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Economic News

Productivity Hits the Snooze Button Again in Q2 2024

September 5, 2024
Randall Bartlett, Senior Director of Canadian Economics • LJ Valencia, Economic Analyst

Highlights

  • Labour productivity declined by 0.2% q/q in Q2 2024, the eighth decline in the past nine quarters. As a result, productivity was below its pre-pandemic level reached in Q4 2019 for the fifth consecutive quarter.
  • Real GDP grew by 0.5% q/q in the second quarter. Both goods- and services-producing sectors recorded gains, while nonbusiness sector output advanced by 0.7%.
  • However, hours worked grew by 0.7% in Q2 2024, offsetting the output gain. This put total hours worked more than 6.0% above their Q4 2019 level.
  • Growth in unit labour cost (ULC)—the cost of labour per unit of output—of Canadian businesses slowed to 0.8% in Q2 2024, but was kept aloft overall by a 2.0% gain in nonbusiness sector ULC.
  • The continued solid pace of ULC growth was reflected in sustained gains in compensation per hour worked, up 0.9% in Q2. However, this was held up by a 2.0% increase in nonbusiness sector wages, reinforcing our view External link. that high and rising public sector compensation is continuing to keep wages growth elevated.

Comments

Labour productivity appears to have hit the snooze button again in Q2, in line with the trend of the past couple of years. Despite real GDP growth having accelerated, it continued to be outpaced by hours worked, resulting in yet another productivity decline. However, despite the pace of business sector wage growth slowing in Q2, its continued advance ensured unit labour cost remains high for businesses (graph 1).

Looking ahead, monthly data for hours worked show early signs of acceleration into Q3. Assuming real GDP growth is in line with Statistics Canada’s flash estimate, this could imply another quarter of slumping productivity.

Implications

Unit labour cost remains high in Canada, implying that productivity gains are too weak to offset wage pressures. But, according to Bank of Canada Governor Tiff Macklem in yesterday’s monetary policy decision press conference opening statement, recent “slack in the labour market is expected to slow wage growth, which remains elevated relative to productivity.” As such, high interest rates are anticipated to continue to tamp down wage growth, thereby helping to bring inflation back to the Bank’s 2% target. In that context, we anticipate External link. another 25 basis point cut at the upcoming rate announcement in October.

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