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.

StatsCanada

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