Economic News Release

Multifactor Productivity Trends News Release


For release 10:00 am (EDT) Wednesday, October 6, 2010	USDL-10-1391
Technical information:	(202) 691-5606  •  dprweb@bls.gov  •  www.bls.gov/mfp
Media contact:	        (202) 691-5902  •  PressOffice@bls.gov
 
PRELIMINARY MULTIFACTOR PRODUCTIVITY TRENDS - 2009

Private nonfarm business sector multifactor productivity increased at a 0.7 
percent annual rate in 2009, the U.S. Bureau of Labor Statistics reported 
today. (See chart 1, table A.)  This was the largest gain in multifactor 
productivity since 2005. (See table 1.)  Multifactor productivity measures the
change in output per unit of combined inputs of labor and capital.  Multifactor
productivity is designed to measure the joint influences on economic growth of
technological change, efficiency improvements, returns to scale, reallocation 
of resources, and other factors, allowing for the effects of capital and labor.
Multifactor productivity, therefore, differs from labor productivity 
(output per hour worked) measures that are published quarterly by BLS since it 
includes information on capital services and other data that are not available
on a quarterly basis.  Additionally, multifactor productivity measures for the
private business and private nonfarm business sectors account for shifts in the
composition of labor.  Estimates of labor composition are not included in the 
quarterly labor productivity measures.

The multifactor productivity gain in 2009 reflected a 3.6 percent decrease in 
output and a 4.3 percent decrease in the combined inputs of capital and labor. 
Capital services grew by 1.2 percent, the slowest gain in the series which 
began in 1987.  Labor input fell 6.9 percent, the largest decline for the 
series which began in 1987.  

Private business sector multifactor productivity grew 0.8 percent in 2009, the
largest gain in multifactor productivity since 2005.  The multifactor 
productivity gain in 2009 reflected a 3.5 percent decline in output and a 4.2 
percent decrease in the combined inputs of capital and labor. 
 
Historical trends in private nonfarm business

Multifactor productivity in private nonfarm business grew 1.0 percent annually 
between 1987 (the starting point of the series) and 2009. (See table A.)  
Output increased at a 2.9 percent annual rate over the period and combined 
units of labor input and capital services rose an average of 1.9 percent per
year.  Output per hour (labor productivity) grew 2.3 percent.  For the 
2007-2009 period, multifactor productivity in private nonfarm business slowed,
averaging 0.4 percent per year, a sharp decline from the 1.4 percent growth 
rate in the 2000-2007 period.

Historical trends in labor productivity growth can be viewed as the sum of 
three components: multifactor productivity growth, the contribution of 
increased capital intensity, and the contribution of shifts in labor 
composition.  The relationship between labor productivity growth and these 
three components can be seen in table B and chart 2.  Chart 2 shows how, 
relative to output per hour, multifactor productivity and the contribution of 
capital intensity shifted upward in the latter half of the 1990s.  These 
contributions continued to be relatively high over the 2000-2007 period.  For
2007-2009, the contribution of capital intensity rose sharply compared to 
previous periods.   

Of the 2.3 percent growth rate in labor productivity for the 1987-2009 period,
1.0 percent can be attributed to increases in multifactor productivity, 1.0 
percent to the contribution of capital intensity, and 0.3 percent to changes 
in labor composition. (See table B.)  

The methodology for measuring preliminary multifactor productivity for 2009 
is a simplified version of the methodology that BLS uses when more detailed 
information is available.  Data will be revised in mid-year 2011.
  
