Canadian business productivity fell 1.0% in the second quarter of 2025, marking the sharpest decline since late 2022, according to Statistics Canada.
The drop followed nearly flat productivity in the first quarter and comes as businesses grappled with trade uncertainty and reduced output for the first time in seven quarters.
Real gross domestic product of businesses contracted 0.7% in the second quarter after growing 0.5% in the previous quarter, Statistics Canada reported. This marked the first contraction since the third quarter of 2023.
Manufacturing and wholesale trade drive decline
Manufacturing and wholesale trade sectors were the main contributors to the productivity drop, according to the federal statistics agency.
Productivity declined significantly in utilities, falling 4.0%, and wholesale trade, which dropped 2.6%. Manufacturing productivity fell 2.1% after zero growth in the first quarter, while construction declined slightly at 0.1%.
Nine of 16 industry sectors recorded productivity decreases in the second quarter, Statistics Canada said. Manufacturing and wholesale trade sectors, which depend heavily on merchandise trade, were particularly affected by uncertainty surrounding Canada’s trade activities with the United States during the quarter.
Hours worked growth slows
Hours worked in the business sector continued to increase but at half the pace of the previous quarter, growing 0.3% compared to 0.6% in the first quarter.
Services-producing businesses saw hours worked rise 0.3% after increasing 0.8% in the previous quarter. Hours worked in goods-producing businesses remained virtually unchanged for a second consecutive quarter.
Ten of 16 industry sectors recorded increases in hours worked during the second quarter. Manufacturing, professional services and other business services saw virtually no change in hours worked.
Wildfires minimal impact on work hours
Wildfires that affected Western Canada and western Ontario in May had virtually no net effect on hours worked in the second quarter, according to Statistics Canada.
The agency reported 809,000 hours of work were lost due to the wildfires, while 802,000 overtime hours were worked. The net effect was a slight loss of 7,000 hours of work for the quarter.
Statistics Canada adjusted its hours worked estimates using data from additional questions added to the Labour Force Survey for the affected provinces.
Labour costs rise slightly
Hourly compensation decreased 0.5% in the second quarter, marking the first decline since the first quarter of 2021, Statistics Canada said.
Combined with the 1.0% productivity decline, this led to a slight rebound of 0.5% in unit labour costs for businesses. Unit labour costs represent the labour costs required to produce one unit of output.
