The BCREA Commercial Leading Indicator (CLI) was down sharply in the first quarter of 2020 from 134.2 to 123.2, reflecting the slowdown prompted by the COVID-19 pandemic. Compared to the same time last year, the index was down by 4.8 per cent.

The pandemic-induced shutdown of the economy in the last two weeks of the first quarter of 2020 had a notable impact on the CLI, turning all components negative. On the economic activity component, manufacturing sales led the decline. On the employment component, a fall in key commercial real estate sector jobs was the primary driver. Meanwhile, the financial component had the largest negative impact on the CLI, as REIT prices tumbled and risk spreads widened in March. The underlying trend in the CLI was relatively flat in the previous six quarters, but has taken a sudden downward turn due to the pandemic. This suggests that going forward, the environment for commercial real estate activity in the province will be weak as the economy gradually re-opens, and temporarily unemployed individuals slowly return to work.

BC's economy was beginning to slow in the last quarter of 2019, but the rate of slowing was exacerbated by the pandemic in the first quarter of 2020. A fall in manufacturing sales of both durable and nondurable goods were the main drag on economic activity. Also contributing to the drag, but to a lesser extent, were lower wholesale trade sales in motor vehicles, and building material and supplies. Meanwhile, although growth in retail sales was positive in the first two months of 2020, it was not enough to offset the 10 per cent monthly decline in March, as retail stores across the province were shut down halfway through the month due to the pandemic.

Employment growth in key commercial real estate sectors such as finance, insurance, real estate and leasing was negative for the first time since the summer of 2018, down by about 13,500 jobs in the first quarter. Additionally, manufacturing employment fell by about 1,830 jobs from the previous quarter.

The CLI's financial component was negative in the first quarter of 2020 as growing fears of the potential impact of the pandemic resulted in a full market meltdown in late February, sending equity markets into free fall and government bond yields plummeting. However, private borrowing costs rose sharply due to elevated risk premiums, causing a tightening of credit conditions.

Seasonally-adjusted Canadian retail sales fell by a whopping 10% in March to $47.1 billion. The largest drop since the data became available in 1991. About 40% of retailers closed their stores mid-month due to the pandemic, while in the clothing sub-sector 91% closed. Sales were down in 6 of 11 sub-sectors, representing 39% of retail sales. Leading the drop were clothing stores (-51%), auto dealers (-36%), and gas stations (-20%). In contrast, sales were up at grocery stores (23%), health and personal care stores (5%), and general merchandise stores (6%). 

The shutdown of physical stores caused many retailers to shift or expand their online presence. E-commerce sales were up by 40% in March year-over-year at $2.2 billion, accounting for almost 5% of total retail sales. This excludes Canadians purchasing from foreign e-commerce retailers.      

Sales were down in all provinces, leading the decline were Ontario (-9%), Quebec (-16%), and Alberta (-13%). In BC, seasonally-adjusted retail sales were down by 4.6% at $7 billion in March. Looking at the non-seasonally adjusted change shows a different picture. Retail sales in March were up by 5.3% from the previous month, notably at grocery stores (31%), building and garden material stores (26%), and at electronics and appliance stores (23%). Compared to the same time last year, BC retail sales were down by 3%.  

Given that retailers were closed only starting mid-March, it is expected that the April decline will be higher. Advance estimates provided by Statistics Canada for April indicates retail sales declined by 15.6%. As some provinces begin to re-open, we can expect retail sales to gradually return, but the magnitude will largely depend on consumer demand, which has been cautious in other countries that have started to re-open. Moreover, unemployed individuals and individuals who have had their working hours reduced will likely not be making non-essential purchases in the near future. 

Canadian inflation, as measured by the Consumer Price Index (CPI) fell by 0.2 per cent in April year-over-year, down from a 0.9 per cent gain in the previous month. This was the first year-over-year decline in the CPI since September 2009. Energy prices were the main drag on inflation due to the drop in global demand, excluding this category, national CPI rose by 1.6 per cent year-over-year. Prices were also down for transportation (-4.4%), clothing and footwear (-4.1%) and recreation and education (-0.7%). In contrast, prices (3.4%) for food accelerated in April. The Bank of Canada's three measures of trend inflation fell 0.1 percentage points, averaging 1.8 per cent in April. The CPI was negative in all provinces except for Quebec and BC.  

In BC, CPI was flat in April year-over-year, following a 1.2 per cent increase in March. Gas prices continued to fall (-19.6%), along with prices for clothing and footwear (-7.4%), transportation (-2.4%), and goods (-2.2%). Clothing and footwear retailers had to drop their prices to clear inventory, but were restricted to online sales which meant fewer sales. Meanwhile, prices grew for health and personal care (0.9%), household furnishings (0.4%) and alcohol/tobacco/cannabis (0.3%). As BC begins to re-open retail stores and food service establishments, we hope April will represent a floor on price declines. 

Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 0.9 per cent in March year-over-year, down from a 2.2 per cent increase in February. This marked the largest decline in the CPI since the measure began in 1992. Energy prices were the main drag on inflation, excluding this category, national CPI rose by 1.7 per cent year-over-year. The downward pressure on gas prices began before the spread of COVID-19, but were exacerbated as global demand dropped (e.g., limitation on international travel), while supply continued to increase. The Bank of Canada's three measures of trend inflation fell 0.2 percentage points, averaging 1.8 per cent in March. Prices rose in six of the eight major components, led by shelter (+1.9%). In contrast, prices fell for transportation (-1.2%) and recreation, education and reading (-0.5%). 

In B.C., CPI grew to 1.2 per cent year-over-year, following a 2.4 per cent increase in the previous month. The drag on price growth was primarily due to a fall in gas prices (-14.5%) and to a lesser extent, transportation (-3.2%). Meanwhile, price growth was reported in clothing (2.2%) and household furnishings (1.1%). 

Statistics Canada notes that the March CPI was largely unaffected by COVID-19, as the majority of prices were collected prior to the implementation of domestic physical distancing measures. As such, we can expect to see steep drops in prices in next month's CPI report. 

Seasonally-adjusted Canadian retail sales were up by 0.3% in February at $52 billion. The rise in February was driven by auto dealers and general merchandise stores. Sales were up in 6 of 11 sub-sectors, representing 63% of retail sales. Some retailers reported that both the rail blockades and COVID-19 negatively impacted their sales in February. In contrast, sales were positive at stores selling sporting goods, hobby, book and music, building material and garden equipment, and health and personal care. 

In BC, seasonally-adjusted retail sales were up by 1.2% at $7.4 billion in February. Looking at the non-seasonally adjusted change shows a different picture. Retail sales in February were down by 0.1% from the previous month in half of the sub-sectors, notably at general merchandise stores (-11%), clothing (-5%) and electronics/appliances (-5%). Meanwhile, Vancouver reported a monthly increase of 1.2% in retail sales. Compared to the same time last year, BC retail sales were up by 6.4% in February.

Given that the majority of physical distancing measures and store closures were not implemented until mid-March, the impact of COVID-19 on retail sales will be more apparent in next month's data release. We can expect a steep drop in dining and entertainment, accommodations and at gas stations, while increases will likely be reported at grocery stores and in e-commerce. Compared to the same time last year, e-commerce reported an increase of 18% in February, accounting for about 3.6% of total retail sales in Canada (excludes Canadians purchasing from foreign e-commerce retailers). In March, many Canadian retailers reported opening or expanded their e-commerce platforms.

Canadian housing starts decreased by 7.3% m/m in March to 195,174 units at a seasonally adjusted annual rate (SAAR). The decrease was broad-based with starts down in 7 of 10 provinces, signalling early signs of the impact of COVID-19 on construction activity. The trend in national housing starts fell to a still healthy average of 205,000 units SAAR over the past six months. 

In BC, housing starts fell by 20% m/m to 34,014 units SAAR, following a 44% rise in the previous month. The decrease was entirely driven by multi-units (-25%), while singles increased (1%). Given the rapidly evolving circumstances brought on by COVID-19, Statistics Canada released early estimates of March building permits for select regions (covering 29% of total building permit values). Early estimates show permits falling by 23% in Canadian cities compared to the same time last year. The strongest declines were in Ontario (-51%), BC (-27%) and Quebec (-38%), likely due to recent announcements in Ontario and Quebec to halt many construction projects. Meanwhile in BC, earlier reported cases of COVID-19 compared to other regions likely started to slow construction intentions. In the near term, new construction activity will continue to slow across the country as physical distancing measures persist.  

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were up by 3% in March to 21,236 units SAAR, driven entirely by multi-units (6%), while singles were down (-10%). Compared to last year in March, housing starts were up by 1%.  

In Victoria, housing starts were down by 79% m/m to 1,226 units SAAR, which follows last month's strong showing of 5,931 units. Compared to a year ago in March, housing starts were down by 41%.  

In Kelowna, housing starts decreased by 61% m/m to 1,504, following a 1,129% increase in the previous month. Starts were up by 161% in the region compared to the same time last year. 

Monthly housing starts in Abbotsford-Mission were down by 79% at 669 units SAAR, following last month's 2,738 units. Compared to the same time last year, new home construction was down by 64%.  

