Slowdown Watch

Apollo Chief Economist

There are some very early signs that the economy is starting to cool down, with layoffs rising in startups and some housing indicators starting to roll over from high levels. But the big picture remains that high-frequency indicators show that the economy is still strong. Most noteworthy this week was the decline in jobless claims. The solid data is consistent with the consensus expectation of nonfarm payrolls coming in at 330K next week and the unemployment rate falling from 3.6% to 3.5%.

Looking ahead, with the virus subsiding, we should begin to see a shift away from goods toward services. The chart below shows that this shift has not started yet. The surprise has been that consumer goods spending has continued to be so strong. But with more people flying, eating at restaurants, staying at hotels, and going to amusement parks, we should over the coming quarters see growth in consumer services accelerate, and spending on consumer goods begin to slow down.

The trading implication for equity and credit markets is to be long consumer services and short consumer goods. For the Fed the implication is that rate hikes continue. Read our slowdown chart book.

Chart showing that despite a slowdown in the pandemic, consumer spending has not yet shifted towards services from goods
Source: BEA, Haver Analytics, Apollo Chief Economist

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