Table A.  Compound annual growth rates for productivity, output, and inputs in 
the private nonfarm business and private business sectors for selected periods, 
1987-2009

In percent

	                        1987-  1987-  1990-  1995-  2000-  2007-  2008-
                                2009   1990   1995   2000   2007   2009   2009


Private nonfarm business1

Productivity
  Multifactor Productivity2	1.0    0.5     0.5    1.3    1.4    0.4	   0.7
    Output per hour of all 
      persons	                2.3    1.5     1.6    2.8    2.7    2.9	   3.8
    Output per unit of 
      capital services	       -1.0   -0.4    -0.5   -1.1   -0.6   -3.8	  -4.7

Output	                        2.9    3.2     2.9    5.0    2.7   -1.9   -3.6

Inputs							
  
   Combined inputs3	        1.9    2.7     2.4    3.6    1.3   -2.3	  -4.3
     Labor Input4	        1.0    2.3     2.0    2.5    0.4   -4.3	  -6.9
       Hours	                0.6    1.7     1.3    2.2    0.0   -4.7	  -7.1
       Labor composition5	0.4    0.6     0.7    0.3    0.3    0.4	   0.3
     Capital services	        3.9    3.7     3.4    6.2    3.4    2.0	   1.2
							
Analytic ratio							
     Capital services per 
     hour of all persons	3.3    1.9     2.0    3.9    3.4    7.0	   9.0
							
Private business1

Productivity
   Multifactor Productivity2	1.0    0.6     0.4    1.5    1.5    0.4	   0.8
     Output per hour of all 
       persons	                2.4    1.6     1.5    2.9    2.7    2.9	   3.8
     Output per unit of 
       capital services	       -0.8   -0.4    -0.3   -0.9   -0.5   -3.6	  -4.5

Output	                        2.9    3.2     2.9    5.0    2.7   -1.8	  -3.5

Inputs							
  
   Combined inputs3	        1.9    2.6     2.4    3.4    1.2   -2.2	  -4.2
     Labor Input4	        1.0    2.1     2.0    2.3    0.3   -4.2	  -6.8
         Hours	                0.5    1.6     1.3    2.0    0.0   -4.6	  -7.0
         Labor composition5	0.5    0.6     0.7    0.3    0.3    0.4	   0.2
     Capital services	        3.8    3.6     3.2    6.0    3.3    1.9	   1.1
							
Analytic ratio							
  Capital services per 
  hour of all persons	        3.2    2.0     1.8    3.9    3.3    6.8	   8.8

1 Excludes government enterprises. 
2 Output per unit of combined labor input and capital services.
3 The growth rate of each input is weighted by its share of nominal costs.
4 Index of hours at work; hours at work by age, education, and gender group are
  weighted by each group’s share of labor compensation.
5 Ratio of labor input to hours.




Table B.  Compound annual growth rates in output per hour of all persons 
and the contribution of capital intensity, labor composition, and multifactor 
productivity in the private nonfarm business and private business sectors for 
selected periods, 1987-2009

In percent
	                        1987-  1987-  1990-  1995-  2000-  2007-  2008-
                                2009   1990   1995   2000   2007   2009   2009

Private nonfarm business1							
							
Output per hour 
of all persons	                2.3    1.5     1.6    2.8    2.7    2.9	   3.8
							
  Contribution of capital       
  intensity2	                1.0    0.6     0.6    1.2    1.0    2.2	   2.8
							
  Contribution of labor   
  composition3	                0.3    0.4     0.5    0.2    0.2    0.2	   0.1
							
Multifactor productivity4    	1.0    0.5     0.5    1.3    1.4    0.4	   0.7

Private business1							
							
Output per hour of 
all persons	                2.4    1.6     1.5    2.9    2.7    2.9	   3.8
							
  Contribution of capital  
  intensity2	                1.0    0.6     0.6    1.2    1.0    2.2	   2.8
							
  Contribution of labor    
  composition3	                0.3    0.4     0.5    0.2    0.2    0.3	   0.1
							
Multifactor productivity4	1.0    0.6     0.4    1.5    1.5    0.4	   0.8
							
	
   1 Excludes government enterprises.
   2 Growth rate in capital services per hour multiplied by capital's share of 
     current dollar costs.
   3 Growth rate of labor composition (the growth rate of labor input less the 
     growth rate of the hours of all persons)multiplied by labor's share of 
     current dollar costs.
   4 Output per unit of combined labor input and capital services.

