Mortgages

TORONTO–(BUSINESS WIRE)–DREAM IMPACT TRUST (TSX: MPCT.UN) (“Dream Impact”, “we”, “our” or the “Trust”) today reported its financial results for the three and nine months ended September 30, 2022 (“third quarter”).

For the second consecutive year, the Trust is pleased to achieve a five-star rating from GRESB, the Global Real Estate Sustainability Benchmark, which is recognition of its placement in the top 20% global benchmark with an overall score of 88/100. The Trust’s score can be attributed to excellent performance in Leadership, Policies, Reporting, Targets and, Data Monitoring and Review. Annual participation in the GRESB assessment provides the Trust with the opportunity for a third-party assessment of our continued progress towards achieving the Trust’s impact/ESG related goals. Further details on specific ESG metrics will be disclosed as part of our 2021 Sustainability Update report, which will be published in November.

“We are pleased with the Trust’s steady progress to create a more resilient portfolio,” said Michael Cooper, Portfolio Manager. “As we add an additional 210 multi-family units to our recurring income segment in the quarter, and construction continues on our 1,863-unit rental buildings in the West Don Lands, we believe we are well positioned to weather ongoing market disruptions by investing in high-quality assets, and contributing meaningfully to important societal issues. While our pace of external acquisitions may slow in the near term, with the largest portfolio of net-zero development and our extensive residential pipeline, we have tremendous internal growth.”

Selected financial and operating metrics for the three and nine months ended September 30, 2022, are summarized below:

	Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021
Condensed consolidated results of operations
Net income (loss)	$	337	$	2,154	$	1,309	$	(5,509)
Net income (loss) per unit⁽¹⁾		0.01		0.03		0.02		(0.08)

Distributions declared and paid per unit		0.10		0.10		0.30		0.30
Units outstanding – end of period		66,094,687		64,939,362		66,094,687		64,939,362
Units outstanding – weighted average		65,982,734		65,066,259		65,637,245		64,934,850

During the three months ended September 30, 2022, the Trust reported net income of $0.3 million compared to net income of $2.2 million in the prior year. The change in earnings was primarily driven by timing of fair value adjustments on our income properties and developments, upon milestone achievements, as well as higher interest expense. This was partially offset by the impact of foreign exchange fluctuations on the Trust’s investment in the U.S. hotel.

As at September 30, 2022, the Trust had $9.0 million of cash-on-hand, which included unused proceeds from the Trust’s convertible debenture issuance. The Trust’s debt-to-asset value⁽¹⁾ as at September 30, 2022 was 27.3%, an increase relative to 25.7% as of June 30, 2022, primarily due to draws on the credit facility. For similar reasons, the Trust’s debt-to-total asset value, inclusive of project-level debt⁽¹⁾ and assets within our development segment, including equity accounted investments, was 60.0% as at September 30, 2022, compared to 57.4% as at June 30, 2022. This includes long-term government debt at low interest rates and high leverage, providing financial benefits that help us pay for the social benefits we provide, including our affordable housing and sustainability programs within our communities. As at September 30, 2022, the Trust had drawn $24.8 million on its $50.0 million credit facility.

As part of the Trust’s ongoing risk management practices, the Trust monitors the impact of macroeconomic factors on the business. This includes assessing the impact of cost escalations on operations and construction projects, and the impact of rising interest rates on our portfolio. We continue to monitor our capital allocation on an ongoing basis, pursue refinancing opportunities which mitigate interest rate risk, and tender a significant portion of development costs prior to construction commencement which helps contain inflationary risk.

Recurring Income

In the third quarter, the Trust’s recurring income segment generated net income of $1.2 million, consistent with prior year, although the composition of earnings differed in each period due to transaction costs, fair value adjustments and occupancy rates across the portfolio.

Throughout the period, we have continued to see strong leasing momentum across our multi-family rental buildings, ending the quarter with in-place and committed residential occupancy at 93.5% as of September 30, 2022, up from 82.5% as of June 30, 2022. Notably, Aalto Suites, a 162-unit multi-family rental building at Zibi, ended the quarter with in-place and committed occupancy at 74.7%, up from 34.6% at June 30, 2022. Aalto Suites has 95% of its units designated as affordable and we anticipate achieving stabilization for the asset in early 2023.

