Labour productivity on the rise again
Ottawa, ON -- Labour productivity in the Canadian business sector increased at its fastest pace in nearly four year...
Ottawa, ON — Labour productivity in the Canadian business sector increased at its fastest pace in nearly four years during the third quarter of 2005, Statistics Canada reports.
Productivity among Canadian businesses increased 0.8% between July and September, following two quarters of virtually stagnant growth. It was the strongest performance since the last three months of 2001.
Labour productivity, as measured by real gross domestic product (GDP) per hour worked, is a primary determinant of improvements to the standard of living in the long run. It is also the main source of economic growth.
Generally speaking, businesses enjoy productivity gains when their GDP growth rate outpaces the rise in hours of work devoted to production.
In Canada, third-quarter productivity increased because production rose at a faster pace than the number of hours worked. During the first two quarters of 2005, GDP growth was on par with hours worked, resulting in flat productivity growth.
While third-quarter growth rates in GDP were similar in both Canada and the United States, the decline in hours worked south of the border enabled U.S. businesses to show a higher gain in productivity.
In the U.S., labour productivity increased 1.3%, the strongest performance in two years. Nevertheless, the increase in Canadian productivity growth resulted in a gap between the two nations that remains comparable to the average of the last six quarters.
Both nations recorded nearly identical growth rates in GDP, while their labour market stagnated in the third quarter. But the slowing pace of hours worked was much more pronounced in the United States.
Between July and September, economic output among Canadian businesses increased by 1.0%, up from the 0.8% advance in the second quarter.
Despite the hurricane-disrupted economy in the U.S., output among businesses there increased 1.2% in the third quarter. This maintained the pace set in the seven previous quarters, during which their economic output rose on average 1.0% each quarter.
The growth of Canadian economic activity over the third quarter was mainly the result of a strong rebound in exports, particularly in the automotive, agricultural and fisheries products. Continued strong business investment, driven by the energy sector, was also a contributing factor.
In the U.S., household consumer spending again prompted the gain in GDP, as did computer hardware and software purchasing, federal government spending and residential investment.
Growth in Canadian economic activity occurred while the labour market lost some of its strength. Hours of work devoted to production in Canadian businesses inched up 0.2%. This maintained their upward trend, though at a slower pace than in the second quarter.
During the same period, hours worked in the U.S. declined by 0.1% in the third quarter, following a 0.8% rise in the second. The decline was the first in nine quarters.
Unit labour costs, an important indicator of trends in production costs and inflation, increased in Canada during the third quarter, and declined slightly south of the border. (Unit labour cost is the cost of worker compensation and benefits per unit of economic output.)
Exchange rates notwithstanding, labour costs of Canadian businesses per unit of GDP rose 0.7% in the third quarter, which was close to the average gain for the past three quarters.
In the U.S., unit labour costs of businesses fell 0.2%, which matched the decline in the second quarter. Since the beginning of 2005, the increase in U.S. business unit labour costs has been almost nil.
When the exchange rate is taken into account, U.S. businesses are positioned even more favourably.
After levelling off and even decreasing slightly over the first two quarters of 2005, the Canadian dollar rose 3.3% against its U.S. counterpart in the third quarter. This appreciation resulted in a sharp gain of 4.3% in the unit labour cost measured in U.S. dollars.
However, Canadian businesses took advantage of the strong dollar to invest in machinery and equipment. Spending in this area was up 3.0% in the third quarter.