Multifactor productivity plus the contributions of capital intensity and labor 
composition may not sum to output per hour due to independent rounding.  



TECHNICAL NOTES

The simplified methodology for preparing preliminary estimates of MFP is 
outlined in the June 2005 Monthly Labor Review article, “Preliminary 
estimates of multifactor productivity growth” located at 
http://www.bls.gov/opub/mlr/2005/06/art3abs.htm.  This methodology is applied
to both the private nonfarm business and private business sectors and measures
are calculated only for the most recent year.  Data for all previous years are
not different from the August 24, 2010 “Multifactor Productivity Trends” news
release (USDL-10-1171).

Capital Services:   Capital services are the services derived from the stock 
of physical assets and software.  Capital services measures constructed for 
the preliminary MFP measures are based on less detail only for the most recent
year.  The preliminary measures consist of eight asset types as opposed to the
76 asset types included in estimates for all previous years.  The assets 
included in the preliminary estimates are computers, software, communications
and other information processing equipment, other fixed business equipment, 
structures, inventories, rental residences, and land.  Investments, 
depreciation, and capital income are estimated for each of these eight 
aggregates.  Capital services are calculated by a chained superlative Tornqvist
index combining stocks of the eight asset categories, weighted by capital 
income shares.

Labor Input:    Labor input in private business and private nonfarm business
is obtained by chained superlative Tornqvist aggregation of the hours at work
by all persons, classified by age, education, and gender with weights 
determined by each group’s share of labor compensation.  The preliminary 
estimates of 2009 hours worked for the private nonfarm business and private 
business sectors are extrapolated from the hours worked reported in the 
nonfarm business and business sectors, respectively, in the June 3, 2010 
“Productivity and Costs” news release (USDL-10-0747).  
The labor composition index estimates the effect of shifts in the age, 
education, and gender composition of the work force on the efficiency of hours
worked.  The preliminary MFP labor composition measure estimates the number of
hours worked by each type of worker based on Current Population Survey (CPS)
data.  The estimate of the 2009 labor composition index assumes relative wages
across groups remain constant between 2008 and 2009.  
Additional information concerning data sources and methods of measuring labor
composition can be found in Cindy Zoghi, 2007, 
“Measuring Labor Composition: A Comparison of Alternate Methodologies”
http://www.bls.gov/bls/fesacp1121407.pdf.

Combined Inputs:  Labor input and capital services are combined using 
Tornqvist aggregation, employing weights that represent each component's 
share of total costs.  The Tornqvist index uses changing weights; the share in
each year is averaged with the preceding year's share.  Total costs are defined
as the value of output less a portion of taxes on production and imports.  Most
taxes on production and imports, such as excise taxes, are excluded from costs;
however, property and motor vehicle taxes remain in total costs.  

Output:  Private business sector output is a chain-type, current-weighted index
constructed after excluding from gross domestic product (GDP) the following 
outputs: general government, nonprofit institutions, private households 
(including owner-occupied housing), and government enterprises. This release 
presents data for the private business and private nonfarm business sectors.  
The private business sector accounted for approximately 76 percent of gross 
domestic product in 2005.  Additionally, the private nonfarm business sector 
excludes farms from the private business sector, but includes agricultural
services.  Multifactor measures exclude government enterprises, while the 
BLS quarterly Productivity and Cost series include them.  The output measures
reflect the revised National Income and Product Accounts (NIPA) data released 
by the Bureau of Labor Statistics (BEA) on July 31, 2009 but do not reflect 
the revised data released by BEA on July 30, 2010.   The preliminary estimates
of 2009 output for the private nonfarm business and private business sectors 
are extrapolated from the output reported in the nonfarm business and business
sectors, respectively, in the June 3, 2010 “Productivity and Costs” news 
release (USDL-10-0747).  
 
