Economic News Release

Multifactor Productivity Trends in Manufacturing News Release


For release 10:00 am (EST) Thursday, February 25, 2010	      USDL-10-0232
Technical information:	(202) 691-5606  •  dprweb@bls.gov  •  www.bls.gov/mfp
Media contact:	        (202) 691-5902  •  PressOffice@bls.gov


MULTIFACTOR PRODUCTIVITY TRENDS IN MANUFACTURING — 2007


Manufacturing sector multifactor productivity increased at a 4.7 percent
annual rate in 2007, the U.S. Bureau of Labor Statistics reported today 
(chart 1).  This was the largest gain in multifactor productivity in the
series which began in 1987 (table 1).  Multifactor productivity measures
the change in output per unit of combined inputs.  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, labor and, in the case of the manufacturing sector, intermediate 
inputs (energy, materials, purchased business services).  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.

Durable goods manufacturing sector multifactor productivity grew 6.0 percent
in 2007, accelerating from its 4.2 percent growth rate in 2006.  Nondurable
goods manufacturing sector multifactor productivity grew 3.0 percent in 2007, 
after a 0.6 percent increase in 2006.

Historical trends in manufacturing

Multifactor productivity in manufacturing grew 1.6 percent annually between
1987 (the starting point of the series) and 2007 (table A).  Sectoral output
increased at a 2.4 percent annual rate over the period and combined inputs 
rose an average of 0.8 percent per year.  Output per hour (labor productivity)
grew 3.6 percent.  For the 2000-2007 period, multifactor productivity in
manufacturing rose more rapidly than in previous periods, averaging 2.1 
percent per year, slightly outpacing the 2.0 percent growth rate in the 
1995-2000 period.  

Historical trends in growth in output per hour can be attributed to 
multifactor productivity growth and the contributions of the intensities 
of capital and of intermediate inputs.  The relationship between labor 
productivity growth and its components can be seen in table B and chart 2.  
Chart 2 shows how, relative to output per hour, contributions of multifactor 
productivity, capital intensity, and intermediate input intensity shifted 
upward in the latter half of the 1990’s.  These contributions have slowed 
somewhat during the 2000-2007 period.

Of the 3.6 percent growth rate in labor productivity in the 1987-2007 
period, 1.6 percent can be attributed to increases in multifactor 
productivity, 0.5 percent to the contribution of capital intensity, 0.7
percent to changes in materials intensity, and 0.7 percent to changes in
business services intensity (table B).  

The contribution of intermediate inputs includes energy, materials, and
purchased business services.  Multifactor productivity, the contribution 
of intermediate inputs, and the contribution of capital intensity may not
sum to output per hour due to independent rounding (chart 2). 

Revised Measures

Previous and revised productivity and related data for 2005 and 2006 for the 
manufacturing, durable goods manufacturing, and nondurable goods manufacturing
sectors are displayed in Table C.  In 2006, productivity growth was revised
upwards to 2.5 percent from 1.6 percent in the manufacturing sector, to 4.2 
percent from 3.2 percent in the durable manufacturing sector, and to 0.6 
percent from -0.2 percent in the nondurable manufacturing sector.  
Productivity growth was also revised downward for all three major sectors in 
2005.  The revisions in both years were due to large revisions in source data 
for energy, materials, and purchased services.
 
Table A.  Compound average annual growth rates for productivity, sectoral 
output, and inputs in the manufacturing sector for selected periods, 
1987 to 2007
						
 	            1987-2007 1987-1990 1990-1995 1995-2000 2000-2007 2006-2007
						
Productivity						
   Multifactor 
   productivity1	1.6	 0.2	   1.2	     2.0       2.1	 4.7
   Output per hour  
   of all persons	3.6	 1.8	   3.4	     4.6       3.7	 3.4
   Output per unit 
   of capital services	0.3	-0.1	   0.6	     0.3       0.2	 1.1
   						
