For those of us who’ve benefited from driving an EV for years already, it is a relief to hear mainstream leaders finally drop the opposition and misinformation to embrace the obvious. Ford CEO Farley does an excellent job of articulating facts in this segment.
Ford CEO Jim Farley joins CNBC’s Julia Boorstin for a discussion on EVs, rapidly evolving vehicle technology, and how drivers’ shifting priorities are reshaping what we expect in cars and trucks. Here is a direct video link.
The US unemployment rate in June ticked up to 4.1% (from 4% in May, red line below since 2021, and 70 basis points above the 3.4% cycle low in 2022). Full-time job creation fell to a 39-month low and part-time job creation reached a 33-month high while April and May job estimates were revised lower.
Jobless claims have moved higher in recent weeks and survey data show rising financial uneasiness among consumers. The year-over-year growth in unemployed Americans is 11.9% and above the +10% that has signalled the onset of past recessions (hat tip Kantro).
Canada, meanwhile, lost 1400 jobs versus consensus expectations for a 25,000 gain and the unemployment rate rose to 6.4% from 6.2% in May (below since 2017). The unemployment rate for youth rose to 13.5%, the highest rate since September 2014 outside of the pandemic. Nearly all of the employment gains were in the public sector (4.3%) rather than the private (.8%). See Canada sheds 1400 jobs, unemployment rate hits 6.4%. 
Canadian unemployment is now 160 basis points above the cycle low of 4.8% in July 2022. In past cycles, an 80 basis point increase in the unemployment rate coincided with the onset of recessions.
It’s noteworthy that the US Fed has forecast the US unemployment rate to peak at 4.2% in 2025 (from 4.1% now) and the Bank of Canada projected Canadian unemployment to peak at 6.6% (from 6.4% now) by the end of 2024, falling back to 6% in 2024.
Both forecasts look optimistic since in past cycles, it was typical for the jobless rate to accelerate through Fed rate-cutting cycles and well into subsequent economic recoveries.
Disproportionately negative economic surprises in the last couple of months have increased the odds of central bank rate cuts in 2024. But as with hikes, it will take multiple quarters for monetary easing to be felt through the economy.
Government bonds are taking the over on central bank unemployment estimates, with prices rallying sharply to end the week.
The equal-weight S&P 500 index has been flat since the start of March with the average stock negative since. But a handful of AI hopefuls have continued to boost equity benchmarks in the largest overshoot of the information technology sector market capitalization (green below) compared with earnings forecasts (yellow below since 1995) since the 2000 tech wreck top (red circles below courtesy of MRB Partners and The Daily Shot).
In the three incidents where stock prices entered recessions at valuations near present highs (1973, 2000 and 2007), broad indices like the S&P 500 and TSX composite fell 30 to 55%, while central banks were slashing interest rates.
Today, households are up to their eyeballs in debt, while simultaneously doubling down on financial risk with a record 70% allocation of any savings they do have in the stock market. Meaningful diversification, capital preservation and finite human timelines have all been tossed aside in the latest hype around artificial intelligence.
All of this is set to make the give-back cycle more painful than historically average just as asset holders, 24 years older than in 2000, have less lifetime to grow back losses.
The Greater Toronto Area (GTA) is home to approximately 8 million Canadians (about 20% of the country’s population) which account for some 20% of Canada’s Gross Domestic Product (GDP). For context, the GTA is as important to Canada’s economy as the eight largest US cities are to the American economy.
In terms of provincial per capita income, Alberta, BC and Ontario are neck in neck with an average of about 55K and a median of 40K. But, the most populous, Ontario is home to about 40% of the Canadian population, nearly twice as many as Quebec and three times as many as in BC or Alberta. In all provinces, wealthier city folks tend to fan out spending to recreational and bedroom communities within reach of the largest centers.
In a national economy that’s nearly 60% driven by consumption spending, what happens in the GTA and Ontario matters nationally.
From 2009 to 2022 as interest rates hovered near 5000-year lows, developers were pounding out condo and commercial buildings at a record pace and Toronto had more construction cranes than any other city in North America. As real estate became a national obsession, the GTA and Ontario led the way.
The real estate market doesn’t turn on a dime. Construction projects have multi-year lead times and fixed-term loans have staggered renewals. But now that interest rates have been historically normal over the past year, the GTA and Ontario are leading the downcycle, too.
The supply of condos for sale in Ontario has risen 1220% since January 2022 and the inventory-to-sales ratio is at a 14-year high.
In the GTA, new listings of all property types are on the rise and sales are in a freefall, see Toronto condo sales plummet 28% in June as sales crash across all property types:
Sales and prices were down across Toronto and the GTA for all property types.
Poor condo sales continued to plague the sector with a 28 percent drop in June compared to the same time last year, followed by townhouses down 14 percent, semi-detached down 11.4 percent, and detached down 10.6 percent.
Prices for all housing types also dropped year over year, with semi-detached seeing the greatest decline at 9.3 percent, followed by townhouses down 4.9 percent, detached at 3.3 percent and condos at 1.5 percent.
…Experts also say the condo market has become a “ghost town” as over-leveraged investors try to off-load their condo properties and end users aren’t interested in purchasing expensive, micro-sized units that can’t accommodate families.
With little buying activity, active listings have shot up 67.4 per cent year over year. Currently, buyers are benefitting from “substantial choice” and “negotiating power on price,” said Mercer. Currently, the sales to new listings ratio is 34.5 percent, meaning Toronto is in a buyer’s market.
Of course, the stress is not just in residential real estate. A ton of commercial and office space was built and begun during the ‘easy money’ ride. See, Office vacancy rate hits highest level in 30 years, according to new report:
The share of offices available for lease in Canada, also known as the vacancy rate, hit 18.5 per cent in the second quarter of 2024, the highest level in at least three decades, according to a new report by commercial real estate firm CBRE.
Nationwide, the downtown vacancy rate has been rising sharply since 2020 after remote work effectively became the norm. Although only a tick higher than the 18.4 per cent recorded in the first quarter, CBRE expects the number to continue to grow in the second half of the year as new office space comes to the market — particularly in Toronto — with only about 40 per cent of it currently pre-leased.
Real estate-related activity was the largest driver of Canadian revenue and jobs during the expansion phase, its contraction now will be similarly impactful.
The hit to balance sheets is magnified since individuals as well as professional funds and managers loaded up on real estate-focused investment products during the ‘easy money’ frenzy. Now many looking for cash and income are finding withdrawals frozen #not liquid. See Real-Estate Fund Industry Is Bleeding Billions After Starwood Capped Withdrawals.
For Wall Street firms, the reversal of fund flows has been painful. Selling these types of funds to individuals at such a large scale has provided a relatively new source of fees for firms that traditionally have sold to institutional investors.
These funds were designed to appeal to individual investors by giving them the ability to redeem their shares on a monthly or quarterly basis. Sponsors disclosed to investors that the funds retained the right to limit redemptions to avoid being forced-sellers. But they were marketed by financial advisers and others who stressed their liquidity.
Some financial advisers question whether individual investors’ appetite for the funds will return, even when the commercial real-estate industry rebounds. “I suspect it will be hard to get that amazing fundraising again,” said Allan Roth, founder of Wealth Logic, a financial-planning firm based in Colorado Springs, Colo.
These compounding impacts are why the most painful recessions historically have always been driven by real estate boom and bust cycles.
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