June 26, 2008
Economic Snapshot - June 27, 2008
Canada’s productivity performance remains weak in first quarter of 2008
In the first quarter of 2008, strong growth of business employment relative to output pushed labour productivity down 0.8% year over year. This decline follows a marginal 0.1% increase in the fourth quarter of 2007.
Canada’s weak productivity performance is not a recent phenomenon. Over the past four years, productivity in Canada has increased by only 4%, compared to a 7.9% increase in the United States.
Employment continued to expand (+2.2% year over year), despite the fact that hours worked per employed person was down in 12 of the 15 industries that comprise the business sector.
Having said this, manufacturing saw particularly large quarterly declines in average-hours-worked-per-job of -1.6%, primarily due to cutbacks in production caused by a particularly cold winter. The manufacturing sector was also hurt by shutdowns at a number of auto plants.
The transportation sector also saw a significant -1.8% decline in labour productivity for the fourth quarter in a row.
Other business sectors that saw weaker labour productivity in the first quarter included agriculture (-0.9%), construction (-0.8%) and the administrative and support sector (-0.8%).
The combination of weak productivity growth and a large increase in hourly compensation in the first quarter pushed unit labour costs in Canada up 4.1% year over year, compared to 3.2% in the fourth quarter of last year.
Looking ahead, the impact of weak productivity growth, escalating unit labour costs and slowing growth of corporate revenues will probably lead to a further slowdown in profits. This slowdown, in turn, will force firms to shelve investment plans that could boost productivity in the future.
In the longer term, the weak productivity outlook in Canada will be exacerbated by recently proposed taxes on carbon emissions by both major parties. These taxes would discourage productivity-boosting investment by creating a climate of uncertainty that erodes investor confidence.
As well, these taxes will push energy-intensive manufacturers and resource companies to consider investing in “less taxing” jurisdictions outside Canada, such as South America and Asia.
John Clinkard has over 30 years experience as an Economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
Labour Productivity and Unit Labour Costs
*"Year over Year” is the quarterly figure vs the same quarter of the previous year.
Data source: Statistics Canada/Chart: Reed Construction Data - CanaData.
