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During the pandemic, households increased spending on goods because they were shopping online, and services spending was lowered because they couldn’t go to restaurants and travel.
The chart below shows that consumers have significantly increased spending on services over the past two years, and the current share at 68% is now close to pre-pandemic levels.
The bottom line is that we are getting to the end of the catch-up effect for companies in the consumer services industry.
Source: BEA, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Population growth in China has now turned negative. This is important because a growing labor force used to be a strong driver of growth in China. Combined with falling home prices and ongoing trade wars with Europe and the US, the headwinds to growth in China are intensifying. One implication for markets is continued downward pressure on commodity prices.
Source: CNBS, Haver Analytics, Apollo Chief Economist. Note: Natural population growth shown. Natural population growth = (birth rate – death rate) * total population. See important disclaimers at the bottom of the page.
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Small business optimism is at the same level as when the Fed started raising interest rates in March 2022, see chart below. This is not a recession. If anything, this suggests the economy is reaccelerating.
Source: NFIB, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The financial system is changing.
First, banks are changing, and debanking continues, partly because of banks’ maturity mismatch when using deposits to finance long-term lending and partly because of ongoing changes to market liquidity and market making.
Second, how firms and consumers borrow is changing, with private credit playing a bigger role, and an increased realization that long-term assets such as investments in AI and energy should be matched with long-term liabilities.
Third, how households save for retirement is changing with passive investing growing, democratization of alternatives, and an increased recognition that parts of the 60/40 portfolio invested in highly liquid public markets can be replaced with private fixed income and private equity both for households and institutional investors.
See important disclaimers at the bottom of the page.
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Looking at the latest daily and weekly data shows that retail sales are strong, jobless claims are falling, restaurant bookings are strong, air travel is strong, hotel occupancy rates are high, bank credit growth is accelerating, bankruptcy filings are trending lower, credit card spending is solid, and Broadway show attendance and box office grosses are strong. The Atlanta Fed’s GDP Now estimate for third quarter GDP is 2.4%, and the Dallas Fed weekly GDP indicator is 2.3%. Finally, we added a new chart with state-level GDP for New York, California, and Texas, which also shows continued strength, see below. The bottom line is that there are no signs of a recession in the incoming data, see also our chart book with daily and weekly data available here.
Source: Baumeister, Christiane, Danilo Leiva-Leon, and Eric Sims (2024), “Tracking Weekly State-Level Economic Conditions,” Review of Economics and Statistics, 106(2), 483-504., Apollo Chief Economist. Note: The economic conditions indices are computed with mixed-frequency dynamic factor models with weekly, monthly, and quarterly variables that cover multiple dimensions of state economies. The indices are scaled to 4-quarter growth rates of US real GDP and normalized such that a value of zero indicates national long-run growth. See important disclaimers at the bottom of the page.
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The argument for buying distressed commercial real estate today is that interest rates are about to come down. But if interest rates come down because of a recession, then buying distressed CRE today is not a good idea. If the economy starts to slow down more meaningfully, as the consensus expects, the problems for rental housing, multifamily, and warehouses will get a lot worse.
Source: Moody’s, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Central banks are buying more gold, see charts below.
Source: World Gold Council, Apollo Chief Economist 
Source: World Gold Council, Apollo Chief Economist See important disclaimers at the bottom of the page.
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US households are in much better shape than households in Canada and the UK, see the chart below.
Note: Household debt is defined as all liabilities of households (including non-profit institutions serving households) that require payments of interest or principal by households to the creditors at fixed dates in the future. Debt is calculated as the sum of the following liability categories: loans (primarily mortgage loans and consumer credit) and other accounts payable. The indicator is measured as a percentage of net household disposable income. Source: OECD, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The media is full of anecdotes from earnings calls about the economy supposedly slowing down.
But the reality is that firms on earnings calls talk less and less about recession, see chart below.
In fact, we have never had a recession at the current low level of recession talk, see again chart below.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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When a US government bond auction is announced, a new when-issued bond starts trading, which allows the market to trade the new Treasury bond before the auction has completed. Such trading activity promotes price discovery and allows the market to trade the government bond before it is available for sale.
When the auction is complete, the yield difference between the when-issued bond and the new bond is generally called the tail. Specifically, a one basis point tail means that the auction result was one basis point higher than where the when-issued yield was trading minutes before the auction was completed, normally at 1 p.m.
This past week, there were auctions for 10-year and 30-year Treasuries, and they both tailed three basis points, which signals that demand for Treasuries was significantly weaker than the market expected. The chart below shows tails for 10-year auctions since January 2020, and the chart shows that a three basis point tail is very significant.
The bottom line is that the trend of larger and more frequent tails since the Fed started raising interest rates in March 2022 underscores the importance of investors closely monitoring Treasury auction metrics. These metrics can provide early indications of weakening demand for Treasuries.
It is possible to track tails in Bloomberg using the tickers USN10YTL and USBD30TL.
Source: US Treasury Department, Bloomberg, Apollo Chief Economist. Note: Bloomberg ticker USN10YTL Index. Auction tail = Difference between the auction draw and when–issued price at auction. A positive tail means the auction yield was higher than or worse than expected. A negative tail means the auction yield was lower than or better than expected. See important disclaimers at the bottom of the page.
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