Canada's Lackluster Productivity Disappoints With 0.3% First-Quarter Decline

By Paul Vieira

OTTAWA--Canadian productivity declined in the first quarter, or the sixth quarterly drop during a two-year timeframe, highlighting a major drag on the country's economic performance.

Statistics Canada said Wednesday labor productivity fell 0.3% on a seasonally adjusted basis in the January-to-March period, following a 0.2% rise in the previous quarter. Hours worked increased 0.4% in the first quarter, which outpaced the 0.1% advance in output from Canadian businesses. On a one-year basis, productivity fell 0.9%, and declined 2.8% from the first quarter of 2022.

The lackluster productivity results underscore Canada's growth problem, Royal Bank of Canada economists said in a report this week. "Our economy is now smaller than it was in 2019 when adjusted for inflation and immigration, and pretty much in the same place it was a decade ago," the Royal Bank report said.

The bank's economists add Canada is now 30% less productive than the U.S. and closer to lower-income states like Alabama in terms of economic performance than tech-rich California or New York. In the first quarter, U.S. labor productivity jumped 1%.

The Statistics Canada report indicated half of the 16 industry sectors recorded lower productivity. The data also indicated that unit labor costs in Canada climbed 1.3%.

The Bank of Canada cut its main policy rate on Wednesday by a quarter point, to 4.75%, even though wage gains are elevated but appear to be moderating. The central bank has warned that the pace of wage gains--3% annually--might add to inflationary pressures unless there are improvements in productivity.

In March, the central bank's No. 2 official, Carolyn Rogers, said dismal productivity in Canada had reached emergency status, and that this needed to be reversed to help the economy guard against future bouts of inflation.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 05, 2024 14:29 ET (18:29 GMT)

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