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Canada’s labour productivity performance called ‘anaemic’

Ottawa, ON -- Labour productivity in the Canadian business sector edged up 0.2% during the first three months of 20...


Ottawa, ON — Labour productivity in the Canadian business sector edged up 0.2% during the first three months of 2005 compared with the previous quarter, continuing its anaemic performance of the past two years, according to Statistics Canada.

In the United States, productivity increased 0.6%, three times the rate of growth in Canada. This gap stems entirely from a more rapid economic growth in the United States.

Canada’s marginal first quarter gain in productivity followed a 0.5% increase in the fourth quarter last year and a 0.1% advance in the third quarter. This anaemic productivity performance in Canada occurred in the context of a strong Canadian dollar.

Productivity rises when gross domestic product (GDP) increases at a faster pace than the number of hours worked. Ultimately, rising productivity enables Canadians to increase and maintain their standard of living.

Real GDP in the Canadian business sector rose 0.5% in the first three months of the year, the same rate of growth as in the previous quarter. This was due to the strength of domestic demand, which was partially offset by the considerable increase in imports and by a slowdown in the accumulation of inventories.

PURCHASES OF MACHINERY & EQUIPMENT RISE

With a stronger Canadian dollar, Canadian businesses increased their purchases of machinery and equipment by 3.8% in the first quarter of 2005, which explain in part the 2.5% surge in imports.

South of the border, productivity among U.S. businesses continued to rise more rapidly than that of their Canadian competitors, although the growth rate was significantly slower.

Productivity in the U.S. business sector increased 0.6% in the first quarter, three times the rate of growth in Canada. However, the U.S. rate slipped from 1.0% in the fourth quarter of 2004.

Canadian businesses continued to lag behind their American counterparts in terms of productivity growth. During the first three months of 2005, quarterly productivity in both countries slowed.

The first-quarter gap between the two nations stems entirely from the difference in the rate of growth in economic activity, given that the number of hours worked increased 0.3% on both sides of the border.

Growth in economic output in Canada’s business sector has increased at a slower pace than in the U.S. business sector for three consecutive quarters. In the first quarter, business sector GDP south of the border rose 0.9%, nearly double the rate of growth in Canada.

Business sector output in Canada started to slow late in 2004 after posting quarterly increases of approximately 1.0% for about a year. South of the border, however, output in the U.S. business sector prior to the first quarter this year had expanded by 1.0% or more for seven consecutive quarters.

Growth in economic activity in Canada in the first quarter of 2005 was largely attributable to healthy domestic demand, which was strongly supported by household consumption.

In the U.S., consumers were primarily responsible for the first quarter growth in output. Business investments in inventories, exports, residential investment and computer hardware and software were also factors.

The small rate of increase in hours worked posted in Canada during the last two quarters follows in the wake of a series of strong increases that started in the third quarter of 2003. In comparison, the growth in hours worked in the U.S. has kept essentially the same pace for the last seven quarters. On average, the number of hours worked increased during this period by 0.3% per quarter.

Without taking into account the effect of the exchange rate, the labour cost to produce a unit of GDP for Canadian businesses increased 0.9% on a year-over-year basis in the first quarter, somewhat less than during the fourth quarter of 2004.

In comparison, U.S. businesses saw their unit labour costs increase for a third consecutive quarter. On a year-over-year basis, their unit labour cost increased by 4.1% in the first quarter of 2005 after increasing 3.0% in the fourth quarter of 2004.

When the exchange rate is taken into account, the position turns in favour of U.S. businesses.

In Canada’s business sector, the lack of productivity gains during the first three months of 2005, combined with the strong Canadian dollar, resulted in an 8.5% rise in unit labour costs measured in U.S. dollars. This compared to the 4.1% increase in unit labour costs in the United States.

Despite this decline in competitiveness from a cost standpoint, Canada’s exports nonetheless rebounded 4.4% in the first quarter of 2005, after falling 3.0% in the previous quarter.

Canadian businesses also increased their investment in machinery and equipment as the Canadian dollar strengthened. On an annual basis, their purchases in this area climbed 11.2% in the first quarter of 2005, in line with the solid 10.7% increase in imports.