Sharp slump in Canada’s productivity in 2006 not long-lasting
Toronto, ON -- The Statistics Canada study on Canadian productivity trends released February 23, 2007, provides som...
Toronto, ON — The Statistics Canada study on Canadian productivity trends released February 23, 2007, provides some insight about why output slowed in 2006 while employment surged, resulting in a disappointing productivity performance, according to economists at the RBC Financial Group. The study was looked at by RBC’s Dawn Desjardins, senior economist, and Rishi Sondhi, economist, and their comments follow.
On balance, the study leans toward the conclusion that many of the factors that depressed productivity are transitory and do not portend a long-term slump for Canadas economy.
The dip in productivity is not unprecedented and the study compares the dismal performance in the period 2002-03 with the 2006 event. The study concludes that the slowdown in output per employee in 2002 and 2003 is more surprising than in 2006.
WHY PRODUCTIVITY SLOWED LAST YEAR
Labour shortages saw employers hire workers who are less productive because they have less education, training or fewer skills. Productivity slumped in goods-producing industries in 2006 based on:
– oil and gas industry shifting to less productive wells and non-conventional oil sources;
– strikes that disrupted output but did not affect jobs as tight labour market caused companies retain employees;
– production disruptions due to fires, floods, poor crops;
– exhaustion of the most productive sources in the mining industry;
– unseasonably mild weather depressing utilities production;
– slump in the U.S. housing market and implementation of the softwood lumber agreement with the United States.
Services-producing industry productivity grew at about its long-term trend rate. The ISM (Institute for Supply Management) non-manufacturing index increased to 59 in January, beating market forecasts for a slight increase to 57 from 56.7 in December.
Although the details were mixed, the ISM index remained firmly in expansionary territory in January. Furthermore, its 59.0 reading is above its average registered in both the prior three and six months, indicating continued strength in the services sector of the economy.
That the services sector of the economy remains healthy is unlikely to prove to be too much of a surprise to policy makers. As such, the latest Statistics Canada report is unlikely to influence policy in the near term.