BC Commercial Leading Indicator Continues to Push Higher

The BCREA Commercial Leading Indicator (CLI) increased 0.48 index points to 122.7 in the second quarter of 2016, in spite of a modest pull-back in economic activity throughout the third quarter. The CLI index is up 2.4 per cent compared to the third quarter of 2015. 

“Job growth in key commercial sectors and robust consumer demand led the CLI higher in the third quarter,” said BCREA Economist Brendon Ogmundson. “A rising CLI points to continued strength in BC commercial real estate activity in 2017.” 

Robust third quarter employment gains offset modest declines in the economic activity and financial components of the CLI. The underlying CLI trend, which smooths often noisy economic data, continues to push higher due to several quarters of strong economic statistics. That uptrend signals further growth in investment, leasing and other commercial real estate activity over the next two to four quarters.

While strong growth in the economic activity component propelled the CLI higher through the first half of the year, a dip in key commerical economic activity indicators like wholesale trade and manufacturing sales were a drag on the index during the third quarter.

Following several months of mixed results, job growth turned positive across all key commercial real estate sectors. The CLI’s index of office employment increased by close to 10,000 jobs in the third quarter of the year, on the heels of a similarly large increase in the second quarter. Moreover, after posted declining job numbers since the beginning of 2016, the average level of employment in the manufacturing sector moved modestly higher in the third quarter.

The CLI’s financial component turned slightly  negative after a second quarter rally in Canadian REITs lost momentum. However, a further tightening  of short-term credit spreads signals that markets  were less concerned about underlying downside risk in the economy.

Q3 Highlights:

Growth in retail sales slowed marginally in the third quarter, but still posted year-overyear growth of nearly 6 per cent. Wholesale trade slowed from over 8 per cent growth in the second quarter to 5.4 per cent in the third. That growth offset a 1.6 per cent quarterly decline in BC manufacturing sales.

• Canadian REIT prices edged down by 1 per cent by the end of the third quarter following a 10 per cent increase in the previous quarter. Narrowing risk spreads were not quite enough to keep the CLI’s financial component positive for a second consecutive quarter. The financial component has now posted declines in five of the last six quarters.

• The CLI measure of office employment increased by close to 10,000 jobs for a second straight quarter while the manufacturing sector broke a string of two straight quarters of declining payrolls. Those employment trends accounted for all of the increase in the CLI in the third quarter.

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