Canada Q1 labour productivity decreased by 0.5%, according to Statistics Canada, marking the second consecutive quarterly decline following a revised drop of 0.3% in Q4. The previous Q4 figure was adjusted down from an initial estimate of -0.1%.
Real GDP also contracted by 0.1% during the same quarter, while hours worked increased by 0.4%. This indicates that Canadian businesses are investing more hours but achieving less output, highlighting a significant productivity issue.
A critical detail for the Bank of Canada is the rise in unit labour costs, which surged by 1.4% quarter-over-quarter. This marks the fourth consecutive quarterly increase, with unit labour costs now up 3.2% compared to the previous year. The combination of falling productivity and a 0.9% rise in hourly compensation creates upward pressure on unit labour costs, posing challenges for a central bank that may need to raise interest rates later this year.
The decline in productivity was primarily driven by the goods-producing sector, which fell by 1.7%. Notably, agriculture, forestry, fishing, and hunting experienced a significant drop of 8.6%, as hours worked increased by 5.6% against a 3.5% decrease in output. The construction sector also faced challenges, declining by 2.3%. In contrast, the services sector showed resilience, with a slight increase of 0.3%, supported by gains in retail trade (+1.5%) and transportation and warehousing (+1.6%).
Market reactions to this report are typically muted, as it reflects past data from Q1, already adjusted to include the GDP figures released on May 29. However, it underscores the ongoing productivity challenges in Canada, with unit labour costs rising amid a slowing economy, complicating the Bank of Canada’s monetary policy decisions.
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