Q1 productivity growth is sluggish

Commodity prices will represent a ceiling for gains: TD Economics.

June 11, 2012   by PLANT STAFF

OTTAWA: Canada is not setting the world on fire with its productivity gains. The latest info from Statistics Canada shows a slight gain in the first quarter of 0.1% following gains of 0.7% in the two previous quarters.

Statistics Canada said this “slight gain” reflected the recovery of hours worked after a quarter of decline, as businesses maintained the same rate of real output growth as in the previous quarter. Most of the gain came from the services sector.

Goods-producers showed a drop of 1%. Gains in manufacturing (0.8%) and construction (0.4%) did not offset declines in mining and oil and gas extraction (0.9%) and agriculture, forestry, fishing and hunting (0.3%).

Labour costs per unit of production were up 0.4% after rising 0.8% in the previous quarter. Hourly compensation, up 1.5% in the fourth quarter of 2011, was up 0.5% in the first quarter, the second successive quarter in which hourly compensation in Canada grew faster than productivity.

Jacques Marcil, a senior economist with TD Economics, said the sluggish productivity gain for Q1 is contrary to the current level of global uncertainty. “In this situation, employers typically tend to boost production by increasing productivity as opposed to hiring new staff,” he said in a technical note on the Statistics Canada report.

He said real investment in plants and equipment turned around in the quarter after two quarters of decline, which points to increases in productivity in the near to medium term.

However, despite recent softness, commodity prices will remain high enough to represent a ceiling for Canada’s productivity growth, “as they tend to encourage resource producers to pursue plays which are less productive than the average.”

The productivity growth pause didn’t widen the gap with the US, where business productivity declined 0.2%.

Labour productivity and related variables for Canada and the US.

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