Canada's Economy is Plummeting and Unemployment Soaring – Thanks Trudeau Carney and Ford
Summary
Canadian Economy: Structural low productivity and cyclical shocks from tariffs and weak oil prices are pushing unemployment higher and keeping growth near stall speed.
Auto Sector: Significant focus on Canada’s auto ecosystem risk from U.S. tariffs and plant closures, with concern about a cascading decline similar to Australia’s experience.
Tickers Highlighted: STLA (Stellantis) detailed for Brampton plant closure and Illinois expansion; GM (General Motors) discussed for shutting an Ingersoll EV van plant after weak demand.
Canadian Equities: TSX strength diverges from the weak economy due to international exposure, profit resilience, BoC easing, and gold-stock contributions; caution advised given elevated valuations.
Canadian Real Estate: BoC cuts intersect with a mortgage renewal cliff, while falling rents and home prices and a shrinking municipal tax base point to ongoing property-market pressure.
US-Canada Tariffs: Outcomes of KUSMA renegotiation are pivotal; lower effective tariffs plus stimulus could avert recession, while higher tariffs imply a deep, broad downturn.
Portfolio Positioning: The guest recommends de-risking—reducing Canadian equity exposure, shifting toward bonds, and diversifying internationally (e.g., Asia and EM) to buffer tail risks.
Transcript
Robert, thank you very much for joining us today. How are things in Toronto? >> Things are great. Nice weather, baseball, nothing nothing to complain about there. How are you, Jimmy? >> Yes, beautiful weather. I love this time of year. So, even though the sun is shining in Toronto, things are not that well in the Canadian economy. And this is what I want to discuss with you today. One of the things I try to do on this channel, Robert, is to educate people on the Canadian economy, the US economy, the global economy, and just help people navigate during these uncertain times. And you and your team at Rosenberg Research have done extensive research on the Canadian and US economies. And this is where I want to focus our discussion today. The last few years have gone, you can say Canada's gone through some economic upheaval. The unemployment rate across the country is at 7%. In the province of Ontario, where you and I reside, it's at 7.9%. And in the city of Toronto, it's 9.9%, which is a shocking number. And when I look at these numbers, it's just I'm somewhat astounded as to what's happening here. So maybe we can just start right there. What is happening with the Canadian economy? Why are our unemployment numbers so high? So Canada has two economic problems that are happening at the same time. We have what I call a structural problem and a cyclical problem. So structural problem meaning our our growth rates on average have just been falling for several years. Even when everything's going well and the economy is growing at potential uh because of low productivity growth, low R&D, low capital formation, our economy just isn't typically growing that quickly. But then also on top of that, this year we're even below what you would expect from sort of potential growth or structural growth. And that's because of a combination of uncertainty and tariffs having a huge effect um across the Canadian economy, but also the effect of of low oil prices. And so you add that together, the economy has not been growing quickly enough to keep pace with the expanding labor force. And when that happens, you're going to see unemployment ticking up up up. So unemployment is up about point4 percentage points nationally, but as you say in Toronto, it's more like a point a point and a half. Uh and we can talk about young workers, you know, in the in the more vulnerable sectors of the labor market. You see that effect much more clearly. So just to clarify what we're seeing right now, even though in 2025 there's been a lot of uncertainty with the trade uh trade wars and tariffs etc with the US but these problems have been in place now for many years. Is that correct? >> Absolutely. That's right. So you can think of the sort of potential growth rate for Canada around maybe 1.8%. That would be sort of everything going as you would expect over a long run average. And that's already on the low side, right? Um, but this year so far, if you look at the monthly industry GDP data, we've seen around a.7% annualized growth rate in GDP. So we're we're even well below what was already a pretty low potential growth rate. >> 7%. That's an annualized number. >> That's an annualized number. Yeah. So >> we're pretty close, right? >> Negative. like do you see Canada going into a recession or are we already in a recession right now? >> We are flirting flirting with the line right if you look at the employment growth uh number the last employment report that we got actually showed a very large rebound uh but the two months before that were very bad. So we lost about 100,000 jobs in two months and then gained about 60,000 back. Now, that's still the worst combined three-month performance since the pandemic. There's a huge amount of volatility in this data. We're going to get new industry jobs data later this week and GDP data later this week. So, hopefully that'll that'll shed some new light on it. But as volatile as the month-to-month numbers have been, and we've had a few really good months this year, um, sprinkled among the bad, but the trend line's been quite bad this year. So, I have a couple of kids that are in university and they're going to be entering the job market soon and they're both very concerned about finding a job. And I wasn't aware of this, but they told me that the youth unemployment rate in Canada is at 14.7%. I was shocked when I heard that and I looked it up. Sure enough, hasn't been this high since the 1990s. What is happening with youth unemployment? Why is it so high? Well, in the last three years, um, employers are behaving in what I would call a really defensive way, which is they they aren't engaging in layoffs. We're not seeing a huge spike in layoffs, which is the sort of more traditional way that the unemployment rate would go up. We're just seeing a large pullback in hiring. And that's what companies do when there's uncertainty. They're not sure about the future. they what they don't want to do is hire a bunch of people and then have to fire them six months later because that's very costly. So, they're just waiting. But what that means is the pace of hiring every month, you know, you have new graduates coming in, new immigrants coming in, uh, you know, regular turnover of jobs and the jobs just aren't there for people. And so, the number of unemployed people in Canada keeps ticking up and up and up. And of course, if you're a young person who's