Apollo Chief Economist Torsten Slok Talks "Wait and See" Economy | Bloomberg Talks

Good morning.

If you're looking at the high-frequency data, so over the last several weeks we have seen — and I know some of these indicators are a little bit special — but we've seen the number of people who are going to movie theaters, the number of people going to Broadway shows, if you look at the TSA data for how many people are flying airplanes, even if you look at how many people are visiting the Statue of Liberty here in New York City, all that has actually started to weaken. And now we get another soft data print here at 10 with the Michigan sentiment for consumers. So overall, it is still a little bit too early, but given that we have this wait-and-see situation both for consumers and for corporates, it does make sense that the soft data should eventually begin to spill over to at least some weakening in the hard data.

Well, that's a very important question because that depends on the nature of the shocks. And we're facing two shocks at the moment, namely DOGE, which is laying off government workers. Estimates suggest that there will be around 300,000 workers that might be losing their jobs. Remember that for every federal worker there are two contractors, according to Brookings. So Brookings studies show that in total, true employment in the federal government is roughly around 9, 10 million people. So if you now think about the total number of households is 130 million, and someone in a federal worker or contractor lives together with someone in the private sector, you get that as much as 10, 15 percent of all households in some way or another is being impacted from a sentiment perspective by DOGE alone. And tariffs, of course, also in particular impacts anyone who's associated with trade with Canada and Mexico. And you have that that is also a particular, of course, across the border to the north and to the south, playing a significant role in a number of states. So the bottom line is it's not only tariffs and trade war, it's also the combination of the risk that government workers and contractors potentially losing their jobs that are the main reasons why the soft data is weakening the way it is. And it's not only consumer soft data, it's also corporate. If you look at the capex planning from the regional Feds — Dallas Fed, Philadelphia Fed, New York Fed — that's showing that businesses in those districts are saying we're beginning to cut back capex plans. Likewise, NFIB, also Roundtable surveys, capex planning is also moving lower. So both consumer confidence moving lower, corporate confidence moving lower, it is a precursor for a slowdown coming in the hard data.

In the sense that if you look at hiring in non-farm payrolls over the last two years, 25 percent of jobs created in 2023 and '24 were government jobs. The previous years it was like 5, 10 percent, much, much less. So a very significant part of jobs in the last two years have been coming from the government sector. So it is true that job growth has been slowing in the private sector even going into these shocks that we're looking at at the moment.