Canadian business productivity outpaces U.S. in 2011 for first time since 2006

Labour productivity at Canadian businesses grew faster than at their U.S. counterparts last year for the first time since 2006, according to Statistics Canada.

The report came the same day jobs data from both countries indicated the U.S. added jobs in February, while the number of Canadian jobs contracted, suggesting Canada may be replacing jobs gains with productivity, while the opposite is true south of the border.

After posting a better-than-expected 0.7 percent gain in the fourth quarter of 2011, Canadian business productivity for the full year was up 0.8 percent, slowing from the 1.5 percent gain in 2010, Statistics Canada said.

Growth in labour productivity – a measure of real GDP, or output, per hour worked – was weaker south of the border.

After a slight increase of 0.2 percent in the fourth quarter, productivity gains at American businesses came in at a 0.2 percent, down from four percent in 2010.

“This is the first time since 2006 that productivity has grown faster in Canada than in the United States,” Statistics Canada said in the release.

The difference in productivity was largely based on a difference between growth in real GDP of businesses since the two countries saw similar increases in hours worked, Statistics Canada said.

The report on Canadian productivity helped to buffer against pessimism on the labour front after Statistics Canada’s February jobs report indicated that businesses are reluctant to hire.

Jobs creation last month fell short of expectations with 2,800 positions lost in the month, continuing a trend of disappointing numbers since the summer.

“Just 90 minutes after reporting another modest jobs decline, Statistics Canada delivered vivid evidence that Canada’s recovery may now be relying more on brains than brawn,” said Douglas Porter, deputy chief economist at Bank of Montreal.

But the productivity report indicates labour performance may finally be turning the corner after a lacklustre stretch in the middle of the recovery, Porter said.

“The much more positive counterpoint to the recent run of soggy Canadian jobs data in recent months is that labour productivity is finally showing some life.”

The jobs outlook was much more optimistic in the U.S., where employers added 227,000 jobs in January to complete three of the best months of hiring since the recession began.

“While Canadian productivity growth in the past year has been no better than the long-term average, it looks to be gaining some momentum even as previously red-hot U.S. productivity is cooling,” Porter said. “It truly appears like the Canadian and U.S. recoveries are trading places – Canada exiting strong jobs/weak productivity, and the U.S. leaving weak jobs/strong productivity.”

In Canada, the fourth-quarter productivity report was not all rosy for Canadian businesses as hours worked fell – amid the jobs decline – in the most recent quarter for the first time in more than a year.

The gain in productivity, compared to a 0.6 percent rise in the third quarter, came as business output continued to grow, but at a slower pace than in the previous quarter, the agency said.

GDP growth at businesses was 0.5 percent, less than half the growth rate posted in the previous quarter.

The main reason for the slower pace of output was a slowdown in mining and oil and gas extraction, wholesale trade, construction and finance and insurance services.

Meanwhile, hours worked fell 0.2 percent after rising in the previous four quarters.

The fall in working hours came mostly from the construction, wholesale trade, and professional, scientific and technical services sectors.

Still, both goods-producing and services-producing businesses contributed to the overall productivity gain.

Productivity at goods-producing businesses was up 1.1 percent, largely as a result of gains in manufacturing and construction.

In the services-producing sector, productivity grew 0.5 percent, bouncing back from two consecutive quarterly declines. Professional, scientific and technical services, retail trade, and other services contributed most.