In the third quarter, the Trust acquired a 50% interest in 70 Park, a 210-unit multi-family rental building adjacent to the Port Credit GO station and in close proximity to the Trust’s Brightwater development. The gross purchase price for the site was $105.5 million (at 100%), of which approximately $25 million was allocated to land slated for redevelopment on the site. Inclusive of 70 Park, the Trust’s multi-family rental portfolio is comprised of nearly 1,600 units of which 25% are considered affordable.

Based on the Trust’s current development pipeline, we have an additional 2,826 residential units and 153,000 square feet (“sf”) of commercial and retail (at 100%) with an estimated value on completion of $508.5 million that will be completed and contribute to recurring income over the next three years. For further details, refer to the “Three-Year Recurring Income” table in Section 2.1, “Recurring Income”, in the Trust’s MD&A for the three and nine months ended September 30, 2022.

Development

In the third quarter, the development segment generated net income of $2.9 million compared to $4.2 million in the prior period. The decrease relative to prior year was driven by fair value gains recognized in 2021 within the Trust’s equity accounted investments, partially offset by higher foreign exchange gains on the Trust’s investment in the U.S. hotel this year.

In the period, we completed the acquisition of the Berkeley land assembly, which comprises five income properties adjacent to the Trust’s commercial asset, 49 Ontario, located in downtown Toronto. Inclusive of one property purchased in 2021, the Berkeley land assembly was purchased for $16.9 million, including transaction costs. The Trust has submitted a rezoning application for over 800,000 sf for this site and expects rezoning to be achieved by 2023. As of September 30, 2022, 49 Ontario was carried at $95.0 million per the Trust’s financial statements.

Other⁽²⁾

In the third quarter, the Other segment generated a net loss of $3.8 million compared to $3.3 million in the prior year. The increase was primarily driven by interest expense on the Trust’s convertible debentures and credit facility. Partially offsetting this was a deferred compensation recovery and decrease in the asset management fee as a result of fluctuations in the Trust’s share price.

Cash Generated from Operating Activities

Cash generated in operating activities for the three months ended September 30, 2022 was $1.5 million compared to cash generated of $4.3 million in the prior year, a decrease driven by proceeds received from a legacy development in the prior year and timing of deposits made on the Trust’s acquisitions.

Footnotes
(1)		For the Trust’s definition of the following specified financial measures: debt-to-asset value, debt-to-total asset value, inclusive of project-level debt, net income (loss) per unit, please refer to the cautionary statements under the heading “Specified Financial Measures and Other Measures” in this press release and the Specified Financial Measures and Other Disclosures section of the Trust’s MD&A.
(2)		Includes other Trust amounts not specifically related to the segments.

Conference Call

Senior management will host a conference call on Thursday November 3 at 2:00 pm (ET). To access the call, please dial 1-866-455-3403 in Canada or 647-484-8332 elsewhere and use passcode 24662328#. To access the conference call via webcast, please go to the Trust’s website at www.dreamimpacttrust.ca and click on Calendar of Events in the News and Events section. A taped replay of the conference call and the webcast will be available for 90 days.

About Dream Impact

Dream Impact is an open-ended trust dedicated to impact investing. Dream Impact’s underlying portfolio is comprised of exceptional real estate assets reported under two operating segments: development and investment holdings, and recurring income, that would not be otherwise available in a public and fully transparent vehicle, managed by an experienced team with a successful track record in these areas. The objectives of Dream Impact are to create positive and lasting impacts for our stakeholders through our three impact verticals: environmental sustainability and resilience, attainable and affordable housing, and inclusive communities; while generating attractive returns for investors. For more information, please visit: www.dreamimpacttrust.ca.