Multifactor Productivity:  Multifactor productivity measures describe the 
relationship between output in real terms and the inputs involved in its 
production.  They do not measure the specific contributions of labor, capital, 
or any other factor of production.  Rather, multifactor productivity is 
designed to measure the joint influences of output, capital, and labor on 
economic growth of technological change, efficiency improvements, returns to
scale, reallocation of resources due to shifts in factor inputs across 
industries, and other factors.  
The multifactor productivity indexes for private business and private nonfarm
business are derived by dividing an output index by an index of labor input
and capital services.  The output indexes are computed as chained superlative
indexes (Fisher Ideal indexes) of components of real output.



Table 1. Private nonfarm business sector: productivity and related measures
for the 1987-2009 period1

Annual percent change from previous year

                                                       Combined
               Output                                  units of
       Output  per                                     labor in-             
       per     unit of Multi-                          put and   Capital       
       hour    capital factor                  Capital capital   services      
       of all  servic- Product-        Labor   Servic- servic-   per hour of   
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons   

1988    1.7     0.9     1.0     4.6     3.5     3.7     3.5       0.8
1989    0.8    -0.3     0.1     3.5     3.3     3.9     3.5       1.1

1990    1.9    -1.9     0.4     1.4     0.1     3.4     1.0       3.8
1991    1.7    -3.6    -0.9    -0.9    -1.1     2.9     0.0       5.5
1992    4.0     1.3     2.3     3.8     1.0     2.5     1.5       2.7
1993    0.7     0.4     0.3     3.6     3.3     3.2     3.3       0.3
1994    1.1     0.9     0.7     4.7     4.1     3.7     4.0       0.1

1995    0.5    -1.2     0.0     3.3     2.7     4.5     3.2       1.7
1996    2.6    -0.4     1.4     4.4     2.2     4.9     3.0       3.0
1997    1.5    -0.4     0.6     5.1     4.0     5.5     4.5       1.9
1998    3.0    -1.2     1.5     5.2     2.4     6.6     3.6       4.3
1999    3.3    -1.4     1.6     5.6     2.6     7.1     3.9       4.7

2000    3.4    -2.2     1.6     4.5     1.2     6.8     2.8       5.8
2001    3.1    -3.9     0.7     1.0    -1.6     5.1     0.3       7.3
2002    4.7    -1.5     2.4     1.9    -2.0     3.5    -0.5       6.2
2003    3.7     0.2     2.5     3.1    -0.4     2.9     0.6       3.5
2004    2.8     1.7     2.6     4.2     1.2     2.4     1.5       1.1

2005    1.7     0.1     1.0     3.4     1.9     3.3     2.4       1.5
2006    1.0    -0.2     0.4     3.2     2.5     3.4     2.8       1.2
2007    1.9    -0.9     0.5     2.4     1.2     3.3     1.9       2.8
2008    2.1    -2.8     0.1    -0.2    -1.7     2.8    -0.3       5.1
2009    3.8    -4.7     0.7    -3.6    -6.9     1.2    -4.3       9.0

See footnotes following table 4.
Source: Bureau of Labor Statistics




Table 2. Private business sector: productivity and related measures
for the 1987-2009 period1

Annual percent change from previous year

                                                       Combined
               Output                                  units of
       Output  per                                     labor in-             
       per     unit of Multi-                          put and   Capital       
       hour    capital factor                  Capital capital   services      
       of all  servic- Product-        Labor   Servic- servic-   per hour of   
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons   

1988    1.6     0.5     0.8     4.4     3.4     3.8     3.5       1.1
1989    1.0    -0.1     0.3     3.7     3.2     3.8     3.4       1.1

1990    2.2    -1.6     0.7     1.5    -0.1     3.1     0.9       3.8
1991    1.6    -3.4    -0.9    -0.8    -1.0     2.7     0.1       5.2
1992    4.2     1.6     2.5     4.0     1.0     2.3     1.4       2.5
1993    0.6     0.3     0.2     3.3     3.1     3.1     3.1       0.4
1994    0.9     1.2     0.7     4.9     4.5     3.6     4.2      -0.3

1995    0.1    -1.4    -0.3     2.9     2.7     4.4     3.2       1.6
1996    2.9    -0.1     1.7     4.6     2.0     4.6     2.8       3.0
1997    1.7    -0.1     0.8     5.2     3.9     5.3     4.4       1.9
1998    3.0    -1.2     1.5     5.1     2.3     6.4     3.5       4.3
1999    3.5    -1.2     1.8     5.6     2.4     6.9     3.7       4.7

2000    3.5    -1.9     1.7     4.6     1.2     6.6     2.8       5.5
2001    3.2    -3.8     0.8     0.9    -1.8     5.0     0.2       7.3
2002    4.6    -1.3     2.4     2.0    -1.9     3.4    -0.4       6.0
2003    3.9     0.4     2.6     3.1    -0.5     2.8     0.5       3.5
2004    2.9     1.6     2.6     4.2     1.1     2.5     1.5       1.3

2005    1.7     0.2     1.0     3.4     1.9     3.2     2.3       1.5
2006    1.0     0.0     0.5     3.1     2.3     3.1     2.6       1.0
2007    1.8    -0.8     0.5     2.3     1.1     3.1     1.8       2.6
2008    2.1    -2.6     0.1     0.0    -1.5     2.7    -0.1       4.9
2009    3.8    -4.5     0.8    -3.5    -6.8     1.1    -4,2       8.8

See footnotes following table 4.
Source: Bureau of Labor Statistics




Table 3. Private nonfarm business sector: Indexes of productivity and related
measures, 1987-2009 period1

Indexes 2005=100

                                                       Combined
               Output                                  units of
       Output  per                                     labor in-             
       per     unit of Multi-                          put and   Capital       
       hour    capital factor                  Capital capital   services      
       of all  servic- Product-        Labor   Servic- servic-   per hour of   
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons   

1987    66.1    113.6   82.1    54.2    75.6    47.7    66.0      58.2
1988    67.2    114.6   83.0    56.7    78.3    49.4    68.3      58.6
1989    67.7    114.2   83.0    58.7    80.9    51.4    70.7      59.3

1990    69.0    112.1   83.3    59.5    80.9    53.1    71.4      61.5
1991    70.2    108.1   82.6    59.0    80.0    54.6    71.4      64.9
1992    73.0    109.5   84.5    61.3    80.8    56.0    72.5      66.7
1993    73.4    109.9   84.8    63.5    83.5    57.8    74.9      66.8
1994    74.2    110.9   85.4    66.5    87.0    59.9    77.9      66.9

1995    74.6    109.6   85.4    68.6    89.3    62.6    80.4      68.1
1996    76.5    109.1   86.5    71.7    91.3    65.7    82.8      70.1
1997    77.6    108.7   87.1    75.3    94.9    69.3    86.5      71.4
1998    80.0    107.3   88.4    79.3    97.2    73.9    89.7      74.5
1999    82.6    105.9   89.9    83.7    99.8    79.1    93.2      78.0

2000    85.4    103.5   91.3    87.5   101.0    84.5    95.8      82.5
2001    88.1     99.5   91.9    88.4    99.4    88.8    96.1      88.6
2002    92.2     98.0   94.2    90.1    97.4    91.9    95.7      94.1
2003    95.7     98.2   96.5    92.8    97.0    94.5    96.2      97.4
2004    98.4     99.9   99.0    96.7    98.1    96.8    97.7      98.5

2005   100.0    100.0  100.0   100.0   100.0   100.0   100.0     100.0
2006   101.0     99.8  100.4   103.2   102.5   103.4   102.8     101.2
2007   102.9     98.9  100.9   105.6   103.7   106.8   104.7     104.0
2008   105.0     96.1  101.0   105.5   101.9   109.7   104.4     109.3
2009   109.0     91.6  101.7   101.6    94.9   111.0   100.0     119.1