trying to get on the job ladder, you can't just not quit your job. You don't have a job at all. And so that's why youth unemployment is sort of the canary in the coal mine for this. That's where you'll see this defensive corporate behavior first showing up. >> So, it sounds like you're telling me my kids are going to be living in my basement until they're in their 30s. >> Uh at least uh at least for the next 6 months, they'll be living in your basement. Yeah. Well, they're still in university. So, okay, we got to talk about I want to stay on the topic of unemployment and we got to talk about the auto industry in southern Ontario and it's a very important sector. Uh when you talk about auto assembly, it employs 45,000 people. And then when you add in autos, trucks, and supply chain, the entire supply chain, you're looking at 150 to 160,000 people just in southern Ontario. It's a big number. Stalantis, one of the largest automakers in the world, announced it's shutting down an assembly plant in Bmpton and moving the jobs to the state of Illinois. And uh in addition to that, they're going to be spending 13 billion in Illinois over the next four years. They're going to create 5,000 jobs. Uh the province of Ontario will be losing 3,000 jobs. General Motors also just announced that they're shutting down a plant in I think it's called Ingresol, but uh they make one of these EV vans there. I don't know if you've seen these. They they were hoping to sell these to UPS, FedEx, and Amazon, but turned out to be a big bust. Nobody's buying them. So, they're shutting down that plant. That's 1300 workers. You know, things don't look good here in southern Ontario, especially in the auto sector. Where do you see the unemployment rate going if it's at 7.9 or 8% right now? I'm sure you have some projections on on how bad things will get, not only in Ontario, but in Canada. It's it's worth noting that as you say, auto industry employment all in somewhere around 150 160K. If you look at what's happened so far, we've only actually lost about 5,000 jobs in that sector so far this year. But everybody expects these bigger job losses to come, right? It's sort of the the the layoffs, the closures haven't happened. And and and the risk is more intangible, right? If you want if you want a scary story, take a look at the Australian auto sector, right? Australia used to have an ecosystem of car manufacturers and car parts manufacturers. You know, there's sort of a necessary minimum scale. It's hard to have just one company in isolation, right? you sort of need a a a sector or an ecosystem. Well, over time in Australia, these companies closed and closed and closed and gradually the whole sector shrank away almost to nothing. So, I think the fear isn't, oh, we're going to lose 1300 jobs out of 130 150,000. That's only 1%. That doesn't sound so bad. The fear is you get a critical mass of closures and you lose half the industry in 5 years, right? And so we we we have to think strategically and we have to think about how can Canada have a a viable auto sector in a world where we have US auto tariffs. Is that even possible? Because it doesn't look to me like these auto tariffs are going anywhere. Um but in terms of here's the good news. It is still a relatively small sector from the point of view of Canada as a whole, right? And so it's it's it's it it's concentrated very regionally in a particular part of Ontario. Um but the the unemployment slowdown in Canada is much more a consequence of these broader economywide trends than just being auto auto and steel. It's about the whole economy. >> So let's talk about that. And you touched on foreign direct investment earlier or FDI. Um, I keep hearing that foreigners or foreign companies are not investing in Canada because it's uninvestable because of the policies put forth by the Liberal government in the last 10 years. Maybe you can just speak to that. What exactly is foreign direct investment and and is it is is it weak as we're led to believe or is I keep hearing? >> Well, there's um so there's direct investment in both directions, right? There's there's Canadian companies building plants in other countries and then there are foreign uh companies building plants in uh in Canada. And typically in the in the Canadian economy over the last 3 four years um Canadian direct investment in broad has been larger than inbound direct investment and and actually that's not always true. Um but that's that's typically been been true on average. So, it's not so much that we're seeing a large reduction in um direct investment into Canada yet. It's more that again, we're seeing announcements of that potentially being about to happen. Right? You gave your auto sector examples and we're seeing lots of other potential potential things. So, you know, we only have the data up to the second quarter of 2025. I bet you in Q3 and Q4 and Q1 of next year then we are going to start to see a meaningful slowdown in in in FDI uh into into Canada but it you know hasn't quite happened yet. One of the things that confounds me about what's happening here is that we share a border with the world's largest economy the US and it seems to be doing very well. The the GDP continues to grow at 2 and a half or 3%. Unemployment is still relatively low at around the 4% level, which historically is a low number. The S&P and the NASDAQ continue to make new highs every other day. Why are we not benefiting from this relationship? I mean, you you talked about a few things earlier that our growth rates are down, productivity levels are down, but I I still don't understand like we like I can understand this year in 2025. Okay, there's a lot of uncertainty associated with the trade uh situation, but in the last five or 10 years, why haven't we benefited from the growth that the US has seen? Uh we certainly have to some extent. One of the interesting things that we've seen in the last year in these US growth numbers is how narrow American economic growth is, which is so much of it is concentrated in AI related capital expenditure. And by some measures that's providing more growth than the entire US consumer sector if you just think about it in terms of contributions. So the problem for Canada is we export a lot of stuff but that's not really the stuff we're exporting, right? We're not exporting a lot of semiconductors and chips and that part of the value chain. A lot of what we export are commodities. Um and you know you look at energy prices, they're very depressed right now. you look at a lot of other commodity prices are, you know, maybe slightly above average, but we're not seeing a huge boom. And so that would be and of course other things that we export are auto and steel, and those those have tariffs right now. And