Canada: Factories outstanding productivity performance

December 14th, 2010 | by linda smit |

Canada Watch

According to data released today, labour productivity of Canadian business sector rose a mere 0.4% annualized in Q3, compared to a 2.3% increase in the U.S. However, as today’s Hot Chart shows, it is wrong to think that the poor productivity performance of Corporate Canada applies to exporting firms. Since the end of the recession, there is a decoupling between exporters productivity growth and that of domestic-oriented firms. Canadian factories, which export about half of their production, saw their productivity increase a solid 4.2% in Q3, continuing a trend that started at the outset of the recession, over which period productivity grew an annualized 6.4%. As the right panel shows, this recent performance equals that of U.S. manufacturers. This is consistent with our view that the 12% appreciation of the loonie against the greenback, rather than productivity, is the cause of the lower gain in profit margins for Canadian factories since the end of the recession (see our November 25 Hot Chart). When jobs start to grow again in the U.S., this will increase U.S. demand for Canadian goods, and it is possible that the resulting higher capacity utilization of Canadian factories could be enough to erase most of the profitability gap with U.S. manufacturers.

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