Productivity gain highest in 11 years

Canadian labour productivity posted its biggest gain in 11 years in the fourth quarter as businesses boosted output while working hours stayed unchanged. And a separate report showed manufacturing was stronger than expected in January.

Productivity rose 1.4 per cent, the first increase since the third quarter of 2008 as the H1N1 flu had little impact, Statistics Canada said Tuesday. It's the highest growth rate since the first quarter of 1998.

More evidence of a revived economy came from the factory sector. Manufacturing sales jumped 2.4 per cent in January, the fifth month in a row of gains, Statscan said. Economists has expected a 0.6-per-cent gain.

"This suggests the manufacturing sector is continuing to fire on all cylinders, defying the adverse impact of the strong Canadian dollar and the weak U.S. economy," said Millan Mulraine, senior Canadian macro strategist at TD Securities.

Canada's poor productivity record, which worsened through the recession, has long been a source of concern to both economists and policy makers because of its potential to hurt the country's standard of living.

While the recent pickup in productivity is welcome, "the question of sustainability still remains front as centre as firms continue to increase hours worked along with overall employment," said Bank of Nova Scotia economists Businesses increased their output by 1.4 per cent in the quarter, the highest growth rate since 2002, fuelled by exports, consumer spending and residential investment.

Hours worked in the business sector were unchanged, after rising 0.3 per cent in the third quarter. Employment edged up 0.1 per cent, while hours worked per job fell by 0.1 per cent.

"Both goods-producing and service-producing sectors made positive contributions to the upturn in business productivity in the fourth quarter," the report said.

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Productivity of goods-producing firms rose 1.7 per cent following three quarters of declines, with widespread gains. Manufacturers led, with a 2.1-per-cent increase.

Productivity on the services side of the economy rose 1 per cent, a fourth straight quarterly gain. The largest increases were in wholesale trade, retail trade and information and cultural services.

The flu didn't have much of an impact on productivity. The second wave of H1N1, the seasonal flu and the vaccination campaign in November and December resulted in the loss of 27 million hours worked in Canada.

But hours lost due to illness "were not significantly different from hours lost due to illness in previous years." Since 2000, the portion of hours lost because of illness or child-care obligations in the fourth quarter has ranged from 2.7 per cent in 2001 to 3.2 per cent in 2006.

In the fourth quarter of last year, it was 3.1 per cent.

Labour productivity tracks real GDP per hour worked in the private sector. Statscan said it revised its numbers back to the first quarter of 2009.