so the the the problem is basically the things Canada is exporting are not necessarily the things that are booming in the United States right now. So, something else we got to discuss is inflation. And I would think in a slowing economy, prices would be coming down, but that's not what I see, especially when it comes to food. And um like I can't believe every time I go to Costco or Walmart, I used to drop 500 bucks. Now it's $1,000. And I was at a butcher shop uh this past weekend. And for the most part, when I go buy my groceries, I really don't know the prices, what I'm paying for things, right? like if it's bananas or apples or whatever it is. But the one thing I always notice is beef tenderloin. And I think it's only because I I buy it at special times because it's so damn expensive. But I was shocked. It was $52 a pound. And that's up from $4 a pound like not even a month ago and early 2020 before all the craziness started. It probably used to go for$25 or $30 a pound depending on what store you go to. what's happening with inflation in this country because to me it just looks like it's never ending. >> Well, um you should be you should be wary of going by the grocery store test because of course food is just is one of the small part of the basket and is maybe the most volatile part. But you're not wrong. Inflation is persistently above the bank's 2% target and has been since 2022 late 2021. However, there is a clear disinflationary trend. It's been volatile. It's been a little slower than we've expected. But the key the key connection between what we were talking about earlier and the inflation numbers is that when unemployment is this high, 7.1% well above what we call the neutral rate, that means there's a lot of slack in the labor market. And that's going to tend to be reducing the pace of wage growth. And when it reduces the pace of wage growth, it will eventually reduce the pace of service sector inflation. It's just that that happens on a 6 to 12 month leg, right? Um and the other big component of inflation is shelter. We're seeing falling rents and falling house prices. And so there's a lot of predictable disinflation baked into the the data that's going to start hitting in 2026. So that's why so we're we're taping this on a Monday. The Bank of Canada meeting is in two days. Markets are pricing around an 80 to 85% chance of a cut. And the reason for that is the Bank Canada knows everything I just said, right? They're looking at this very soft labor market. So they're saying to themselves, "Well, inflation's not going to go up. Inflation's got nowhere to go but down." And so as frustrating as the trends over the last couple years are, um, we we do see this as a as a problem that's headed in the right direction. >> And you bring up a very good point. The Bank of Canada has been very aggressive in cutting rates. And in 2025, 1 million mortgages were coming up for renewal. 2026, I believe the numbers around 1.2 million. So they realize like people's, you know, anybody who bought a home back in 2020 21, their mortgage payments are going to take a big bump here with these higher interest rates. Uh do you think they're trying to get ahead of the curve here and they realize there could be a real storm on the horizon, especially when it comes to the real estate market? >> Yeah, I mean in a sense the economic slowdown is coming at the right time for for dealing with this mortgage renewal cliff. And absolutely. I mean, if you read the Bank of Canada's research papers, this is something they're very much aware of. They know about this this renewal cliff. Um, but it's just one of many factors that they're that they're juggling. I don't think you have to I I I don't actually think their rate cutting cycle would be very different if that problem didn't exist based on based on what they've been doing. It's overwhelmingly driven by the stickiness in inflation balanced against the weakness in the labor market. Just because we're on the topic of uh real estate and also inflation in the city of Toronto, the the property taxes went up 6.9% in 20125. That's up about 25% in the last 5 years, which is a crazy number. But a month after they put up their property taxes, the city councilors gave themselves a raise of 24%. So their annual salary went from $137,000 to $170,000. >> [laughter] >> Is that crazy or what? >> Well, the the the property taxes is is partly a reaction to the fact that many parts of the residential property tax base in Toronto are declining in value. So, to some extent, they're they're raising taxes on a shrinking base just to get the same to get the same revenue numbers. Um, and we think that there's a fair amount of price correction to come in a lot of aspects of the condo market in particular. So, you know, but again, you know, the the the sort of tax planners, uh, they know that and that's part of the reason why I wouldn't be surprised to see another property tax increase next year just out of mathematical necessity based on the the underlying trends. >> Oh man, nothing but positive news from you. You bring up an interesting point about the tax base because in the town where GM is shutting down that plant that employs I think 1300 people, well 12% of that town's tax base comes from General Motors. So it's going to have a significant impact on what's happening there, >> right? So all these these industries, one of the reasons why the auto sector is sort of top of mind is precisely that it's so concentrated, right? It's not like every town has a thousand auto sector jobs. It's that there are some regions of the country that could be completely wiped out by the closure of some of these plants, right? And so that's why both the the federal and the provincial governments are are investing so much time in this. I expect in the coming federal budget, you know, u should be next week uh sometime um you'll see some money for the auto sector and retraining and those kinds of things. So, we talked about the Canadian economy and how weak it's been. And one of the other things that confounds me is when I look at the Toronto Stock Exchange or the TSX, it's doing very well. It's trading at or near all-time highs. The Canadian banks uh are doing very well. A few of them are trading at or near all-time highs. And yet, when I look at the stock market, you know, it's a discounting mechanism for the economy. And yet, here we are, the market's making new all-time highs. How do you reconcile that? We have a weakening economy, but yet when you look at the TSX and its performance, it's doing quite well. >> Well, the the stock market and the economy are not exactly the same thing, and that divergence has been widening over the last several years. So, that happens for a couple of reasons. Reason