See footnotes following table 4.
Source: Bureau of Labor Statistics




Table 4. Private business sector: Indexes of productivity and related
measures, 1987-2009 period1

Indexes 2005=100

                                                       Combined
               Output                                  units of
       Output  per                                     labor in-             
       per     unit of Multi-                          put and   Capital       
       hour    capital factor                  Capital capital   services      
       of all  servic- Product-        Labor   Servic- servic-   per hour of   
Year   persons es      ivity2  Output3 Input4  es5     es6       all persons   

1987    65.2    111.0   81.1    54.1    76.5    48.8    66.7      58.8
1988    66.3    111.6   81.8    56.5    79.0    50.6    69.0      59.4
1989    67.0    111.5   82.0    58.6    81.6    52.5    71.4      60.1

1990    68.4    109.7   82.6    59.5    81.5    54.2    72.0      62.3
1991    69.5    106.0   81.8    59.0    80.7    55.6    72.1      65.6
1992    72.5    107.8   83.9    61.4    81.5    56.9    73.1      67.2
1993    72.9    108.0   84.1    63.4    84.0    58.7    75.4      67.5
1994    73.6    109.4   84.7    66.5    87.8    60.8    78.6      67.3

1995    73.7    107.8   84.4    68.5    90.1    63.5    81.1      68.3
1996    75.8    107.8   85.9    71.6    91.9    66.4    83.4      70.3
1997    77.1    107.6   86.6    75.3    95.5    70.0    87.0      71.7
1998    79.5    106.4   87.9    79.2    97.7    74.4    90.1      74.7
1999    82.3    105.2   89.5    83.6   100.0    79.5    93.4      78.2

2000    85.2    103.1   91.0    87.4   101.2    84.8    96.0      82.6
2001    87.9     99.2   91.7    88.2    99.5    89.0    96.2      88.6
2002    91.9     97.8   93.9    90.0    97.5    92.0    95.8      94.0
2003    95.5     98.2   96.4    92.8    97.1    94.5    96.2      97.3
2004    98.3     99.8   99.0    96.7    98.1    96.9    97.7      98.5

2005   100.0    100.0  100.0   100.0   100.0   100.0   100.0     100.0
2006   101.0    100.0  100.5   103.1   102.3   103.1   102.6     101.0
2007   102.9     99.3  101.0   105.5   103.5   106.2   104.4     103.6
2008   105.0     96.7  101.1   105.4   102.0   109.1   104.3     108.7
2009   109.0     92.3  101.9   101.7    95.0   110.3    99.9     118.2

See footnotes following table 4.
Source: Bureau of Labor Statistics




Footnotes, Tables 1-4

Source:  BLS develops productivity measures using output data published by 
the Bureau of Economic Analysis (BEA), compensation and hours data published 
by other Bureau of Labor Statistics (BLS) programs, and capital data supplied
by BEA and U.S. Department of Agriculture.  Also see Technical Notes in this
release.

(1) The private business sector includes all of gross domestic product except
    the output of general government, government enterprises, non-profit 
    institutions, the rental value of owner-occupied real estate, and the 
    output of paid employees of private households.  The private nonfarm 
    business sector also excludes farms but includes agricultural services.

(2) Output per unit of combined labor and capital inputs.

(3) Gross domestic product originating in the sector, superlative chained 
    index.

(4) Index of hours at work of all persons including employees, proprietors, 
    and unpaid family workers, classified by age, education, and gender.  
    This superlative chain index is computed by combining changes in the hours
    of each age, education, and gender group weighted by each group’s share of
    labor compensation. 

(5) A measure of the flow of capital services used in the sector.  Capital 
    services measure the services derived from the stock of physical assets and
    software.  The assets included are fixed business equipment, structures, 
    inventories, and land.

(6) Labor input combined with capital input are weighted with labor's and 
    capital's share of current dollar costs to form a superlative chained 
    index. 

Last Modified Date: October 06, 2010
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