Arguments for a Strong February Employment Report

Apollo Chief Economist

What are the arguments for a strong February employment report?

1) Financial conditions have eased dramatically since the December FOMC meeting, with the S&P 500 at all-time highs and very tight IG and HY spreads. Significant wealth effects and lower borrowing costs are a major tailwind to consumer spending and capex spending, see the first and second charts.

2) Jobless claims remain very low, around 200,000, and the economy remains surprisingly resilient, with households and firms having locked in lower interest rates during Covid, see the third and fourth charts.

3) The fiscal deficit is running at a high 6% of GDP for an expansion, driven by the CHIPS Act, IRA, and Infrastructure Act, and associated positive effects on manufacturing construction, energy investments, and infrastructure investments.

4) The employment-to-population ratio is almost a full percentage point lower than pre-Covid, and immigration continues to be strong, suggesting there is still more upside potential to employment.

Financial conditions are significantly easier than when the Fed started tightening
Source: Bloomberg, Apollo Chief Economist
The impact of the December Fed pivot on GDP growth
Source: Bloomberg SHOK, Apollo Chief Economist. Note: $20 oil price decline, 60 bps tighter IG spreads, one standard deviation decline in VIX, and 100 bps lower rates via changed Fed forward guidance.
Consumer sentiment improving
Source: University of Michigan, Haver Analytics, Apollo Chief Economist
CEOs are more optimistic about the outlook
Source: The Conference Board, Haver, Apollo Chief Economist

Download high-res chart(s)

This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).  

Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.   

Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo. 

Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.