Canadian labour productivity in the business sector rose by 0.2% in the third quarter, which was lower than analysts expected, and much lower than the 1.3% gain reported in the U.S.

“There is little secret behind the relatively more sluggish productivity improvement in Canada last quarter; economic growth was slower, and job creation was more robust,” offers BMO Nesbitt Burns. “During the quarter, the U.S. economy advanced by 4.0% (annual rates), outpacing the 3.1% GDP gain in Canada. However, Canada’s workforce expanded by 0.8%, compared to 0.1% increase south of the border.”

From a year ago, the productivity of Canadian workers has increased by 2.6%, well below the 5.7% increase in the U.S. “The gap is a clear reflection of the divergence in the labour markets,” argues BMO. “Canada is on pace for record job growth — there have already been over 500,000 new positions created, while the number of workers in the U.S. has remained essentially flat this year.”

Nevertheless, RBC Financial notes that this was the third consecutive quarter Canadian productivity growth lagged behind the U.S. and could be seen as a negative for the Canadian dollar. “A tough business climate in the U.S. is bringing reorganization and restructuring that should pay off when the economy does start to grow again. Canada has been spared that near-term pain however our economy’s potential growth rate in the future will be lower as long as our productivity growth is lower, and hence our standard of living will continue to lag that of the United States. Consistent with that divergence, labour costs have fallen 1.3% from a year ago in Canada but fell 2.2% in the U.S.,” says RBC.

But BMO says Canada’s economy had managed to outpace the U.S. for several quarters, leading to a sharp increase in the number of jobs. “Those gains will provide solid support for consumer spending going forward,” it says.

RBC says that the sixteenth consecutive rise in Statistics Canada’s leading economic indicator should counteract any currency weakness stemming from the productivity data. “Following a surge upward in late summer the leading index continued to grow slowly in November, up 0.1% after three straight monthly increases of 0.2%. Household demand fuelled the growth, with the housing index and furniture and appliance sales two of the strongest of the four components that advanced. Two components were unchanged and four declined, the largest decline coming from the stock market component. In contrast, the U.S. leading indicator posted a second straight retreat, with the majority (7 out of 10) of its components in decline.”