Canada’s business productivity falls for the second straight quarter

Productivity in the agriculture, forestry, fishing and hunting sector fell 3.5 per cent. Photo by Getty Images

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One of the economy’s most persistent challenges reared its head again as rising labour costs outpaced growth at the start of 2026 and Canadian business productivity fell for the second straight quarter.

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Statistics Canada said Wednesday a “mild contraction” in the pace of output reduced labour productivity in the business sector by 0.5 per cent in the first quarter, following a 0.3 per cent decrease in the fourth quarter of 2025.

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The first-quarter decline was led by a contraction in goods-producing businesses, where productivity fell 1.7 per cent. The agriculture, forestry, fishing and hunting sector was the main contributor with a 3.5 per cent decline. Productivity also declined 1.3 per cent in the construction industry and 0.3 per cent in manufacturing.

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Service-producing industries managed a modest 0.3 per cent increase. The strongest gains in productivity came from information and cultural industries (1.6 per cent), transportation and warehousing (1.2 per cent) and retail trade (one per cent).

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“Overall, productivity decreased in 10 of the 16 main industry sectors in the first quarter,” the agency said.

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Productivity, which measures the amount of economic output produced per hour worked, is widely viewed as a key measure of economic prosperity. Canada has struggled with weak productivity growth for decades and lags many peer countries, including the United States.

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In a note, Desjardins economist LJ Valencia said real GDP in the Canadian business sector has fallen three times in the last five quarters as the ongoing trade tensions with Canada’s neighbour and largest trading partner continues to weigh on the economy.

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“Looking ahead, our analysis suggests that the federal government’s immigration policies are expected to further slow population growth,” he said. “Still, uncertainty surrounding the trade war will shape the near-term trajectory of Canadian business investment and productivity, with the outcome of this year’s Canada–United States–Mexico Agreement (CUSMA) joint review being pivotal.”

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As productivity dipped, overall hours worked rose 0.4 per cent, reflecting a 0.1 per cent rise in the number of jobs. Average hours worked also increased 0.3 per cent.

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Meanwhile, labour costs continued to rise for the fourth quarter in a row. Hourly compensation went up 0.9 per cent, pushing unit labour costs (ULCs) up 1.4 per cent. According to Statistics Canada, ULCs measure the amount businesses pay in wages and benefits to produce one unit of real output.

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“The acceleration of ULC growth in the beginning of 2026 is a worrying sign, as elevated costs continue to undermine Canada’s competitive position and continues to exacerbate challenges for businesses across the country,” said Valencia.

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