Specified Financial Measures and Other Measures

The Trust’s condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain specified financial measures, including debt-to-asset value, debt-to-total asset value inclusive of project-level debt, and net income (loss) per unit, as well as other measures discussed elsewhere in this release. These specified financial measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. The Trust has presented such specified financial measures as management believes they are relevant measures of our underlying operating performance and debt management. Specified financial measures should not be considered as alternatives to unitholders’ equity, net income, total comprehensive income or cash flows generated from operating activities, or comparable metrics determined in accordance with IFRS as indicators of the Trust’s performance, liquidity, cash flow and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to Section 6, “Specified Financial Measures and Other Disclosures” in the Trust’s MD&A for the three and nine months ended September 30, 2022.

“Debt-to-asset value” represents the total debt payable for the Trust divided by the total asset value of the Trust as at the applicable reporting date. This non-GAAP ratio is an important measure in evaluating the amount of debt leverage; however, it is not defined by IFRS, does not have a standardized meaning, and may not be comparable with similar measures presented by other issuers.

As at	September 30, 2022		December 31, 2021
Total debt	$	203,585	$	133,150
Unamortized discount on host instrument of convertible debentures		1,152		809
Conversion feature		(345)		(357)
Unamortized balance of deferred financing costs		3,023		1,300
Total debt payable	$	207,415	$	134,902
Total assets		760,203		701,702
Debt-to-asset value		27.3%		19.2%

“Debt-to-total asset value, inclusive of project-level debt” represents the Trust’s total debt payable plus the debt payable within our development and investment holdings, and equity accounted investments, divided by the total asset value of the Trust plus the debt payable within our development and investment holdings, and equity accounted investments, as at the applicable reporting date. This specified financial measure is an important measure in evaluating the amount of debt leverage inclusive of project-level debt within our development and investment holdings, and equity accounted investments; however, it is not defined by IFRS, does not have a standardized meaning, and may not be comparable with similar measures presented by other issuers.

	September 30, 2022		December 31, 2021
Debt payable within our development and investment holdings, and equity accounted investments	$	622,683	$	493,217
Total assets		760,203		701,702
Total assets, inclusive of project-level debt	$	1,382,886	$	1,194,919

Debt payable within our development and investment holdings, and equity accounted investments	$	622,683	$	493,217
Total debt payable		207,415		134,902
Total debt, inclusive of project-level debt	$	830,098	$	628,119

Debt-to-total asset value, inclusive of project-level debt and assets within our development segment, including equity accounted investments		60.0%		52.6%

“Net income (loss) per unit” represents net income (loss) of the Trust divided by the weighted average number of units outstanding during the period.

	Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021
Net income (loss)	$	337	$	2,154	$	1,309	$	(5,509)
Units outstanding – weighted average		65,982,734		65,066,259		65,637,245		64,934,850
Net income (loss) per unit	$	0.01	$	0.03	$	0.02	$	(0.08)

Forward-Looking Information

This press release may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “would”, “could”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, or “continue”, or similar expressions suggesting future outcomes or events. Some of the specific forward-looking information in this press release may include, among other things, statements relating to the Trust’s objectives and strategies to achieve those objectives; the publication and details of the 2021 Sustainability Update Report; the resiliency of the Trust’s portfolio; the belief that the Trust is well positioned to withstand market disruptions by investing in high-quality assets; the expectation that external acquisitions may slow in the near term; the Trust’s internal growth potential; the expectation that long-term government debt at low interest rates will provide certain financial benefits; the Trust’s ongoing monitoring of capital allocation, pursuit of refinancing opportunities to mitigate interest rate risks, and tender significant portions of development costs prior to construction commencement to contain inflationary risk; the Trust’s ability to execute on transactions and successfully navigate markets; expected growth of the Trust’s recurring income segment; our development and redevelopment pipeline; expectations regarding rezoning applications and related square footage and finalization dates, including in respect of the Berkeley land assembly; the Trust’s ability to achieve its impact and sustainability goals, and implementing other sustainability initiatives throughout its projects; and the 2,826 residential units and 153,000 sf of commercial and retail (at 100%) with an estimated value upon completion of $508.5 million which are expected to be completed and contribute to recurring income over the next three years.

Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Trust’s control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to: adverse changes in general economic and market conditions; the impact of the novel coronavirus (COVID-19 and variants thereof) pandemic on the Trust; risks associated with unexpected or ongoing geopolitical events, including disputes between nations, terrorism or other acts of violence, and international sanctions; inflation; the disruption of free movement of goods and services across jurisdictions; the risk of adverse global market, economic and political conditions and health crises; risks inherent in the real estate industry; risks relating to investment in development projects; impact investing strategy risk; risks relating to geographic concentration; risks inherent in investments in real estate, mortgages and other loans and development and investment holdings; credit risk and counterparty risk; competition risks; environmental and climate change risks; risks relating to access to capital; interest rate risk; the risk of changes in governmental laws and regulations; tax risks; foreign exchange risk; acquisitions risk; and leasing risks. Our objectives and forward-looking statements are based on certain assumptions with respect to each of our markets, including that the general economy remains stable; the gradual recovery and growth of the general economy continues over 2022; that no unforeseen changes in the legislative and operating framework for our business will occur; that there will be no material change to environmental regulations that may adversely impact our business; that we will meet our future objectives, priorities and growth targets; that we receive the licenses, permits or approvals necessary in connection with our projects; that we will have access to adequate capital to fund our future projects, plans and any potential acquisitions; that we are able to identify high quality investment opportunities and find suitable partners with which to enter into joint ventures or partnerships; that we do not incur any material environmental liabilities; interest rates remain stable; inflation remains relatively low; there will not be a material change in foreign exchange rates; that the impact of the current economic climate and global financial conditions on our operations will remain consistent with our current expectations; our expectations regarding the impact of the COVID-19 pandemic and government measures to contain it; our expectation regarding ongoing remote working arrangements; and competition for and availability of acquisitions remains consistent with the current climate.

All forward-looking information in this press release speaks as of October 31, 2022. The Trust does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law. Additional information about these assumptions and risks and uncertainties is disclosed in the Trust’s filings with securities regulators filed on the System for Electronic Document Analysis and Retrieval (www.sedar.com), including its latest annual information form and MD&A. These filings are also available at the Trust’s website at www.dreamimpacttrust.ca.

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“Credit Suisse is probably going bankrupt.”

It was Saturday, Oct. 1, and Jim Lewis, who frequently posts on Twitter under the moniker Wall Street Silver, made that assertion to his more than 300,000 followers. “Markets are saying it’s insolvent and probably bust. 2008 moment soon?”

Mr. Lewis was among hundreds of people — many of them amateur investors — who had been speculating about the fate of Credit Suisse, the Swiss bank. It was in the middle of a restructuring and had become an easy target after decades of scandals, failed attempts at reform and management upheavals.

There seemed to be no immediate provocation for Mr. Lewis’s weekend tweet other than a memo that Ulrich Körner, the chief executive of Credit Suisse, had sent employees the day before, reassuring them that the bank was in good financial health.

But the tweet, which has been liked more than 11,000 times and retweeted more than 3,000 times, was one of many that helped ignite a firestorm on social media forums like Twitter and Reddit. The rumor that Credit Suisse was in trouble ricocheted around the world, stumping bank executives and forcing them to call shareholders, trading partners and analysts to reassure them that everything was fine before markets reopened on Monday.

prop up the shares of GameStop, the video game retailer, determined to outsmart hedge funds that had bet the company’s shares would fall.

But what started as a spontaneous effort to take down Wall Street has since become an established presence in the market. Millions of amateur investors have embraced trading, including more sophisticated strategies such as shorting. As the Credit Suisse incident shows, their actions highlight a new source of peril for troubled companies.

Founded in Switzerland in 1856 to help finance the expansion of railroads in the tiny European nation, Credit Suisse has two main units — a private wealth management business and an investment bank. However, the bank has often struggled to maintain a pristine reputation.

