CLI Dips in Fourth Quarter 2021

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The BCREA Commercial Leading Indicator (CLI) fell to 149.7 from 150.6 in the fourth quarter of 2021, representing the second consecutive decline since the economy began recovering from the recession induced by COVID-19. Compared to the same time in 2020, the index was up by 3.8 per cent.

The CLI dropped in the fourth quarter due to declines in the financial and employment components of the index. The decline in the employment component of the index was driven by a 4.1 per cent decline in finance, insurance, and real estate (FIRE) employment and a 6.2 per cent decline in professional services employment. Workers in sales and services occupations drove much of those declines, with workers in this subsector down 6 per cent from two years prior as the economy adjusts to the post-pandemic reality. The drop in the financial component of the index was driven by the rising spread between government and corporate borrowing rates. This spread on 3-month bonds jumped from 5 to 15 basis points in the fourth quarter as investors demanded higher risk-premia over government treasuries for lending to firms.

The economic component of the index was flat from the prior quarter. Although wholesale trade rose 0.7 per cent and manufacturing sales rose 1 per cent from quarter three, these were offset by a 0.8 per cent decline in retail trade. Ongoing supply chain disruptions, Omicron lockdowns and a shifting composition of consumer spending continues to hold down growth in these economic variables driving the CLI.

It is important to note that while the BC economy generally continues recovering strongly, the environment for commercial real estate remains highly abnormal and uncertain. Although the CLI was designed to interpret specific sectoral activity and employment growth as positive indicators for commercial real estate demand, the recent strong growth of these indicators may not translate as readily into improved conditions in the commercial real estate market relative to the pre-pandemic period.

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Ryan McLaughlin
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