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Friday, March 12, 2004 Labour productivity, hourly compensation and unit labour cost2003 and fourth quarter 2003After posting strong growth of 0.8% in the first quarter of 2003, business productivity deteriorated with a decline in the second, almost no increase in the third and then a further 0.3% decline in the fourth quarter. As a result, annual labour productivity growth for 2003 was only 0.1%, the smallest annual increase since the 0.2% drop in 1996. In the United States, quarterly productivity growth slowed in the fourth quarter to 0.5%, down significantly from the 2.1% observed in the third quarter. Despite this slowdown, American businesses recorded strong productivity growth of 4.5% for 2003 overall, similar to the 4.9% posted in 2002. An increase of this magnitude has not been seen since 1950.
This is now the third year that the growth in American business productivity has surpassed that of Canadian businesses. The gap in annual productivity growth in favour of the United States has gradually grown since 2001, when it was 1.1 percentage points. By 2002, the gap had risen to 3.0 percentage points. In 2003, it was 4.4 percentage points. However, it is important to note that these annual productivity differences are based on preliminary data, which are subject to revision. Since 1998, these gaps have generally shrunk following revisions to the preliminary data. Comparable increase in production, but a very different performance by labour markets in Canada and the United StatesIn the fourth quarter, production in Canadian and American businesses grew at the same rate of 0.9%; however, Canada posted a faster rate of growth in hours worked than the United States, as has consistently been the case since the first quarter of 2001. Canadian businesses more than doubled their production in the fourth quarter compared with the rate of 0.4% observed in the third quarter. The recovery of exports, which had declined over the four previous quarters, was largely behind the strong production growth in Canada. American business production returned to a more normal growth rate in the fourth quarter of 2003 after a 2.5% leap in the third quarter. The latter was marked by the strongest quarterly increase since the first quarter of 1984. The deceleration in the US economy resulted from a slower increase in consumer expenditures and an acceleration in imports. Hours worked in Canadian businesses increased 1.1% in the fourth quarter, more than double the rate measured in the previous quarter. In comparison, hours worked in US businesses in the fourth quarter had the same rate of increase as in the third quarter, reaching only 0.4%. The gap in productivity growth between Canada and the United States for the fourth quarter was essentially attributable to different labour market performances in light of identical production growth in the two countries. Annual productivity growth in Canada significantly down in 2003In 2003, annual productivity growth rose barely 0.1% in Canada. Taking into account this weak increase, the average increase for the past three years came to 0.7%. This is only one quarter of the 2.8% average annual rate recorded from 1997 to 2000. Canada's economic growth was strong during this period, partly the result of the intensification of the use of information and communications technologies. The period of rapid productivity growth in the late 1990s was followed by a slowdown in 2001, a slight recovery in 2002 and stagnation in 2003. In 2001 and 2002, Canadian businesses felt the impact of the burst of the high-tech bubble and the September 11 attacks in the United States. In 2003, economic activity was disrupted by an extraordinary conjunction of one-time events, including the SARS and mad cow scares, the electrical outage in Ontario, forest fires in British Columbia and Hurricane Juan in the Maritimes. Moreover, the Canadian dollar appreciated rapidly against the American dollar, forcing exporting companies to adjust their operations. In 2003, the Canadian situation contrasted sharply to that of the United States in terms of the performance of the economy and of the labour market. US productivity in 2003 came from a simultaneous increase in production and a decrease in hours worked. Canadian production increased by just 1.5% in 2003, significantly lower than the 3.7% growth rate recorded in the United States. This was the strongest growth measured in the United States since 2000, before the so-called dot-com decline. It was also the best production performance observed in the United States, compared with Canada, since 1999. The improved productivity performance in the United Sates in 2003 was partly attributable to the reduction in hours worked. In 2003, hours worked in Canada increased at a rate of 1.5%, compared with the 0.8% decline in the United States. Stronger Canadian dollar in 2003 serves to widen gap in labour costs in favour of the United StatesOn an annual basis, the rise in hourly compensation in Canadian businesses was only 1.2% in 2003, continuing the downward trend started in 2001. US business saw hourly compensation rise by 3.3% in 2003, after a 2.2% increase in 2002. The annual growth in unit labour costs in Canada has slowed over the last two years. The rate was 1.0% in 2003 and 0.9% in 2002, much slower than the 3.2% growth recorded in 2001. In the United States, unit labour costs declined by 1.1% in 2003. Measured in American dollars, unit labour costs in Canada grew considerably in 2003, while those in the United States declined. Between 2002 and 2003, with the value of the Canadian dollar increasing by close to 10.8% compared with that of the American dollar, the gap in unit costs between the two countries continued to widen significantly in favour of the United States. Unit labour costs in Canada, measured in American dollars, leapt by 13.3% in 2003, while the United States posted a 1.1% decline. Recent revisions in productivity figures in the United States had no impact on the Canada-US gapIn February 2004, the United States released its annual revisions of labour productivity estimates, incorporating recent revisions of the US National Accounts by the Bureau of Economic Analysis. The US data has also been revised back to 1999 to incorporate the adjustments in annual benchmarks on hours worked. From 1987 to 2002, average annual productivity growth was not affected by these revisions; therefore, the average gap in annual productivity growth in favour of the United States remained identical to that released before the revision.
However, in recent years, revisions increased labour productivity in the United States for 1999 and 2001, and reduced it for 2000 and 2002. The magnitude of the revisions varied between 0.2% and 0.6%. Nonetheless, the revisions to US data did not result in any changes to the mid-term average, since average annual productivity growth from 1996 to 2002 remained at 2.9%, a higher rate than the 2.3% registered in Canada over the same period. Available on CANSIM: tables 383-0008 and 383-0012. Definitions, data sources and methods: survey number 5042. A more comprehensive analysis, including additional charts and tables, is now available in the Canadian Economic Accounts Quarterly Review (13-010-XIE, free). From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts. For more information, or to enquire about the concepts, methods or data quality of this release, contact Jean-Pierre Maynard (613-951-3654; fax: 613-951-3292; maynard@statcan.gc.ca), Micro-Economic Analysis Division.
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