It has been the repository of funds from businesspeople who are under sanctions, human rights abusers and intelligence officials. The U.S. government has fined it billions of dollars for its role in helping Americans file false tax returns, marketing mortgage-backed securities tied to the 2008 financial crisis and helping customers in Iran, Sudan and elsewhere breach U.S. sanctions.

In the United States, Credit Suisse built its investment banking business through acquisitions, starting with the 1990 purchase of First Boston. But without a core focus, the bank — whose top bosses sit in Switzerland — has often allowed mavericks to pursue new revenue streams and take outsize risks without adequate supervision.

collapsed. Credit Suisse was one of many Wall Street banks that traded with Archegos, the private investment firm of Bill Hwang, a former star money manager. Yet it lost $5.5 billion, far more than its rivals. The bank later admitted that a “fundamental failure of management and controls” had led to the debacle.

HOBBS, N.M.–(BUSINESS WIRE)–Lea County State Bank and the Federal Home Loan Bank of Dallas (FHLB Dallas) will award $16,000 in Partnership Grant Program (PGP) funds to Habitat for Humanity of Hobbs, New Mexico Area (Hobbs Habitat). Hobbs Habitat provides affordable mortgages and uses volunteers to help homeowners build their own homes. The funds will be awarded at a ceremonial check presentation Thursday, October 13. Media is encouraged to attend.

PGP grants are awarded annually through FHLB Dallas’ member institutions to help promote and strengthen relationships between community-based organizations and FHLB Dallas members. FHLB Dallas provides up to a 3:1 match of member contributions from $500 to $4,000 to provide up to $12,000 in matched funding.

Hobbs Habitat will use the grant for contractual services to develop a new subdivision that includes 14 homes to be sold to families at cost. Hobbs Habitat also plans to use funds for new office equipment.

WHAT:		Check presentation for Habitat for Humanity of Hobbs

WHEN:		11:00 a.m. Thursday, October 13, 2022

WHO:		Dickie Wall, Senior Vice President, Lea County State Bank
		Alfonso Cisneros, Vice President, Lea County State Bank and Board Member, Habitat For Humanity of Hobbs
		Richard Sanchez, Executive Director, Habitat for Humanity of Hobbs New Mexico Area
		Kathie Wiseman, Administrative Assistant, Habitat for Humanity of Hobbs New Mexico Area
		Melanie Dill, Community and Economic Development Product Manager, FHLB Dallas

WHERE:		Offices of Habitat for Humanity of Hobbs New Mexico Area
		301 E. Navajo Drive, Hobbs, NM 88240

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LOUGHTON, England — After nearly two decades of renting in one of the world’s most expensive cities, the Szostek family began the week almost certain that they would finally own a home.

Transplants to London who fell in love as housemates, Laetitia Anne, an operations manager from France and her husband, Maciej Szostek, a chef from Poland, had long dreamed of being homeowners. They had waited out the uncertain pandemic years and worked overtime shifts to save up for the deposit for a mortgage on a three-bedroom apartment in a neighborhood outside London. Their 13-year-old twins were excited they could finally paint the walls.

That was before British financial markets were upended, with the pound briefly hitting a record low against the dollar on Monday and interest rates soaring so rapidly that the Bank of England was forced to intervene to restore order. The economic situation was so volatile that some mortgage lenders temporarily withdrew many products.

By Tuesday evening, the Szostek family learned the bad news: The loan that they were close to securing had fallen through. Suddenly, they were scrambling to find another lender as interest rates climb higher.

loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

The Federal Reserve’s decision to raise interest rates again is hardly a positive development for anyone with a job, a business or an investment in the stock or bond market.

But it isn’t a great shock, either.

This is all about curbing inflation, which is running at 8.3 percent annually, near its highest rate in 40 years. On Wednesday, the Fed raised the short-term federal funds rate for a third consecutive time, to 3.25 percent, and said it would keep increasing it.