one is the composition of the TSX is very international. It's so it's it's exposed to a lot of things outside of just the Canadian economy. Um even though Canada's economy hasn't necessarily benefited from the US boom, there are select Canadian companies in the index which are benefiting from it. Um and and you know Canadian corporate profits have held up better than GDP. And so we've seen this sort of this divergence between capital and labor in their in their divided fortunes, right? Companies are able to, you know, they're holding off on hiring, which will tend to reduce unemployment, but that can be a support to profits at least in the short run if they're doing more with the same number of employees. So that's part of it. And the other thing that's been supporting the TSX is of course that the Bank of Canada's in an easing cycle, right? And you know there's this tendency both both the Fed and and most global central banks are all cutting rates. So that's going to tend to support equities because you're you're lowering the discount rate. So uh the TSX has has outperformed many many indices uh so far this year. It's been a real it's been a real success story. Um also a few other specific factors which is um the soaring price of gold because of all the uncertainty that's been a contributor I forget the exact number but I believe it's at least five percentage points of contribution of the index are from gold stocks alone who you know which have had such a huge runup right and so that's just another sort of idiosyncratic factor. So you add all that up, the bottom line is it doesn't mean the economy is doing well. It's for all these sort of other factors. >> And when you look at the Canadian economy, we already discussed how weak it is. You said it's if it's not in a recession right now, it's it's going to be going into a recession. >> Uh >> I think I said flirting >> flirting with recession. Okay. And I can only imagine with the all the what's happening within uh southern Ontario and the auto sectors and all the uncertainty still associated with the trade wars, we're going to be in a recession if not in Q4 or Q1 for sure. But how bad do you think things get in 2026, especially if this whole trade war uh situation continues to be unresolved? the the most important thing for the Canadian economic outlook is what we're doing with Koosma renegotiation, right? Literally, it that's the largest factor by far. And I think that in a scenario where we get Koozma renegotiated, it's important to understand that Canada's effective tariff rate, you know, we have all these bad headlines about steel and autos, but we're actually in a much better place than the EU and Japan and some of these other countries that are facing 15 or you know, Asian some Asian countries close to 20% effective tariff rate. Ours is more like 5 to 8% depending on how you slice it. So, if we get Koozma renegotiated and if, as I suspect, the federal Liberals turn on the taps a little bit in their coming budget and add 10 or 15 billion more in additional spending and maybe uh some subsidies to businesses. That scenario is a scenario where we avoid a recession. I would still expect slow growth because of the uncertainty, but that's why I say a recession isn't necessarily certain. combination of Koosma renegotiation and federal stimulus and one or two more Bank of Canada rate cuts and if oil goes back you know stays in the high60s instead of the high 50s all of that together should avoid a recession right we're still looking at only 1% growth I think you would still see increasing unemployment because we wouldn't be keeping pace with what would be needed but that's my that's my base case is just barely avoiding a recession because of that combination of factors. So then there's the other case which is suppose we don't get kousma renegotiation and our effective tariff rate goes to 15 or 20% the same as all the other countries then you're going to have a recession that's unavoidable. You would have a large deep cross- sector structural recession. Uh that'd be very bad. Unemployment would easily go to eight and a half or 9% if not higher. Um and and you know all the federal spending in the world isn't going to stop that. and oh boy, nothing but good news from you. So, the last severe recession we had in Canada was the early 1990s and and I can't remember what the unemployment rate was, but I'm sure it was double digits. Uh, and I don't even know what the circumstances were that resulted in that, but do you see that same sort of thing happening again? I mean, we already have youth unemployment at uh call it 15%. We haven't seen those numbers since the 1990s. Could it be you talk about this worst case scenario, can it be as bad as the recession we saw in the early 1990s? >> Absolutely. You know, depends on how high the tariff rates go, but if if Donald Trump wakes up one morning and decides to impose massive tariffs on every part of the Canadian economy, um yeah, you could get an early9s recession um pretty easily. And I think in that scenario, it would be accompanied by pretty deep house price declines um in a lot of these a lot of asset price declines, probably a stock market decline. Um so that's that's something to keep an eye on. I think my advice to people is if you're an investor, you look at how rich the TSX is right now, this is a really good time to take some risk off the table, right? I'm not saying sell everything, but this is a good time to derisk the portfolio, shift out of stocks into bonds, maybe outside of Canadian equities, maybe buy more Asian equities, some emerging market equities, have some diversification in the portfolio. Um, because these worst case scenarios do happen. >> Well, that was a great discussion, Robert, and I want to thank you very much for spending time with us today. And a lot of what we discussed is not too positive. I always like to finish on a upbeat note or a more positive note. And the one thing we really have going for us right now are the Toronto Blue Jays. And it doesn't matter if you're on the West Coast or the East Coast or somewhere in between or if you're conservative or bleeding heart liberal, we're all cheering for the uh Toronto Blue Jays. So, go Jays. >> Go Jays. >> Thanks. >> And Robert, if somebody would like to learn more about you and your team at Rosenberg Research or check out some of your products that you offer, where can they go? uh they can go to rosenbergressearch.com and they can request a free a free trial of our research and you'll get access to all of our macro data commentary, all of our market strategy, our thematic research and our special reports. Um so by all means sign up and our our sales teams will will reach out. >> Robert, once again, thank you. >> Thanks.
