The BCREA Commercial Leading Indicator (CLI) rose from 144 to 150 in the first quarter of 2021, representing the third consecutive increase as the economy recovered from the COVID-19-induced recession. Compared to the same time last year, the index was up by 15 per cent.
It is important to note that while the economy is posting a very strong recovery, we are still in an abnormal and uncertain environment for commercial real estate. Normally, the type of growth we see reflected in the CLI would imply an improvement in demand for retail and office space. However, the complexities of the COVID-19 pandemic and related public health restrictions are driving a wedge between what we see in the data and what is being experienced on the ground.

A 12 per cent jump in manufacturing activity, largely due to surging demand and prices for wood products, and a 6 per cent increase in wholesale trade activity were the main contributors from the economic activity component of the CLI.

Employment in key commercial real estate sectors such as finance, insurance, real estate (FIRE) and leasing increased by about 13,000 jobs in the first quarter. While our office employment measure is now at an all-time high, it is unclear what the implications are for office space demand given the uncertainty around the near-term outlook for a return to traditional office environments. Despite very strong sales activity, manufacturing employment fell by about 6,500 jobs. That decline may be a temporary phenomenon owing to the third wave of COVID-19 and its impact on manufacturing work.

The CLI’s financial component was positive in the first quarter of 2021, as REIT prices rose to their highest level since the fourth quarter of 2019 and risk spreads continued to narrow.

The Canadian economy expanded at a 5.6 per cent annual rate in the first quarter of 2021, including very strong growth in March. However, restrictions due to the third wave of the pandemic point to a minor contraction of output in the month of April before getting back on track for the rest of the year. Growth was led by a 9.4 per cent increase in housing investment, which led the overall recovery, rising 26.5 per cent since the first quarter of last year. Household spending was up 0.7 per cent in the first quarter or about 2.7 per cent on an annualized basis as household disposable income rose for the first time following two consecutive declines . Households continue to save at historically high rates during the pandemic. The national household savings rate rose to 13.1 per cent in the first quarter of 2021, more than double the savings rate this time last year. As vaccinations continue a strong ascent, we expect the Canadian economy to record about 6 per cent growth this year.

The Canadian economy is enjoying strong growth and that growth should continue through most of this year as ramped up vaccinations combine with pent-up demand and unprecedented household savings. While strong economic growth this year is a near certainty, what is less certain is the impact that growth may have on inflation and therefore the direction of the Bank of Canada. Most view the recent increase in inflation as a temporary phenomenon driven mainly by “base-year” and other transitory effects. While there is some risk that an over-stimulated economy may be more inflationary than currently believed, there remains considerable slack in the Canadian economy and financial markets remain unconvinced that the economy is headed for markedly higher inflation. That has left government bond yields and fixed mortgage rates low and stable for the past several months.

For more information, please contact: Gino Pezzani.
Link: https://mailchi.mp/bcrea/canadian-real-gdp-growth-q12021

Here’s an interesting fact: most people who moved during the COVID-19 pandemic didn’t flee big cities or even move very far away from their previous homes.

The Bankrate website reports on a survey it conducted that the top three cities people left were Manhattan, Houston, and Austin, but each city lost a net of fewer than 15,000 citizens. According to mail forwarding data from the U.S. Postal Service, the rest of the cities in the top 10 list lost fewer than 10,000 residents overall.

Why did they move? Respondents said they relocated to be closer to friends or family, find a better cost of living, or have more living space.

This month’s COVID-19 Recovery Dashboard shows a calming of provincial housing markets following record activity in March. Employment in the province felt the impact of new COVID-19 “circuit breaker restrictions” implemented toward the end of March. Those circuit breaks also prompted a dip in retail sales in April. On the other hand, the provincial manufacturing and trade sector continues to be very strong as the global economic recovery takes hold. For a more comprehensive overview of BC's economic recovery, click here.

For more information, please contact: Gino Pezzani.

Mental health may be improving in the wake of the pandemic. U.S. workers seem to be demonstrating mental resilience as the pandemic shows signs of easing, according to the latest Mental Health Index: U.S. Worker Edition. By end of February 2021, reports show stress, memory, resilience, conscious negativity, risk of post- traumatic stress disorder, social anxiety, and depression had all returned to pre-pandemic levels.

Among some of the positive findings, risk of addiction among women is down 39%, non-conscious negativity bias is down 8%, and social connectivity is up 3%.

Canadian retail sales increased 3.6% m/m on a seasonally-adjusted basis in March. Sales were higher in 10 of 11 sub-sectors, led by higher sales at garden equipment and building stores. Excluding more volatile sectors like motor-vehicles and gasoline sales , retail sales were up 4.7% in February. Statistics Canada also released a preliminary estimate for April showing retail sales declined 5.1% as enhanced “circuit-breaker” measures were implemented in many provinces to stem the third wave of COVID-19.

In BC, seasonally-adjusted retail sales were down 1.1% m/m as COVID-19 cases surged through the month of March. Retail sales fell 2% m/m in Metro Vancouver . On a non-seasonally adjusted basis, BC retail sales were up by 20% compared to the same time last year.

In March, Canadian e-commerce sales rose 58.5% year-over-year to $3.7 billion, accounting for 6.3% of total retail sales. The share of e-commerce was down 0.7 percentage points as more brick-and-mortar stores were open to in-person shopping.