“We believe a failure to restore price stability would mean far greater pain later on,” Jerome H. Powell, the Fed chair, said. He acknowledged that the Fed’s rate increases would raise unemployment and slow the economy.

last time severe inflation tested the mettle of the Federal Reserve was the era of Paul A. Volcker, who became Fed chair in August 1979, when inflation was already 11 percent and still rising. He managed to bring it below 4 percent by 1983, but at the cost of two recessions, sky-high unemployment and horrendous volatility in financial markets.

around 6 percent — and had set the country on a path toward price stability that lasted for decades.

The central bank raised its key short-term rate by a substantial three-quarters of a point for the third consecutive time.

Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.

The Fed’s move boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008.

The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full percentage point higher than they had forecast as recently as June. And they expect to raise the rate further next year, to about 4.6%. That would be the highest level since 2007.

On Wall Street, stock prices fell and bond yields rose in response to the Fed’s projection of further steep rate hikes ahead.

The central bank’s action Wednesday followed a government report last week that showed high costs spreading more broadly through the economy, with price spikes for rents and other services worsening even though some previous drivers of inflation, such as gas prices, have eased. By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Fed officials have said they’re seeking a “soft landing,” by which they would manage to slow growth enough to tame inflation but not so much as to trigger a recession. Yet economists increasingly say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a full-blown recession late this year or early next year.

In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years, with rising unemployment. It expects the jobless rate to reach 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, any time the unemployment rate has risen by a half-point over several months, a recession has always followed.

Fed officials now see the economy expanding just 0.2% this year, sharply lower than its forecast of 1.7% growth just three months ago. And it expects sluggish growth below 2% from 2023 through 2025.

And even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1% at the end of next year, well above its 2% target.

Chair Jerome Powell acknowledged in a speech last month that the Fed’s moves will “bring some pain” to households and businesses. And he added that the central bank’s commitment to bringing inflation back down to its 2% target was “unconditional.”

Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier. Declining gas prices might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.

Short-term rates at a level the Fed is now envisioning would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans. The economy hasn’t seen rates as high as the Fed is projecting since before the 2008 financial crisis. Last week, the average fixed mortgage rate topped 6%, its highest point in 14 years. Credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.

Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession. On Sunday, though, President Biden said on CBS’ “60 Minutes” that he believed a soft landing for the economy was still possible, suggesting that his administration’s recent energy and health care legislation would lower prices for pharmaceuticals and health care.

Some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases – a key driver of inflation — are levelling off and by some measures even declining a bit.

Surveys also show that Americans are expecting inflation to ease significantly over the next five years. That is an important trend because inflation expectations can become self-fulfilling: If people expect inflation to ease, some will feel less pressure to accelerate their purchases. Less spending would then help moderate price increases.

Konczal said there is a case to be made for the Fed to slow its rate hikes over the next two meetings.

“Given the cooling that’s coming,” he said, “you don’t want to rush into this.”

The Fed’s rapid rate hikes mirror steps that other major central banks are taking, contributing to concerns about a potential global recession. The European Central Bank last week raised its benchmark rate by three-quarters of a percentage point. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all carried out hefty rate increases in recent weeks.

And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the U.S. economy, too.

Even at the Fed’s accelerated pace of rate hikes, some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Many economists sound convinced that widespread layoffs will be necessary to slow rising prices. Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5% to get inflation back to the Fed’s 2% target.

Only a downturn that harsh would reduce wage growth and consumer spending enough to cool inflation, according to the research, by Johns Hopkins University economist Laurence Ball and two economists at the International Monetary Fund.

Additional reporting by The Associated Press.

: newsy.com

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In a recent speech pointedly titled “Bringing Inflation Down,” Lael Brainard, the Federal Reserve’s vice chair, zoomed in on the automobile market as a real-world example of a major uncertainty looming over the outlook for price increases: What will happen next with corporate profits.

Many companies have been able to raise prices beyond their own increasing costs over the past two years, swelling their profitability but also exacerbating inflation. That is especially true in the car market. While dealerships are paying manufacturers more for inventory, they have been charging customers even higher prices, sending their profits toward record highs.

