Launch Pad

U.S. consumer spending rose 0.3% in July, the strongest gain in four months, as household demand held up. The increase, led by goods purchases, highlights consumer resilience even as prices remain elevated. The Fed’s preferred inflation gauge, the core personal consumption expenditures price index, also climbed 0.3% on the month and 2.9% from a year earlier, its fastest annual pace since February, underscoring the challenge of sticky inflation for policymakers. We know one person who won’t be happy about that. North of the border, Canada’s economy contracted at a 1.6% annualized pace in Q2, its first decline in nearly two years and the sharpest since the pandemic, as U.S. tariffs drove a 27% decline in exports and business investment fell 10.1%. Domestic demand proved resilient, rising 3.5% on stronger household consumption, government spending, and residential investment. Preliminary data showed modest growth in July after a June dip, suggesting limited spillover from trade into the broader economy. Still, weak income growth and a soft labour market could test households in the coming months, leading the BoC to signal openness to rate cuts if conditions worsen. 

The U.S. stock market is heavily concentrated in a handful of tech giants, with the Mag Seven (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet, and Tesla) making up about 34% of the S&P 500, a record level that rises to nearly 40% when including Broadcom, Berkshire Hathaway, and JPMorgan. This leaves household wealth, index funds, and derivatives markets increasingly tied to the performance of a few firms and exceeds the dot-com era when the top 10 names made up 23% of the index. Retail investors, who now drive 18% of trading volume, will be exposed through S&P 500 trackers, while credit markets are also reliant as tech companies raise billions in debt to fund AI projects. Although today’s tech leaders are far more profitable than past bubbles, their outsized role means even modest setbacks could ripple through equities, bonds, and household savings, amplifying risks across the financial system. 

The EU has proposed removing all tariffs on U.S. industrial goods and extending preferential treatment to certain American farm and seafood products, in line with demands from Trump. In return, the U.S. is expected to lower tariffs on European cars and auto parts to 15% from 27.5%, retroactive to August 1, though the deal still requires approval from the European Parliament and member states. The agreement, which Commission President Ursula von der Leyen called strong, if not perfect, aims to provide business stability, but EU officials warned it could be reassessed if Trump follows through on threats to penalize countries taxing U.S. tech firms. Meanwhile, Canada is still waiting for updates on its own trade agreement, underscoring the uneven progress among America’s major partners. 

Slow but steady. Economists expect the U.S. economy to grow modestly for the remainder of the year and into 2026, with GDP and consumer spending both projected to rise just 1.1% in the second half of this year, down from earlier levels, while inflation remains stubbornly above the Fed’s 2% target. Core inflation is forecast to peak at 3.2% in Q4, driven in part by higher tariffs imposed under Trump, which are feeding into consumer prices and expected to fade only gradually. Unemployment is seen climbing to 4.4% by year-end and staying there through most of 2026, reflecting a softer job market even as business investment is expected to pick up. Despite these headwinds, recession odds over the next 12 months have fallen to 32%, the lowest since March, signaling expectations for sluggish but steady growth rather than a sharp downturn. 

Young Canadians are facing a recessionary job market as entry-level opportunities shrink. Youth unemployment is up more than 5.5% since mid-2022 and job postings for junior tech roles are now 25% below pre-pandemic levels. Reports highlight that junior positions, especially in tech, have been hardest hit, leaving many new graduates locked out just as competition rises from a surge in international students. While senior roles and AI-related positions remain strong, most young workers lack access to them, raising concerns of a structural shift similar to past manufacturing declines. The weakness is not confined to Canada with youth job struggles and declining entry-level postings also seen in the U.S., U.K., and France, suggesting a broader, possibly permanent, restructuring of early career pathways in the age of AI. 

Back-to-school season is here, with classrooms and campuses filling up once again after the Labour Day long weekend. It’s always a mix of emotions, with parents of younger kids quietly cheering the return of routine, while some empty nesters face the bittersweet task of dropping off their college or university-bound kids for those final, sometimes teary goodbyes. Still, whether it’s kindergarten drop-offs or frosh week, September brings its familiar blend of excitement, nerves, the constant swipe (or tap) of the credit card, and the collective sigh that summer really is over. The Launch Pad team is feeling those back-to-school emotions too, as we say goodbye to our fantastic co-op student, while one parent among us prepares for a flight west to return his child to beautiful UBC. Here’s to enjoying the last drops of summer and the moments with the kiddos. 


Diversion: Talk about a Dark Horse