Sectoral Output	        2.4	 2.2	   3.3	     4.5       0.5	 1.6

Inputs
						
   Combined inputs2	0.8	 2.0	   2.0	     2.5      -1.6	-3.0
      Hours3	       -1.1	 0.4	  -0.1	    -0.1      -3.1	-1.7
      Capital services  2.2	 2.3	   2.7	     4.2       0.4	 0.5
      Energy	       -0.8	 2.0	   1.6	    -2.5      -2.5	-2.7
      Non-energy 
      materials         1.4	 1.6	   3.6	     4.9      -2.6	-8.1
      Purchased business  
      services	        2.3	 5.5	   3.0	     2.4       0.5	-0.3
						
1Output per unit of combined labor hours, capital, energy, materials, 
and business services inputs.
2The growth rate of each input is weighted by its share of nominal costs.
3Hours at work of all persons. 

Table B.  Compound average annual growth rates in output per hour of all 
persons and contributions of capital intensity, intermediate inputs intensity, 
and multifactor productivity in the manufacturing sector for selected periods, 
1987-2007
						
	            1987-2007 1987-1990 1990-1995 1995-2000 2000-2007 2006-2007
Manufacturing						
						
Output per hour 
of all persons	          3.6	   1.8	    3.4       4.6	3.7	 3.4
						
Contribution of 
capital intensity1	  0.5	   0.3	    0.4       0.7	0.5	 0.4
						
      Contribution of 
      information 
      processing
      equipment 
      and software2	  0.2	   0.2	    0.2       0.4	0.2	 0.1
						
      Contribution
      of all
      other capital
      services            0.3	   0.1	    0.2       0.3	0.4	 0.2

Contribution of 
intermediate inputs3	  1.4	   1.3	    1.7       1.9	1.0	-1.6

      Contribution 
      of energy      
      intensity4	  0.0	   0.0	    0.0      -0.1	0.0	 0.0
						
      Contribution 
      of materials    
      intensity5	  0.7	   0.4	    1.0       1.4	0.1	-1.9
						
      Contribution 
      of purchased   
      business 
      services 
      intensity6	  0.7	   0.9	    0.6       0.6	0.9	 0.3
						
Multifactor 
productivity7	          1.6	   0.2	    1.2       2.0	2.1	 4.7
						
1Growth rate in capital services per hour multiplied by capital's share of 
current dollar costs.
2Growth rate of information processing equipment and software per hour 
multiplied by its share of total current dollar costs.
3Growth rate in intermediate inputs per hour multiplied by intermediate inputs 
share of current dollar costs.
4Growth rate in energy services per hour multiplied by energy’s share of 
current dollar costs.
5Growth rate in materials services per hour multiplied by materials’ share of
current dollar costs.
6Growth rate in business services per hour multiplied by business services’
share of current dollar costs.
7 Output per unit of combined labor hours, capital, energy, materials, and 
business services inputs.

Table C.  Previous and revised productivity and related measures for the 
2005-2006 and 2004-2005 periods
                                                  Inputs
                                                                       Purc-
                       Multi-   Sect- Com-         Cap-	 	       hased 
                       factor   oral  bined        ital                busi- 
                       Product- out-  In-          Serv-        Mater- ness
Sector                 ivity1   put   puts2 Hours3 ices  Energy ials   services
Percent change, 
2005-2006
Manufacturing								
Previous	          1.6	 1.8	0.3    0.6   0.5   -5.5	  -1.0	  2.0
Revised	                  2.5	 1.6   -0.9    0.7   0.5   -6.7	  -2.5	 -1.2
Durable manufacturing							
Previous	          3.2	 3.3	0.2    1.0   0.3   -6.5	  -1.8	  1.8
Revised	                  4.2	 3.1   -1.0    1.1   0.4   -7.5	  -4.0	 -0.9
Nondurable manufacturing						
Previous	         -0.2	 0.3	0.5    0.1   0.7   -5.0	   0.1	  2.1
Revised	                  0.6	-0.1   -0.6    0.1   0.6   -6.3	  -0.5	 -1.5
								
