Canada’s Labor Productivity, Manufacturing Growth Rise

More signs of healthy economic recovery emerged in upbeat reports on labor productivity and manufacturing, both of which surpassed analysts' expectations.

TORONTO (CP) -- More signs of a healthy economic recovery emerged Tuesday in upbeat reports on labor productivity and the manufacturing sector, both of which surpassed analysts' expectations.

Statistics Canada said labor productivity at Canadian businesses grew 1.4 percent in the fourth quarter of 2009.

That was the first increase in productivity since the third quarter of 2008 and the biggest jump since 1998.

Douglas Porter, deputy chief economist at BMO Capital Markets, said the data smashed economists expectations of 0.8 percent growth.

"Better productivity and subdued costs could suggest to the Bank of Canada that the economy has a higher speed limit than previously believed in this recovery," Porter said.

Statistics Canada said the fourth-quarter gain was fuelled primarily by exports, consumer spending and residential investment.

Growth in labor productivity was also widespread, most notably in manufacturing, where productivity advanced 2.1 percent.

Krishen Rangasamy of CIBC World Economics said the quarterly bounce was welcome news but that Canadian labor productivity still lags the United States.

"There's still a lot of progress needed, especially in the manufacturing sector in light of the strong Canadian dollar," he said. "Unless we get a boost in labor productivity, the manufacturing sector is going to be in trouble."

A separate report from Statistics Canada showed manufacturing sales were up for the fifth straight month in January, rising 2.4 percent to $44.6 billion, beating economists expectations of 0.6 percent growth.

Taken together, the reports on productivity and manufacturing suggest "the recovery is deepening and taking on a healthier glow," Porter said.

Porter said the manufacturing sales results indicate the sector continues to recover from last year's "devastating hit." They also come in the face of a rising loonie, which hovered above 98 cents U.S. Tuesday.

Porter said that January's gain was the seventh in eight months, adding the breadth of the growth was most impressive. Sales gains were broadly based, with 17 of 21 industries reporting increases over December.

Some of the larger gains included advances in primary metals, and petroleum and coal products.

Porter said the robust manufacturing gains in January point to a solid monthly Gross Domestic Product result, which could push first quarter growth above the bank's projected 3.7 percent.

"Manufacturing and weak productivity have been two areas of vulnerability commonly cited in Canada's recovery," he said. "Both reported very good news today. Any questions?"

Rangasamy said the results surprised many economists after a trade report last week showed only a small increase in the volume of exports.

He said the increase in manufacturing output will be a big boost for January GDP, but said he is waiting to project a figure until he sees results of reports on wholesale trade and retail sales that are expected later this week.

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