Canada's Economy is Plummeting and Unemployment Soaring – Thanks Trudeau Carney and Ford
Summary
Transcript
Robert, thank you very much for joining us today. How are things in Toronto? >> Things are great. Nice weather, baseball, nothing nothing to complain about there. How are you, Jimmy? >> Yes, beautiful weather. I love this time of year. So, even though the sun is shining in Toronto, things are not that well in the Canadian economy. And this is what I want to discuss with you today. One of the things I try to do on this channel, Robert, is to educate people on the Canadian economy, the US economy, the global economy, and just help people navigate during these uncertain times. And you and your team at Rosenberg Research have done extensive research on the Canadian and US economies. And this is where I want to focus our discussion today. The last few years have gone, you can say Canada's gone through some economic upheaval. The unemployment rate across the country is at 7%. In the province of Ontario, where you and I reside, it's at 7.9%. And in the city of Toronto, it's 9.9%, which is a shocking number. And when I look at these numbers, it's just I'm somewhat astounded as to what's happening here. So maybe we can just start right there. What is happening with the Canadian economy? Why are our unemployment numbers so high? So Canada has two economic problems that are happening at the same time. We have what I call a structural problem and a cyclical problem. So structural problem meaning our our growth rates on average have just been falling for several years. Even when everything's going well and the economy is growing at potential uh because of low productivity growth, low R&D, low capital formation, our economy just isn't typically growing that quickly. But then also on top of that, this year we're even below what you would expect from sort of potential growth or structural growth. And that's because of a combination of uncertainty and tariffs having a huge effect um across the Canadian economy, but also the effect of of low oil prices. And so you add that together, the economy has not been growing quickly enough to keep pace with the expanding labor force. And when that happens, you're going to see unemployment ticking up up up. So unemployment is up about point4 percentage points nationally, but as you say in Toronto, it's more like a point a point and a half. Uh and we can talk about young workers, you know, in the in the more vulnerable sectors of the labor market. You see that effect much more clearly. So just to clarify what we're seeing right now, even though in 2025 there's been a lot of uncertainty with the trade uh trade wars and tariffs etc with the US but these problems have been in place now for many years. Is that correct? >> Absolutely. That's right. So you can think of the sort of potential growth rate for Canada around maybe 1.8%. That would be sort of everything going as you would expect over a long run average. And that's already on the low side, right? Um, but this year so far, if you look at the monthly industry GDP data, we've seen around a.7% annualized growth rate in GDP. So we're we're even well below what was already a pretty low potential growth rate. >> 7%. That's an annualized number. >> That's an annualized number. Yeah. So >> we're pretty close, right? >> Negative. like do you see Canada going into a recession or are we already in a recession right now? >> We are flirting flirting with the line right if you look at the employment growth uh number the last employment report that we got actually showed a very large rebound uh but the two months before that were very bad. So we lost about 100,000 jobs in two months and then gained about 60,000 back. Now, that's still the worst combined three-month performance since the pandemic. There's a huge amount of volatility in this data. We're going to get new industry jobs data later this week and GDP data later this week. So, hopefully that'll that'll shed some new light on it. But as volatile as the month-to-month numbers have been, and we've had a few really good months this year, um, sprinkled among the bad, but the trend line's been quite bad this year. So, I have a couple of kids that are in university and they're going to be entering the job market soon and they're both very concerned about finding a job. And I wasn't aware of this, but they told me that the youth unemployment rate in Canada is at 14.7%. I was shocked when I heard that and I looked it up. Sure enough, hasn't been this high since the 1990s. What is happening with youth unemployment? Why is it so high? Well, in the last three years, um, employers are behaving in what I would call a really defensive way, which is they they aren't engaging in layoffs. We're not seeing a huge spike in layoffs, which is the sort of more traditional way that the unemployment rate would go up. We're just seeing a large pullback in hiring. And that's what companies do when there's uncertainty. They're not sure about the future. they what they don't want to do is hire a bunch of people and then have to fire them six months later because that's very costly. So, they're just waiting. But what that means is the pace of hiring every month, you know, you have new graduates coming in, new immigrants coming in, uh, you know, regular turnover of jobs and the jobs just aren't there for people. And so, the number of unemployed people in Canada keeps ticking up and up and up. And of course, if you're a young person who's trying to get on the job ladder, you can't just not quit your job. You don't have a job at all. And so that's why youth unemployment is sort of the canary in the coal mine for this. That's where you'll see this defensive corporate behavior first showing up. >> So, it sounds like you're telling me my kids are going to be living in my basement until they're in their 30s. >> Uh at least uh at least for the next 6 months, they'll be living in your basement. Yeah. Well, they're still in university. So, okay, we got to talk about I want to stay on the topic of unemployment and we got to talk about the auto industry in southern Ontario and it's a very important sector. Uh when you talk about auto assembly, it employs 45,000 people. And then when you add in autos, trucks, and supply chain, the entire supply chain, you're looking at 150 to 160,000 people just in southern Ontario. It's a big number. Stalantis, one of the largest automakers in the