Percent change, 2004-2005
Manufacturing								
Previous                  0.4	 3.7	3.3   -1.1   0.0    9.1	   5.9	  7.8
Revised	                  0.0	 3.6	3.5   -1.1   0.0   10.1	   6.2	  8.4
Durable manufacturing		 				
Previous                  2.5	 5.2	2.6   -0.1  -0.2    2.8	   5.9	  4.8
Revised	                  2.4	 5.0	2.6   -0.1  -0.2    2.9	   5.4	  5.2
Nondurable manufacturing						
Previous   	         -1.8	 2.0	3.9   -2.8   0.0   12.8	   4.9	 11.1
Revised	                 -2.4	 2.0	4.5   -2.7   0.1   14.4	   5.7	 11.8
								
1Output per unit of combined labor hours, capital, energy, materials, and 
business services inputs.
2The growth rate of each input is weighted by its share of nominal costs.
3Hours at work of all persons.



TECHNICAL NOTES

Capital Input: Capital input measures the services derived from the stock of
physical assets and software.  The assets included are fixed business 
equipment, structures, inventories, and land.  Among equipment, BLS provides 
additional detail for information processing equipment and software (IPES).  
IPES is composed of four broad classes of assets: computers and related 
equipment, software, communications equipment, and other IPES equipment.  
Computers and related equipment includes mainframe computers, personal 
computers, printers, terminals, tape drives, storage devices, and integrated
systems.  Software is comprised of pre-packaged, custom, and own-account 
software.  Communications equipment is not further differentiated. Other 
IPES includes medical equipment and related instruments, electromedical 
instruments, nonmedical instruments, photocopying and related equipment,
and office and accounting machinery.  									
The aggregate capital input measures are obtained by Tornqvist aggregation of 
the capital stocks for each asset type within each of the eighteen 
manufacturing NAICS industry groupings using estimated rental prices for
each asset type.  Each rental price reflects the nominal rate of return 
to all assets within the industry and rates of economic depreciation and
revaluation for the specific asset; rental prices are adjusted for the 
effects of taxes.  Data on investments in physical assets and software are
obtained from Bureau of Economic Analysis (BEA).  Nonfarm industry detail 
for land is based on IRS book value data.  Current-dollar gross product 
originating (GPO) data, obtained from BEA, are used in estimating capital 
rental prices.

Labor Hours: Hours paid of production workers are obtained primarily from 
the Current Employment Statistics (CES) survey.  The hours of these employees
are then converted to an at-work basis by using information from the 
Employment Cost Index (ECI) of the National Compensation Survey (NCS) and the 
Hours at Work Survey.  Hours at work for nonproduction workers are derived 
using data from the Current Population Survey (CPS), the CES, and the NCS.  
The hours at work of proprietors are derived from the CPS.  The construction
of hours at work follows the methods used in the private business sector 
described in USDL 09-0480, Multifactor Productivity Trends, 2008, 
http://www.bls.gov/news.release/pdf/prod3.pdf , except that hours in 
manufacturing are directly aggregated and do not include the effects of 
changing labor composition.					
Hours at work data reflect Productivity and Costs data as of the 
March 5, 2009, news release.  Therefore it reflects the benchmark revisions
to the CES and other revisions to hours released on February 6, 2009.  
Data in this release do not reflect the comprehensive revision to the 
National Income and Product Accounts (NIPA) released by the Bureau of 
Economic Analysis of the U.S. Department of Commerce on July 31, 2009.  

