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According to data from the International Energy Agency, 90% of homes in the US have air conditioning, but only 10% of homes in Europe and 5% of homes in India, see chart below. For China, the number is 60%.
Source: The Future of Cooling Report (2018) – International Energy Agency, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The unemployment rate is calculated based on the Current Population Survey, and the response rate for the Current Population Survey was 90% in 2012, and now it is around 70%.
Similarly, the response rate has declined across other important economic indicators, see chart below, and there is a new group of “survey professionals” that make multiple entries into the same survey, which may play a role in private surveys, see also here.
The bottom line is that the incoming data is more unreliable and creates extra uncertainty for investors and policymakers.
Source: BLS, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Looking at the incoming data, the facts are the following:
1. The unemployment rate declined in August, and looking at the establishment survey and the household survey, it is difficult to see strong signs of a slowdown in job creation, see chart 1.
2. Wage growth accelerated to 3.8% in August and wage growth remains sticky well above pre-pandemic levels, see chart 2.
3. Daily data for debit card transactions shows that consumer spending has been accelerating in recent weeks, driven by spending on clothing, food services and drinking places, sporting goods, and motor vehicle and parts dealers, see the following five charts.
4. Weekly data for retail sales went up last week and remains solid, see chart 8.
5. Jobless claims have declined for several weeks, see chart 9.
6. Continuing claims have declined for several weeks, see chart 10.
7. Default rates and weekly bankruptcy filings are trending down, see chart 11.
8. The Fed’s weekly GDP model suggests GDP is 2.4% and the Atlanta Fed GDP Now says GDP this quarter will be 2.1%, see charts 12 and 13.
9. Weekly data for S&P 500 forward profit margins shows that profit margins are near all-time high levels, see chart 14.
10. The stock price of staffing firms is rebounding, which suggests that we could get a rebound in job openings, see chart 15.
The bottom line is that the US economy is not in a recession, and there are no signs of a recession on the horizon. Our chart book with daily and weekly data is available here.
Source: BLS, Haver Analytics, Apollo Chief Economist 
Source: BLS, Haver Analytics, Apollo Chief Economist 
Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist 
Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist 
Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist 
Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist 
Note: Consists largely of debit card transactions. Source: Bloomberg, Apollo Chief Economist 
Source: Redbook, Haver Analytics, Apollo Chief Economist 
Source: US Department of Labor, Apollo Chief Economist 
Source: US Department of Labor, Apollo Chief Economist 
Note: Filings are for companies with more than $50mn in liabilities. For week ending on September 5, 2024. Source: Bloomberg, Apollo Chief Economist 
Source: Federal Reserve Bank of Dallas, Bureau of Economic Analysis, Apollo Chief Economist 
Source: Federal Reserve Bank of Atlanta, Haver Analytics Apollo Chief Economist 
Note: The 12 months forward profit margins are calculated by using the weighted average of 1FY (current year estimate) and 2FY (next year estimate) to smooth out fiscal year transitions. Source: Bloomberg, Apollo Chief Economist 
Source: Bloomberg, BLS, Apollo Chief Economist See important disclaimers at the bottom of the page.
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There are more solar and wind power projects under construction in China than in all other countries combined, see chart below.
Data for China and European countries to June 2024. All other countries to December 2023. Source: Global Energy Monitor, Apollo Chief Economist See important disclaimers at the bottom of the page.
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In Canada, demand for foreign labor doubled starting in 2022, see chart below.
Note: A positive LMIA (Labor Market Impact Assessment) must be obtained by an employer before hiring a Temporary Foreign Worker (TFW) for a specific occupation. The data provided above tracks TFW positions on LMIAs only, not TFWs that are issued a work permit or who enter Canada. The decision to issue a work permit rests with Immigration, Refugees and Citizenship Canada (IRCC); therefore, not all positions approved result in a work permit or a TFW entering Canada. Source: Government of Canada, Apollo Chief Economist See important disclaimers at the bottom of the page.
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If AI is having such a profound impact on call centers, telemarketing, and other business process outsourcing jobs, then unemployment in the Philippines and India should be moving higher. But that is not what the data is showing, see chart below.
Source: CMIE, PSA, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The latest data from the Treasury shows that the US government now pays out on average $3 billion in interest expenses per day, including weekends, see chart below.
If the Fed cuts interest rates by 1%-point and the entire yield curve declines by 1%-point, then daily interest expenses will decline from $3 billion per day to $2.5 billion per day.
Source: US Treasury, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The Chinese population is shrinking, and the UN forecasts that the Chinese working age population will decline by roughly 100 million people every decade. These demographic headwinds are significant and a major drag on growth in China, see below and in our chart book available here.
A shrinking population with fewer working age individuals means fewer taxpayers, more spending on government services for retired people, and overcapacity, as companies can no longer fill existing factories with workers.
For investors, the implication is slower growth, more disinflationary pressures, and weaker global demand for commodities.
Source: Apollo Chief Economist See important disclaimers at the bottom of the page.
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It used to be the case that the percentage of foreign companies listed on European and US stock exchanges was very similar at around 15%, see chart below. But, over the past decade, the share of foreign companies listed on stock exchanges has declined significantly in Europe and increased significantly in the US.
US = NYSE and Nasdaq US, Europe = LSE, Euronext, Deutsche Boerse AG and Nasdaq Nordic.
Sources: World Federation of Exchanges, Apollo Chief EconomistSee important disclaimers at the bottom of the page.
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This week, jobless claims declined, GDP was revised higher, and personal income was higher than consensus expected. Our daily and weekly indicators continue to show no signs of a slowdown, see our chart book.
Or, from a markets perspective, if the economy is about to enter a recession and the unemployment rate is about to go up, why is Walmart’s stock price trading at an all-time high?
With this backdrop, let’s quantify what Fed cuts will do to the economy.
The Fed is saying that monetary policy is restrictive and the Fed funds rate needs to normalize and come down to r-star, which they estimate to be around 3%.
We ran a simulation on a simplified version of the Fed’s model for the US economy, FRBUS, to quantify what the normalization of interest rates means for GDP and inflation.
Assuming a 100bps cut to the Fed funds rate this year and an additional 150bps in forward guidance about more cuts coming will boost GDP by 2% and inflation by 1%, see simulations below.
In short, the current excitement about a dramatic amount of rate cuts is ignoring the significant positive effects these cuts will have on the stock market, credit spreads, consumer spending, capex spending, corporate earnings, and inflation.
Combined with a continued strong tailwind to the economy from fiscal policy and massive investments in AI, the risks are rising that Fed cuts are going to boost stock prices and tighten credit spreads and trigger a reacceleration in GDP and inflation, see again simulations below.
The bottom line is that the r-star framework is missing what “normalizing interest rates” means for the economy, and this is particularly problematic when the Fed funds rate is significantly higher than the model-calculated terminal policy rate.
Note: Monetary policy shock: 100bps decline in the Fed funds rate and Fed forward guidance signaling that another 150bps of cuts are coming (to ultimately bring the Fed funds rate down to the Fed’s estimate of r-star at 3%). Source: Bloomberg SHOK Model, Apollo Chief Economist 
Note: Monetary policy shock: 100bps decline in the Fed funds rate and Fed forward guidance signaling that another 150bps of cuts are coming (to ultimately bring the Fed funds rate down to the Fed’s estimate of r-star at 3%). Source: Bloomberg SHOK Model, Apollo Chief Economist See important disclaimers at the bottom of the page.
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