world, announced it's shutting down an assembly plant in Bmpton and moving the jobs to the state of Illinois. And uh in addition to that, they're going to be spending 13 billion in Illinois over the next four years. They're going to create 5,000 jobs. Uh the province of Ontario will be losing 3,000 jobs. General Motors also just announced that they're shutting down a plant in I think it's called Ingresol, but uh they make one of these EV vans there. I don't know if you've seen these. They they were hoping to sell these to UPS, FedEx, and Amazon, but turned out to be a big bust. Nobody's buying them. So, they're shutting down that plant. That's 1300 workers. You know, things don't look good here in southern Ontario, especially in the auto sector. Where do you see the unemployment rate going if it's at 7.9 or 8% right now? I'm sure you have some projections on on how bad things will get, not only in Ontario, but in Canada. It's it's worth noting that as you say, auto industry employment all in somewhere around 150 160K. If you look at what's happened so far, we've only actually lost about 5,000 jobs in that sector so far this year. But everybody expects these bigger job losses to come, right? It's sort of the the the layoffs, the closures haven't happened. And and and the risk is more intangible, right? If you want if you want a scary story, take a look at the Australian auto sector, right? Australia used to have an ecosystem of car manufacturers and car parts manufacturers. You know, there's sort of a necessary minimum scale. It's hard to have just one company in isolation, right? you sort of need a a a sector or an ecosystem. Well, over time in Australia, these companies closed and closed and closed and gradually the whole sector shrank away almost to nothing. So, I think the fear isn't, oh, we're going to lose 1300 jobs out of 130 150,000. That's only 1%. That doesn't sound so bad. The fear is you get a critical mass of closures and you lose half the industry in 5 years, right? And so we we we have to think strategically and we have to think about how can Canada have a a viable auto sector in a world where we have US auto tariffs. Is that even possible? Because it doesn't look to me like these auto tariffs are going anywhere. Um but in terms of here's the good news. It is still a relatively small sector from the point of view of Canada as a whole, right? And so it's it's it's it it's concentrated very regionally in a particular part of Ontario. Um but the the unemployment slowdown in Canada is much more a consequence of these broader economywide trends than just being auto auto and steel. It's about the whole economy. >> So let's talk about that. And you touched on foreign direct investment earlier or FDI. Um, I keep hearing that foreigners or foreign companies are not investing in Canada because it's uninvestable because of the policies put forth by the Liberal government in the last 10 years. Maybe you can just speak to that. What exactly is foreign direct investment and and is it is is it weak as we're led to believe or is I keep hearing? >> Well, there's um so there's direct investment in both directions, right? There's there's Canadian companies building plants in other countries and then there are foreign uh companies building plants in uh in Canada. And typically in the in the Canadian economy over the last 3 four years um Canadian direct investment in broad has been larger than inbound direct investment and and actually that's not always true. Um but that's that's typically been been true on average. So, it's not so much that we're seeing a large reduction in um direct investment into Canada yet. It's more that again, we're seeing announcements of that potentially being about to happen. Right? You gave your auto sector examples and we're seeing lots of other potential potential things. So, you know, we only have the data up to the second quarter of 2025. I bet you in Q3 and Q4 and Q1 of next year then we are going to start to see a meaningful slowdown in in in FDI uh into into Canada but it you know hasn't quite happened yet. One of the things that confounds me about what's happening here is that we share a border with the world's largest economy the US and it seems to be doing very well. The the GDP continues to grow at 2 and a half or 3%. Unemployment is still relatively low at around the 4% level, which historically is a low number. The S&P and the NASDAQ continue to make new highs every other day. Why are we not benefiting from this relationship? I mean, you you talked about a few things earlier that our growth rates are down, productivity levels are down, but I I still don't understand like we like I can understand this year in 2025. Okay, there's a lot of uncertainty associated with the trade uh situation, but in the last five or 10 years, why haven't we benefited from the growth that the US has seen? Uh we certainly have to some extent. One of the interesting things that we've seen in the last year in these US growth numbers is how narrow American economic growth is, which is so much of it is concentrated in AI related capital expenditure. And by some measures that's providing more growth than the entire US consumer sector if you just think about it in terms of contributions. So the problem for Canada is we export a lot of stuff but that's not really the stuff we're exporting, right? We're not exporting a lot of semiconductors and chips and that part of the value chain. A lot of what we export are commodities. Um and you know you look at energy prices, they're very depressed right now. you look at a lot of other commodity prices are, you know, maybe slightly above average, but we're not seeing a huge boom. And so that would be and of course other things that we export are auto and steel, and those those have tariffs right now. And so the the the problem is basically the things Canada is exporting are not necessarily the things that are booming in the United States right now. So, something else we got to discuss is inflation. And I would think in a slowing economy, prices would be coming down, but that's not what I see, especially when it comes to food. And um like I can't believe every time I go to Costco or Walmart, I used to drop 500 bucks. Now it's $1,000. And I was at a butcher shop uh this past weekend. And for the most part, when I go buy my groceries, I really don't know the prices, what I'm paying for things, right? like if it's bananas or apples or