Canadian labour productivity grew at an annualized 4.1% pace in the first quarter, which was about in line with expectations.

This is the strongest quarterly rise since the fourth quarter of 1999. CIBC World Markets calls the report “encouraging”, noting that it showed a second consecutive quarter-over-quarter decline in unit labour costs. “The latest decrease left the year-over-year trend in unit labour costs at a scant 0.1% — its lowest level in more than two years. For all the talk about inflation risks from a potential overheating in the Canadian economy, these data point to disinflation in terms of wages/costs in the labour market.”

However, BMO Nesbitt Burns points out that Canada continues to lag the U.S., where productivity growth was a solid 8.4% in the first quarter, and the gap has begun to widen again. “Over the past year, Canadian productivity is up 2.8% compared with 4.1% in the U.S.”

Still, BMO notes that the declining labour costs are a good sign for the beginning of a rebound in corporate profits. “Companies still do not have pricing power, but falling unit labour costs will help repair profit margins,” it says.

“Canada’s economy weathered the downturn well and is growing faster than the U.S., and productivity has been robust. However, the strong domestic labour market is keeping productivity from closing the gap with the U.S.,” BMO concludes.