A weak report to start off 2020. Seasonally-adjusted Canadian retail sales were up by 0.4% in January at $52 billion. The rise in January was driven by auto dealers and gas stations. Minus these two sub-sectors and sales were down 0.3% in the month. Sales were up in 4 of 11 sub-sectors, representing 48% of retail sales. The impact of COVID-19 on the retail sector will become more evident in the months to come. Statistics Canada notes that respondent comments for February shows that business activities have been impacted. 

Regionally, 8 of 10 provinces reported monthly increases in January. Notable increases were reported in Quebec (1.7%) and Alberta (1.6%). In contrast, retail sales were down in Ontario (-0.8%).

In BC, seasonally-adjusted retail sales were unchanged at $7.3 billion in January. Looking at the non-seasonally adjusted change shows a different picture. Retail sales in January were down from the previous month in all sub-sectors, except at auto dealers and gas stations. Meanwhile, Vancouver reported a monthly decrease of 1% in retail sales. Compared to the same time last year, BC retail sales were down by 0.4% in January.

Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 2.2 per cent in February year-over-year, down from a 2.4 per cent increase in January. Excluding the impact of gasoline prices, national CPI rose by 2.0 per cent year-over-year, matching last month's increase. Gas prices rose less on a year-over-year basis as a result of lower global demand following the COVID-19 spread, and tensions between oil-producing countries. The Bank of Canada's three measures of trend inflation was unchanged, averaging 2.0 per cent in February. Prices rose in seven of eight major components, led by transportation (4.4%) and shelter (2.3%). 

In B.C., CPI grew to 2.4 per cent year-over-year, slightly above last month's increase of 2.3 per cent. Notable increases in prices were for recreation (2.0%) and gas (1.7%), where the increase for gas was largely due to the regional Pacific Northwest market. In contrast, prices for food was the only componenet to report a price decline (-0.5%). 

Given recent events around the spread and containment efforts of COVID-19 (e.g., temporary closure of stores and service providers), continued tensions between oil-producing countries, the lowering of interest rates, and disruptions to global supply chains, we expect significant impact on prices going forward. 

Canadian employment was little changed in February, increasing by 30,000 jobs (0.2%). The unemployment rate increased by 0.1 percentage points to 5.6%, as more people searched for work. This report does not yet account for impacts arising from COVID-19 due to the survey's timing. 

Regionally, increases were primarily in Quebec (20,000), Alberta (11,000), Nova Scotia (3,700) and Manitoba (3,200). In February, more people were employed in wholesale and retail trade, in manufacturing, and in information, culture and recreation. Compared to the same month last year, Canadian employment was up by 1.3%.   

Meanwhile, employment in BC fell by 6,500 jobs (-0.3%) in February, following last month's increase of 3,400 jobs. Part-time work was the main driver of the decrease. By industry, employment losses were reported in two-thirds of the sub-sectors. The provincial unemployment rate rose by 0.5 percentage points to 5.0%. Compared to one year ago, employment in BC is down by 0.4% (11,400) jobs. 

Canadian housing starts decreased by 1.9% m/m in February to 210,069 units at a seasonally adjusted annual rate (SAAR). The decrease was driven by Quebec. The trend in national housing starts fell, averaging about 209,000 units SAAR over the past six months. 

In BC, housing starts rose by 52% m/m to 39,968 units SAAR, which follows last month's 39% decline. Increases were reported in both the single detached (23%) and multi-unit (66%) segments. The value of building permits in the province also increased, suggesting housing starts will continue to pick-up. Compared to the same time last year, provincial starts were up by 3%.  

Looking at census metropolitan areas in BC: 

Housing starts in Vancouver were up by 56% in February to 20,573 units SAAR. The increase was driven mostly by the multi-unit segment (64%), while singles were also up (27%). Compared to last year in February, housing starts were down by 18%.  

In Victoria, housing starts were up by 778% m/m to 5,897 units SAAR, which follows last month's very low 672 units. Compared to a year ago in February, housing starts were up by 42%.  

In Kelowna, housing starts increased by 144% m/m to 3,883 units SAAR. The increase was due to the volatile multi-unit segment. Year-over-year starts were up by 1,129% in the region. 

Monthly housing starts in Abbotsford-Mission were down by 9% at 2,727 units SAAR. Compared to the same time last year, new home construction was up by 82%.  

The Canadian economy slowed to 0.1% in the fourth quarter of 2019, owing to a decrease in business investment and weak trade. Offsetting these declines were increased household spending. GDP growth ended 2019 with 1.6 per cent, a deceleration from the 2 per cent growth reported in 2018. 

We expect growth in the Canadian economy to continue to slow in the first part of 2020, as temporary factors (CN rail strike and COVID-19) and permanent factors (auto plant shutdowns) work their way through the economy.