Canada: Labor productivity, Hourly Comp and ULC, Q2 2017

Labour productivity edges down in the second quarter

Labour productivity of Canadian businesses edged down 0.1% in the second quarter following three consecutive quarters of growth. This decline followed a significant 1.3% increase in the first quarter.

The slight decrease in productivity in the second quarter reflects a recovery in hours worked after a quarter of decline, while growth in business output continued at a faster pace.

Real gross domestic product (GDP) of businesses rose 1.3% in the second quarter, up from 1.1% in the first quarter. This marked the third time in four quarters that GDP growth of businesses has been greater than 1.0%. As in the first quarter, growth was widespread in goods-producing and service-producing business industries. Only the agriculture and forestry sector posted a decline in production in the second quarter, falling for a third consecutive quarter.

GDP growth of businesses in the second quarter was accompanied by the largest increase in hours worked (+1.4%) since the fourth quarter of 2003 (+1.9%). Hours worked rose at a comparable pace in both goods-producing (+1.2%) and service-producing (+1.4%) businesses. They were up in every major industrial sector except agriculture and forestry (-1.3%), information and cultural industries (-0.8%) and utilities (-0.3%).

Service-producing businesses (-0.3%) were the largest contributor to the decline in productivity in the second quarter, partially offset by a 0.6% increase in goods-producing businesses.

In goods-producing businesses, utilities (+3.6%) was the only industrial sector with increased productivity in the second quarter. On the other hand, productivity decreased 1.9% in the mining, quarrying and oil and gas extraction sector, while agriculture and forestry (-0.3%), manufacturing (-0.2%) and construction (-0.1%) edged down.

Productivity in service-producing businesses fell for the first time since the third quarter of 2015. Despite increases in retail trade (+1.4%), information and cultural industries (+1.0%), wholesale trade (+0.9%) and finance and insurance (+0.9%), the other service industries posted declines, led by a notable decrease in real estate services (-2.3%).

In the United States, the labour productivity of businesses rose 0.2% in the second quarter, following a 0.2% decline in the previous quarter. The second quarter real GDP of American businesses (+0.8%) grew at a faster pace than the first quarter (+0.3%), while hours worked (+0.6%) increased at a similar pace (+0.5%).

A second consecutive decline in unit labour costs

For Canadian businesses, labour costs per unit of output fell for the second straight quarter, down 0.8% in the second quarter.

The decrease in unit labour costs primarily reflected a decline in the average compensation per hour worked (-0.9%), while productivity was stable. This was the first decrease in hourly compensation since the third quarter of 2015 (-0.4%).

Hourly compensation fell in goods-producing (-1.4%) and service-producing (-0.6%) businesses in the second quarter. Utilities (+2.2%), information and cultural industries (+0.7%), transportation and warehousing services (+0.4%) and finance and insurance (+0.1%) increased, while declines were widespread throughout the other industries. Mining, quarrying and oil and gas extraction (-4.1%), real estate services (-2.4%) and construction (-1.9%) posted the most notable declines.

Expressed in US dollars, unit labour costs of Canadian businesses fell 2.4% in the second quarter, following a 0.5% increase in the previous quarter. After rising 0.8% in the first quarter, the average value of the Canadian dollar relative to the US dollar decreased 1.6% in the second quarter.

In comparison, unit labour costs of American businesses increased 0.2%, following a strong 1.4% gain in hourly compensation the first quarter.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell