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The U.S. productivity level has decreased recently. What does that mean to me as a Canadian investor?

Productivity is a measure of how efficiently an economy’s resources are turned into the production of goods and services. It measures how much output is produced as compared to the inputs of labour, capital and technology. An increase in productivity suggests that more output can be produced with the same inputs. Productivity is measured at the level of the company, industry or on a national (countrywide) basis.

For example, if you wanted to measure you own productivity, you could measure the number of “outputs” compared to the amount of “inputs” in your daily work. If you work at a computer and produce documents, you might decide to increase the number of those documents from 5 to 7 per day. There are several ways you can do this, e.g. you could increase your own skill level by taking some word process training courses or you could improve the technology itself by purchasing a more up-to-date computer. Individual firms measure productivity as well by looking at the sum total of the productivity of their employees. In Canada, the average labour productivity growth for the country between l995 and 2001 was 1.7% while the U.S. rate has grown at an annual average of 2.4% over the same period. A recent study shows that the U.S. gains were in specific areas of the economy in which Canada does not specialize, e.g. retail, semi-conductors and computer manufacturing. An increase in productivity at Wal-Mart alone in the U.S. accounted for approximately one third of the growth of the productivity in the late 90’s. Productivity allows companies to pay higher real wages to their employees and offer better returns to their shareholders. Productivity also drives a country’s quality of life. Recent news from the U.S. Labor Department that productivity growth was not as high as originally thought indicates that the outlook for long term growth is not as optimistic as had been believed. As a Canadian investor the effect of a decline of productivity affects corporate profits, and therefore your return on investments in these companies, and you also pay more for goods since their inputs are more costly.