Canada records strongest productivity gain in five years

OTTAWA — Canada’s productivity performance continued to improve at the end of 2010, reversing a much-maligned aspect of the economy.

OTTAWA — Canada’s productivity performance continued to improve at the end of 2010, reversing a much-maligned aspect of the economy.

Labour productivity of Canadian businesses rose 0.5 per cent in the fourth quarter, after advancing 0.4 per cent in the third. For the year, Statistics Canada said productivity advanced 1.4 per cent, the most in five years.

As well, business output advanced by 0.9 per cent in the fourth quarter, faster than in the previous two three-month periods.

“The improvements in labour productivity and slowing unit labour costs are what the doctor prescribed to help Canadian business become more competitive,” said TD Bank economist Diana Petramala in a note to clients.

The Bank of Canada has repeatedly lamented Canada’s productivity record, citing it as an important speed limit to future economic growth, especially once an aging population reduces the availability of workers.

While the 1.4 per cent advance for the year was a good sign, it may not be enough.

During the same period, the U.S. recorded a 3.8 per cent boost, although economists caution that the way the two countries measure productivity makes direct comparisons difficult.

Still, it’s a move in the right direction, said Krishen Rangasamy of CIBC World Markets. And it may be an indication that, after sitting out during the recession and early part of the recovery, Canadian businesses are stocking up on new machinery and equipment.

“It could be a payoff from what we’ve been seeing with high imports of capital equipment,” Rangasamy noted. “Going forward, this is a trend that is necessary for Canada, especially with our dollar at elevated levels.”

Service-producing businesses were the main contributor to the growth in the fourth quarter, led by retail and wholesale trade, and finance, insurance and real estate.

Productivity among goods-producing businesses declined 0.3 per cent in the fourth quarter as productivity fell in manufacturing and construction, partly offset by gains in mining, oil-and-gas extraction and utilities.

But for the year as a whole, the productivity trends were reversed, with the goods producing sector accounting for most of the gains, and manufacturing productivity advancing 4.6 per cent.

Petramala said she expects productivity to continue to grow in the next couple of years, but likely at a slower pace.

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