whatever it is. But the one thing I always notice is beef tenderloin. And I think it's only because I I buy it at special times because it's so damn expensive. But I was shocked. It was $52 a pound. And that's up from $4 a pound like not even a month ago and early 2020 before all the craziness started. It probably used to go for$25 or $30 a pound depending on what store you go to. what's happening with inflation in this country because to me it just looks like it's never ending. >> Well, um you should be you should be wary of going by the grocery store test because of course food is just is one of the small part of the basket and is maybe the most volatile part. But you're not wrong. Inflation is persistently above the bank's 2% target and has been since 2022 late 2021. However, there is a clear disinflationary trend. It's been volatile. It's been a little slower than we've expected. But the key the key connection between what we were talking about earlier and the inflation numbers is that when unemployment is this high, 7.1% well above what we call the neutral rate, that means there's a lot of slack in the labor market. And that's going to tend to be reducing the pace of wage growth. And when it reduces the pace of wage growth, it will eventually reduce the pace of service sector inflation. It's just that that happens on a 6 to 12 month leg, right? Um and the other big component of inflation is shelter. We're seeing falling rents and falling house prices. And so there's a lot of predictable disinflation baked into the the data that's going to start hitting in 2026. So that's why so we're we're taping this on a Monday. The Bank of Canada meeting is in two days. Markets are pricing around an 80 to 85% chance of a cut. And the reason for that is the Bank Canada knows everything I just said, right? They're looking at this very soft labor market. So they're saying to themselves, "Well, inflation's not going to go up. Inflation's got nowhere to go but down." And so as frustrating as the trends over the last couple years are, um, we we do see this as a as a problem that's headed in the right direction. >> And you bring up a very good point. The Bank of Canada has been very aggressive in cutting rates. And in 2025, 1 million mortgages were coming up for renewal. 2026, I believe the numbers around 1.2 million. So they realize like people's, you know, anybody who bought a home back in 2020 21, their mortgage payments are going to take a big bump here with these higher interest rates. Uh do you think they're trying to get ahead of the curve here and they realize there could be a real storm on the horizon, especially when it comes to the real estate market? >> Yeah, I mean in a sense the economic slowdown is coming at the right time for for dealing with this mortgage renewal cliff. And absolutely. I mean, if you read the Bank of Canada's research papers, this is something they're very much aware of. They know about this this renewal cliff. Um, but it's just one of many factors that they're that they're juggling. I don't think you have to I I I don't actually think their rate cutting cycle would be very different if that problem didn't exist based on based on what they've been doing. It's overwhelmingly driven by the stickiness in inflation balanced against the weakness in the labor market. Just because we're on the topic of uh real estate and also inflation in the city of Toronto, the the property taxes went up 6.9% in 20125. That's up about 25% in the last 5 years, which is a crazy number. But a month after they put up their property taxes, the city councilors gave themselves a raise of 24%. So their annual salary went from $137,000 to $170,000. >> [laughter] >> Is that crazy or what? >> Well, the the the property taxes is is partly a reaction to the fact that many parts of the residential property tax base in Toronto are declining in value. So, to some extent, they're they're raising taxes on a shrinking base just to get the same to get the same revenue numbers. Um, and we think that there's a fair amount of price correction to come in a lot of aspects of the condo market in particular. So, you know, but again, you know, the the the sort of tax planners, uh, they know that and that's part of the reason why I wouldn't be surprised to see another property tax increase next year just out of mathematical necessity based on the the underlying trends. >> Oh man, nothing but positive news from you. You bring up an interesting point about the tax base because in the town where GM is shutting down that plant that employs I think 1300 people, well 12% of that town's tax base comes from General Motors. So it's going to have a significant impact on what's happening there, >> right? So all these these industries, one of the reasons why the auto sector is sort of top of mind is precisely that it's so concentrated, right? It's not like every town has a thousand auto sector jobs. It's that there are some regions of the country that could be completely wiped out by the closure of some of these plants, right? And so that's why both the the federal and the provincial governments are are investing so much time in this. I expect in the coming federal budget, you know, u should be next week uh sometime um you'll see some money for the auto sector and retraining and those kinds of things. So, we talked about the Canadian economy and how weak it's been. And one of the other things that confounds me is when I look at the Toronto Stock Exchange or the TSX, it's doing very well. It's trading at or near all-time highs. The Canadian banks uh are doing very well. A few of them are trading at or near all-time highs. And yet, when I look at the stock market, you know, it's a discounting mechanism for the economy. And yet, here we are, the market's making new all-time highs. How do you reconcile that? We have a weakening economy, but yet when you look at the TSX and its performance, it's doing quite well. >> Well, the the stock market and the economy are not exactly the same thing, and that divergence has been widening over the last several years. So, that happens for a couple of reasons. Reason one is the composition of the TSX is very international. It's so it's it's exposed to a lot of things outside of just the Canadian economy. Um even though Canada's economy hasn't necessarily benefited from the US boom, there are select Canadian companies in the index which are benefiting from it. Um and and you know