April 9, 2008
Economic Snapshot – April 9, 2008
Canada’s fourth-quarter productivity growth disappoints once again
Slowing growth of overall gross domestic product (GDP), relative to the number of hours worked, pushed labour productivity down 0.8% in fourth-quarter 2008, following a 0.1% increase in the third quarter.
For the year 2007 as a whole, business productivity increased by 0.5%, its smallest annual rise since 2004. In the fourth quarter, productivity growth dropped in six of the 12 major industry groups: professional, scientific and technical services (-1.9%); construction (-1.5%); retail trade (-0.5%); finance, insurance and real estate (-0.5%); administrative services (-0.5%); and manufacturing (-0.4%).
The sharp slowdown in output per hour, together with the effect of the appreciation of the Canadian dollar versus the U.S. currency, has led to a significant 7.9% quarter-over-quarter increase in unit labour costs expressed in U.S. dollars. Over the past year, unit labour costs in U.S. dollars are up by 18.9%.
In the United States, productivity increased slightly in the fourth quarter, due to the fact that the number of hours worked in the quarter slowed more quickly than total output. Over the past year, productivity in the U.S. increased by 1.9%, almost twice its 1% increase in 2006 and approximately four times the increase in Canada.
Structural problems continue to plague the Canadian economy. While annual productivity growth in Canada has been, on average, 0.8% less than in the United States over the past 20 years, it has trailed the U.S. by a significant 1.5 percentage points in the last five years.
This observation is underlined by the fact that, over the past five years, real business non-residential investment in Canada has increased by 47%, compared to 28% in the United States.
Recently, incomes in Canada have received a temporary boost from higher commodity prices. However, these prices will soon stabilize and the benefits will evaporate.
Only by reducing foreign-ownership regulations and business taxes and eliminating inter-provincial trade barriers can Canada expect to attract the type of productivity-boosting investment that leads to a sustainable increase in our standard of living over the long term.
Productivity Growth: Canada vs the United States
Data sources: U.S. Bureau of Labor Statistics (Department of Labor) and Statistics Canada.
Chart: Reed Construction Data - CanaData.
