The resources sector has little to do with Canada??™s weak productivity performance in 2006 by MaBiCo.com

The resources sector has little to do with Canada??™s weak productivity performance in 2006

13:41 2007/04/02

Since 2002, business productivity growth in Canada went through three distinct phases. Between 2002 and mid-2004, productivity grew sluggishly. Growth improved significantly between the second half of 2004 to Q1 of 2006, but then slackness returned.

The recent pullback in manufacturing sector productivity is understandabledue to the fact that the sector has been in a recession. However the productivity slowdown in services is inexcusable, since economic growth there has been strong.

The prevailing opinion is that the productivity slowdown in 2006 is largely due to a temporary productivity drop in the resources industry. We demonstrate that this effect is negligible. The manufacturing sector??™s contribution to recent productivity swings is far more significant.
Equally key is the fact that the growth in hours worked was higher in labour intensive industries than it was in industries in which productivity is traditionally stronger.

United States ??“ Economic growth for Q4 of 2006 was revised upwards from 2.2% to 2.5% due to an upward revision in inventory changes. Nevertheless, new orders of nonmilitary production material in February (excluding aircraft) fell by 1.2%, the fourth decline in five months. This suggests a pullback in business investment during the first quarter of 2007. Also in February, sales of existing homes provided an upside surprise by rising 3.9%. However these sales should represent the final closings of contracts that were signed one or two months before. It is thus possible that warm December weather had an influence on the February data. The upshot is that existing home sales could well pull back during the coming months, particularly in light of the fact that banks have been tightening their credit conditions. Whatever the case may be, the current spike in sales did nothing to stop the rise in inventories of houses for sale. This should thus exert a downwards effect on prices.

Canada ??“ Real GDP at core prices rose by 0.1% in January, following a 0.4% hike in December. The 0.1% jump in the services sector was particularly disappointing, with six of the 13 industries recording declines. Tourism-related industries were hampered by abnormally warm weather in certain regions at the start of January. In the goods sector, production grew by 0.2%, despite the fact that manufacturing fell by 1.0% due to a 12% plunge in automotive vehicle production. In February energy prices were the primary factor influencing the 0.9% hike in the industrial price index. Over 12 months, the index has advanced by 4.4% with upward pressures coming from higher prices for primary metals and to a lesser degree from higher prices for pulp and paper and petroleum and coal products. Industries paid 9.1% more for raw materials than they did 12 months ago with the increase concentrated in non-ferrous metals.