If the recent high-profile defaults were the beginning of a broader credit cycle, then default rates would be going up.
Instead, default rates are falling, and earnings expectations are revised higher, see the first two charts below.
At the same time, the Atlanta Fed expects GDP growth to come in at 3.8%, significantly above the CBO’s 2% estimate of long-term growth for the US.
The bottom line is that the US economy remains incredibly resilient.
Yes, the labor market shows slower job growth, but the observed slowdown in employment growth is not driven by weaker labor demand but by weaker labor supply because of tighter immigration restrictions, including higher fees on H-1Bs. The Fed has made that clear in this paper. In addition, low jobless claims and the recent rise in the daily data for job openings confirms that the slower job growth is not driven by weaker labor demand but by lower labor supply, see the third chart.
Combined with dollar depreciation, lower oil prices and the One Big Beautiful Bill starting to take effect in a few weeks, the upside risks to growth and inflation are significant, see the fourth chart.
In short, a data dependent Fed would come to the conclusion that it should not cut interest rates next week.
Sources: Moody’s Analytics, Apollo Chief EconomistSources: Bloomberg, Apollo Chief EconomistSources: Indeed, Bloomberg, Macrobond, Apollo Chief EconomistSources: BLS, Bloomberg, Apollo Chief Economist
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