Dealers could pull that off because demand has been strong and, amid disruptions in the supply of parts, there are too few trucks and sedans to go around. But — in line with its desire for the economy as a whole — the Fed is hoping both sides of that equation could be on the cusp of changing.

data, and several industry experts said they didn’t see a return to normal levels of output for years as supply problems continue. Prices are still increasing swiftly, and dealer profits remain sharply elevated with little sign of cracking.

Ford Motor said on Monday that it would spend $1 billion more on parts than it was planning to in the third quarter because some components had become more expensive and harder to find.

By contrast, the supply of used cars has rebounded after plunging in the pandemic, and prices have begun to depreciate at a wholesale level, where dealers buy their stock. But, so far, those dealers aren’t really passing those savings along to consumers. The price of a typical used car has stabilized around $28,000, up 9 percent from a year ago, based on Cox Automotive data. Official used-car inflation data is easing, but only slightly.

Why consumer used-car prices — and dealer profits — are taking time to moderate is something of a mystery. Jonathan Smoke, chief economist at Cox Automotive, said dealers might be basing their prices on what they paid earlier in the year, when costs were higher, for the cars sitting on their lots.

“Dealers are feeling it,” Mr. Smoke said of the price moderation. “But because they price their vehicles based on what they pay for them, the consumer isn’t seeing the price discounts yet.”

Some early instances of discounting are showing up. At the Buick and GMC dealership that Beth Weaver runs in Erie, Pa., demand for used cars has begun to slow down, and the business has sold a few vehicles at a loss.

rolling lockdowns in China.

The Fed could raise rates so much that it snuffs out demand, but given how much pent-up car-buying appetite exists, Mr. Murphy thinks it would take a lot.

“You probably would have to go farther on rates than they have so far, or even than they are expected to go,” he said. “There may be a point at which you have enough pain that you see a pause on demand.”

If demand continues to outstrip new-car supply and dealers continue to reap big profits, that could limit how quickly inflation will ease. If the mismatch is large enough for sellers to keep pushing up prices without losing customers, it could even continue to fuel inflation.

While the car market is just one industry, the uncertainty of its return to normal holds a few lessons for the Fed. For one thing, new-car production makes it clear that supply chain disruptions are improving but not gone.

More hopefully, the car industry could offer evidence that the laws of economics are likely to reassert themselves eventually. Used-car prices have at least stopped their ascent as inventory has grown, and experts say discounting is likely around the corner. If that happens, it could be evidence that companies won’t be able to keep prices and profits high indefinitely once supply catches up with demand.

By Associated Press
September 15, 2022

Consumer spending accounts for nearly 70% of U.S. economic activity.

Americans picked up their spending a bit in August from July even as surging inflation on household necessities like rent and food took a toll on family budgets.

U.S. retail sales rose an unexpected 0.3% last month after falling 0.4% in July, the Commerce Department said Thursday. Excluding business at gas stations, sales rose 0.8%.

Sales at grocery stores rose 0.5% , helped by rising prices in food.

There was, however, weakening in some areas of discretionary spending with Americans fully aware of inflation’s bite. Business at restaurants ticked up 1.1%, but the pace has slowed. Sales at furniture stores fell 1.3%. Online sales fell 0.7% last month after Amazon’s Prime Day boosted e-commerce sales in July.

“Retailers would probably like to be growing more, especially relative to inflation, but I’m not sure they could realistically hope for much more,” said Ted Rossman, senior industry analyst at Bankrate.com. “Consumer spending habits are changing as the pandemic continues to recede and inflation remains high.”

Consumer spending accounts for nearly 70% of U.S. economic activity and Americans have remained mostly resilient even with inflation near four-decade highs. Yet surging prices for everything from mortgages to milk have upped the anxiety level. Overall spending has slowed and shifted increasingly toward necessities like food, while spending on electronics, furniture, new clothes and other non-necessities has faded.

On Thursday, it appeared that the U.S. dodged a national freight rail strike, which could have sent retail prices higher.

Still, inflation remains stubbornly high. Lower gas costs slowed U.S. inflation for a second straight month in August, but most other prices across the economy kept going up — evidence that inflation remains a heavy load for American households.