Intermediate Inputs: In manufacturing, intermediate inputs are the largest 
input in terms of costs.  Furthermore, research has shown that substitution
among inputs, including intermediate inputs, affects productivity change. 
Therefore, it is important to include intermediate inputs in productivity 
measures at the level of manufacturing.  In contrast, the more aggregate
productivity measures compare "value-added" output with two classes of inputs,
capital and labor.  Because of these differences in concepts and methodology,
productivity change in manufacturing cannot be directly compared with changes
in private business or private nonfarm business.  			
Intermediate inputs (energy, materials, and purchased business services) are 
obtained from BEA based on BEA annual input-output tables.  Tornqvist indexes
of each of these three input classes are derived at the 3-digit NAICS level
and then aggregated to total manufacturing.  Materials inputs are adjusted to
exclude transactions between establishments within the same sector.

Combined Inputs: The five input indexes (capital services, hours, energy, 
materials, and purchased business services) are combined using Tornqvist 
aggregation, employing weights that represent each component's share of total 
costs.  Total costs are defined as the value of manufacturing sectoral output.
The index uses changing weights; the share in each year is averaged with the 
preceding year's share.

Sectoral Output: The output concept used for multifactor productivity in 
manufacturing is “sectoral output.”  Sectoral output equals gross output 
(sales, receipts, and other operating income, plus commodity taxes plus 
changes in inventories), but excludes transactions between establishments
within the same sector. In contrast, the output concept used for private 
business and nonfarm business is “gross product originating” and is similar 
to “real value added”.  Gross product originating in private business equals
gross domestic product in the economy less general government, government 
enterprises, private households (including the rental value of owner-occupied
real estate), and non-profit institutions.  Gross product originating excludes
intermediate transactions between businesses.				

The output index for manufacturing is computed using a chained superlative 
index (Tornqvist) of three-digit NAICS industry outputs.   Industry output 
is measured as sectoral output, the total value of goods and services leaving
the industry. Wherever possible, the indexes of industry output are calculated
with a Tornqvist formula. This formula aggregates the growth rates of the
various industry outputs between two periods, using their relative shares in
industry value of production averaged over the two periods as weights.  
Industry output measures for manufacturing industries are constructed using
data from the economic censuses and annual surveys of the Bureau of the Census,
U.S. Department of Commerce, together with information on price changes, 
primarily from BLS. 

Productivity: The manufacturing multifactor productivity measures describe the 
relationship between output in real terms and the inputs involved in its 
production.  Manufacturing multifactor productivity measures exclude 
intermediate inputs between manufacturing establishments from both output
and inputs.  Multifactor productivity does not measure the specific 
contributions of labor, capital, or any other factor of production.  
Rather, multifactor productivity is designed to measure the joint influences
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 are 
derived by dividing an output index by an index of the combined inputs of 
labor, capital services, energy, non-energy materials, and business service
inputs.  

Other information: Comprehensive tables containing additional data beyond 
the scope of this press release are available upon request at 202-691-5606
or at http://www.bls.gov/mfp/mprdload.htm .  More detailed information on 
methods, limitations, and data sources of capital and labor are provided 
in BLS Bulletin 2178 (September 1983), Trends in Multifactor Productivity,
1948-81.  Methods for measuring manufacturing multifactor productivity are
discussed in "Measurement of productivity growth in U.S. manufacturing” in 
the July 1995 issue of the Monthly Labor Review.  
See http://www.bls.gov/mfp/mprgul95.pdf.  More detailed data can be obtained 
from our web site at http://www.bls.gov/mfp  or by request at 202-691-5606.


