Trade conflict weighs on Q1 productivity

Amid a decline in output for the first quarter, labour productivity dropped too, and unit labour costs rose, according to new data from Statistics Canada — highlighting the ongoing fallout from trade-related disruptions.

The national statistical agency reported that labour productivity fell by 0.5% in the first quarter, accelerating from the previous quarter when productivity was down by 0.3%.

Goods-producing sectors drove the decline, with productivity down by 1.7% for these industries in the quarter — whereas productivity was up by 0.3% in the service sector.

In a research note, Desjardins Group pointed to ongoing trade conflict, and its impact on goods-producing industries, as a key reason for the latest dip in productivity.

“The trade war continues to weigh on the economy, especially the manufacturing sector which posted another decline in productivity,” it said.

Overall, productivity dropped in 10 of 16 industry sectors in the first quarter, Statistics Canada said — with the construction, agriculture, forestry, and fishing sectors leading the way.

Conversely, the retail trade and transportation and warehousing sectors saw the strongest increases in first quarter productivity, it noted.

The headline drop in productivity came as real GDP in the business sector dipped in the first quarter, and hours worked ticked up, Statistics Canada reported.

And, despite the decline in productivity, hourly compensation increased by 0.9% in the first quarter — which resulted in unit labour costs rising by 1.4% in the quarter.

The rise in unit labour costs for the first quarter was the fourth straight quarterly increase, the agency noted.

“The acceleration of [unit labour cost] growth in the beginning of 2026 is a worrying sign,” Desjardins noted, “as elevated costs continue to undermine Canada’s competitive position and continues to exacerbate challenges for businesses across the country.”

Looking ahead, “uncertainty surrounding the trade war will shape the near-term trajectory of Canadian business investment and productivity,” Desjardins noted.

“[A]n unfavourable outcome from the [Canada-United States-Mexico Agreement (CUSMA)] joint review could prove detrimental for economic growth and labour productivity throughout 2026,” it added.