Consumer prices rose 8.3% from a year earlier and 0.1% from July. But the jump in “core” prices, which exclude volatile food and energy costs, was especially worrisome. It outpaced expectations and sparked fear that the Federal Reserve will increase interest rates more aggressively and raise the risk of a recession.

The government’s monthly report on retail sales covers about a third of all consumer purchases and doesn’t include spending on most services, ranging from plane fares and apartment rents to movie tickets and doctor visits. In recent months, Americans have been shifting their purchases away from physical goods and more toward travel, hotel stays and plane trips as the threat of the virus fades.

Additional reporting by The Associated Press.

: newsy.com

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By Associated Press
September 9, 2022

The 30-year mortgage rate jumped to 5.89% from 5.66% last week, according to mortgage buyer Freddie Mac. One year ago, the rate stood at 2.88%.

Average long-term U.S. mortgage rates jumped again this week, hitting the highest levels in almost 14 years and pushing even more would-be buyers out of the market.

Mortgage buyer Freddie Mac reported Thursday that the 30-year rate jumped to 5.89% from 5.66% last week. That’s the highest the long-term rate has been since November of 2008, just after the housing market collapse set off the Great Recession. One year ago, the rate stood at 2.88%.

The average rate on 15-year, fixed-rate mortgages, popular among those looking to refinance their homes, rose to 5.16% from 4.98% last week. That’s the first time the 15-year rate has been above 5% since 2009, as the real estate market went into a years-long slump. Last year at this time the rate was 2.19%.

Rising interest rates — in part a result of the Federal Reserve’s aggressive push to tamp down inflation — have cooled off a housing market that has been hot for years. Many potential home buyers are getting pushed out of the market as the higher rates have added hundreds of dollars to monthly mortgage payments. Sales of existing homes in the U.S. have fallen for six straight months, according to the National Association of Realtors.

Mortgage rates don’t necessarily mirror the Fed’s rate increases, but tend to track the yield on the 10-year Treasury note. That’s influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.

Recently, faster inflation and strong U.S. economic growth have sent the 10-year Treasury rate up sharply, to 3.27%.

The Fed has raised its benchmark short-term interest rate four times this year, and Chairman Jerome Powell has said that the central bank will likely need to keep interest rates high enough to slow the economy “for some time” in order to tame the worst inflation in 40 years.

The government reported the U.S. economy shrank at a 0.6% annual rate from April through June, a second straight quarter of economic contraction, which meets one informal sign of a recession. Most economists, though, have said they doubt that the economy is in or on the verge of a recession, given that the U.S. job market remains robust.

Applications for jobless aid fell last week to their lowest level since May, despite the Fed’s moves to tame inflation, which usually tends to cool the job market as well.

Additional reporting by The Associated Press.

: newsy.com

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Russia’s invasion of Ukraine and the continuing effects of the pandemic have hobbled countries around the globe, but the relentless series of crises has hit Europe the hardest, causing the steepest jump in energy prices, some of the highest inflation rates and the biggest risk of recession.

The fallout from the war is menacing the continent with what some fear could become its most challenging economic and financial crisis in decades.

While growth is slowing worldwide, “in Europe it’s altogether more serious because it’s driven by a more fundamental deterioration,” said Neil Shearing, group chief economist at Capital Economics. Real incomes and living standards are falling, he added. “Europe and Britain are just worse off.”

eightfold increase in natural gas prices since the war began presents a historic threat to Europe’s industrial might, living standards, and social peace and cohesion. Plans for factory closings, rolling blackouts and rationing are being drawn up in case of severe shortages this winter.

China, a powerful engine of global growth and a major market for European exports like cars, machinery and food, is facing its own set of problems. Beijing’s policy of continuing to freeze all activity during Covid-19 outbreaks has repeatedly paralyzed large swaths of the economy and added to worldwide supply chain disruptions. In the last few weeks alone, dozens of cities and more than 300 million people have been under full or partial lockdowns. Extreme heat and drought have hamstrung hydropower generation, forcing additional factory closings and rolling blackouts.

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