending on Thursday, January 12, 2023. See important disclaimers at the bottom of the page.
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We are going through an asset price recession and not an economic recession. Why? Because we should expect the Fed funds rate to decline from the peak at 5% in June toward the equilibrium interest rate which keeps the economy at full employment and inflation at 2%. The Fed estimates that this so-called r-star is around 2.5%, see also the Fed’s latest dot plot. The implication for investors is that the level of the risk-free rate is resetting higher than where it was before the pandemic, see chart below. And this permanent increase in the costs of capital has a wide range of consequences for corporate America and financial markets, including how to think about credit spreads and stock prices, in particular tech and growth.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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Since the pandemic began, there has been a structural increase in the number of people who are sick, see the chart below, which shows a significant jump in the number of people with a job who are not at work due to illness. The permanent change in the number of people who are ill since the pandemic began is consistent with studies here, here, and here that find that Covid is a key reason workers are still missing in the workforce, and hence why the labor force participation rate remains subdued. Immigration growth is rising steadily, but the bottom line is that it will take time before wage inflation is back at pre-pandemic levels, and, as a result, the Fed will keep rates higher for longer.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The BoJ is carefully preparing markets for the end of YCC, and that is likely the reason why the impact on US rates is so muted, see the first chart. But gradually higher yields in Japan will likely continue to push the yen higher, see the second chart.
Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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China is reopening, and this will be positive for global growth, see chart below. But because of the virus, commodity prices are not quite yet moving higher, and the impact on US inflation is likely to be modest and drawn out over time.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The 3-month and 6-month annualized change in inflation show some significant downside momentum in inflation in recent months, see chart below. Our daily and weekly economic indicators for the US economy are available here.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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