Canadian corporate profits have held up better than GDP. And so we've seen this sort of this divergence between capital and labor in their in their divided fortunes, right? Companies are able to, you know, they're holding off on hiring, which will tend to reduce unemployment, but that can be a support to profits at least in the short run if they're doing more with the same number of employees. So that's part of it. And the other thing that's been supporting the TSX is of course that the Bank of Canada's in an easing cycle, right? And you know there's this tendency both both the Fed and and most global central banks are all cutting rates. So that's going to tend to support equities because you're you're lowering the discount rate. So uh the TSX has has outperformed many many indices uh so far this year. It's been a real it's been a real success story. Um also a few other specific factors which is um the soaring price of gold because of all the uncertainty that's been a contributor I forget the exact number but I believe it's at least five percentage points of contribution of the index are from gold stocks alone who you know which have had such a huge runup right and so that's just another sort of idiosyncratic factor. So you add all that up, the bottom line is it doesn't mean the economy is doing well. It's for all these sort of other factors. >> And when you look at the Canadian economy, we already discussed how weak it is. You said it's if it's not in a recession right now, it's it's going to be going into a recession. >> Uh >> I think I said flirting >> flirting with recession. Okay. And I can only imagine with the all the what's happening within uh southern Ontario and the auto sectors and all the uncertainty still associated with the trade wars, we're going to be in a recession if not in Q4 or Q1 for sure. But how bad do you think things get in 2026, especially if this whole trade war uh situation continues to be unresolved? the the most important thing for the Canadian economic outlook is what we're doing with Koosma renegotiation, right? Literally, it that's the largest factor by far. And I think that in a scenario where we get Koozma renegotiated, it's important to understand that Canada's effective tariff rate, you know, we have all these bad headlines about steel and autos, but we're actually in a much better place than the EU and Japan and some of these other countries that are facing 15 or you know, Asian some Asian countries close to 20% effective tariff rate. Ours is more like 5 to 8% depending on how you slice it. So, if we get Koozma renegotiated and if, as I suspect, the federal Liberals turn on the taps a little bit in their coming budget and add 10 or 15 billion more in additional spending and maybe uh some subsidies to businesses. That scenario is a scenario where we avoid a recession. I would still expect slow growth because of the uncertainty, but that's why I say a recession isn't necessarily certain. combination of Koosma renegotiation and federal stimulus and one or two more Bank of Canada rate cuts and if oil goes back you know stays in the high60s instead of the high 50s all of that together should avoid a recession right we're still looking at only 1% growth I think you would still see increasing unemployment because we wouldn't be keeping pace with what would be needed but that's my that's my base case is just barely avoiding a recession because of that combination of factors. So then there's the other case which is suppose we don't get kousma renegotiation and our effective tariff rate goes to 15 or 20% the same as all the other countries then you're going to have a recession that's unavoidable. You would have a large deep cross- sector structural recession. Uh that'd be very bad. Unemployment would easily go to eight and a half or 9% if not higher. Um and and you know all the federal spending in the world isn't going to stop that. and oh boy, nothing but good news from you. So, the last severe recession we had in Canada was the early 1990s and and I can't remember what the unemployment rate was, but I'm sure it was double digits. Uh, and I don't even know what the circumstances were that resulted in that, but do you see that same sort of thing happening again? I mean, we already have youth unemployment at uh call it 15%. We haven't seen those numbers since the 1990s. Could it be you talk about this worst case scenario, can it be as bad as the recession we saw in the early 1990s? >> Absolutely. You know, depends on how high the tariff rates go, but if if Donald Trump wakes up one morning and decides to impose massive tariffs on every part of the Canadian economy, um yeah, you could get an early9s recession um pretty easily. And I think in that scenario, it would be accompanied by pretty deep house price declines um in a lot of these a lot of asset price declines, probably a stock market decline. Um so that's that's something to keep an eye on. I think my advice to people is if you're an investor, you look at how rich the TSX is right now, this is a really good time to take some risk off the table, right? I'm not saying sell everything, but this is a good time to derisk the portfolio, shift out of stocks into bonds, maybe outside of Canadian equities, maybe buy more Asian equities, some emerging market equities, have some diversification in the portfolio. Um, because these worst case scenarios do happen. >> Well, that was a great discussion, Robert, and I want to thank you very much for spending time with us today. And a lot of what we discussed is not too positive. I always like to finish on a upbeat note or a more positive note. And the one thing we really have going for us right now are the Toronto Blue Jays. And it doesn't matter if you're on the West Coast or the East Coast or somewhere in between or if you're conservative or bleeding heart liberal, we're all cheering for the uh Toronto Blue Jays. So, go Jays. >> Go Jays. >> Thanks. >> And Robert, if somebody would like to learn more about you and your team at Rosenberg Research or check out some of your products that you offer, where can they go? uh they can go to rosenbergressearch.com and they can request a free a free trial of our research and you'll get access to all of our macro data commentary, all of our market strategy, our thematic research and our special reports. Um so by all means sign up and our our sales teams will will reach out. >> Robert, once again, thank you. >> Thanks.