Canada Labor Productivity Falls Unexpectedly

Canadian business labor productivity fell 0.5% in the first quarter of 2026, following a 0.3% decline in the previous quarter and missing expectations for a 0.7% increase. The drop reflected a mild contraction in business output alongside a 0.4% increase in hours worked. Goods-producing industries led the decline, with productivity falling 1.7%, while services-producing industries posted a modest 0.3% gain. Overall, productivity decreased in 10 of the 16 major industry sectors. Construction and agriculture, forestry, fishing and hunting were the main drags, while retail trade and transportation and warehousing recorded the strongest productivity gains. As labor productivity declined and hourly compensation rose 0.9%, unit labor costs increased 1.4% during the quarter.

Canadian business labor productivity declined 0.1% quarter-on-quarter in Q4 2025, following a 1.1% increase in the prior quarter and matching forecasts. This marked the second quarterly decline in the last nine quarters. Hours worked in the business sector edged down 0.1% in the fourth quarter, after falling 0.2% in the third quarter, a slower pace than the 0.2% contraction in real gross domestic product. Goods-producing businesses drove the overall productivity decline, with manufacturing and construction being the main contributors. As labor productivity edged down, the 0.5% rise in hourly compensation led to a 0.7% increase in unit labor costs for businesses. For the full year of 2025, labor productivity was up 1.1%, supported by strong growth in the third quarter.

Canadian business labor productivity rose 0.9% quarter-on-quarter in Q3 2025, rebounding from a 1.0% decline in Q2 and beating expectations of 0.4% growth. The increase marked the sixth gain in eight quarters. Real business GDP also rebounded 0.9%, reversing a 0.8% contraction in the previous quarter. Productivity advanced in nine of 16 major industry sectors, led by goods-producing businesses (+1.6%) and modest gains in services (+0.2%). Manufacturing, mining and oil and gas, agriculture, and real estate were the main contributors, while utilities declined for a second consecutive quarter. Overall hours worked in the business sector fell 0.1%, with a 0.6% drop in goods-producing industries more than offsetting a 0.2% rise in services. Wildfires in July and August had a minimal impact, reducing hours by 0.01 percentage point. Unit labour costs rose 0.3%, slowing from 0.8% in Q2, as hourly compensation increased 1.2%.