Table 1.  Manufacturing sector: Productivity and related measures, 1988-2007			
										
Percent change from previous year							
      
      Productivity	 	           Inputs
	
      Output  Output                                           Purc-    Comb-  
      per     per     Multi-   Sect-	   Cap-	 	       hased    ined
      hour    unit    factor   oral        ital                busi-    units 
      of all  of      Product- out-	   Serv-        Mater- ness     of all    
Year  persons capital ivity1   put  Hours2 ices  Energy ials   services inputs3  
										
1988	2.1    3.4     1.7     5.2   3.0    1.8	   4.0	  1.4	 8.9	 3.4
1989	1.0   -0.7    -0.6     1.7   0.6    2.3	  -0.2	  2.0	 6.0	 2.2
1990	2.2   -3.0    -0.7    -0.3  -2.5    2.7	   2.1	  1.5	 1.8	 0.4
1991	2.6   -4.0    -0.3    -1.7  -4.2    2.4	  -0.3	 -0.6	-0.7	-1.4
1992	3.8    0.9    -0.6     3.3  -0.5    2.4	  -1.0	  8.6	 7.1	 3.9
1993	2.6    1.3     2.7     3.9   1.3    2.5	   3.2	  0.9	 0.2	 1.2
1994	3.5    3.2     2.7     6.0   2.3    2.7	   3.1	  3.9	 3.7	 3.1
1995	4.6    1.6     1.8     5.3   0.7    3.6	   3.0	  5.3	 4.9	 3.4
1996	3.6   -0.6     0.5     3.4  -0.2    4.1	  -2.9	  9.0	-0.4	 2.9
1997	5.5    2.7     2.8     7.4   1.8    4.6	  -1.9	  8.0	 4.1	 4.4
1998	5.4    0.2     2.3     5.2  -0.3    5.0	  -2.6	  5.3	 3.2	 2.9
1999	4.5   -0.3     0.8     3.8  -0.7    4.1	   0.1	  5.1	 5.3	 3.0
2000	4.1   -0.4     3.5     2.7  -1.3    3.1	  -5.2	 -2.6	 0.0	-0.7
2001	1.6   -6.5    -1.3    -5.1  -6.5    1.5	  -9.4	 -6.7	 0.7	-3.8
2002	6.9   -1.2     3.7    -0.7  -7.1    0.6	  -1.5	 -5.3	-2.5	-4.3
2003	6.3    1.0     2.9     1.1  -4.9    0.0	  -5.5	 -0.8	 0.9	-1.8
2004	2.3    2.3     2.7     1.8  -0.5   -0.6	  -0.5	 -0.5	-2.1	-0.9
2005	4.7    3.6     0.0     3.6  -1.1    0.0	  10.1	  6.2	 8.4	 3.5
2006	0.8    1.1     2.5     1.6   0.7    0.5	  -6.7	 -2.5	-1.2	-0.9
2007	3.4    1.1     4.7     1.6  -1.7    0.5	  -2.7	 -8.1	-0.3	-3.0

1. Output per unit of combined labor hours, capital, energy, materials, 
   and business services inputs.
2. Hours at work of all persons.
3. Combined units of capital services, hours, energy, non-energy materials, 
   and purchased business services, superlative chained index.

Source:  Output data are from the Bureau of the Census, U.S. Department of 
         Commerce, and modified by the Bureau of Labor Statistics, 
         U.S. Department of Labor.  Compensation and hours data are from 
         the Bureau of Labor Statistics.  Capital measures are based on data 
         supplied by the Bureau of Economic Analysis.  
         See also Technical Notes in this release.


Table 2.  Manufacturing sector: Productivity and related measures, 1987-2007			
										
Indexes (2000=100)									
      
      Productivity	 	           Inputs
	
      Output  Output                                           Purc-    Comb-  
      per     per     Multi-   Sect-	   Cap-	 	       hased    ined
      hour    unit    factor   oral        ital                busi-    units 
      of all  of      Product- out-	   Serv-        Mater- ness     of all    
Year  persons capital ivity1   put  Hours2 ices4 Energy ials   services inputs3  
										
1987   64.0    96.1    84.9    64.0 100.1   66.6   99.1	 63.0	65.2	 75.4
1988   65.3    99.4    86.4    67.4 103.1   67.8  103.1	 63.9	71.0	 78.0
1989   66.0    98.7    85.9    68.5 103.8   69.4  102.9	 65.2	75.2	 79.7
1990   67.5    95.8    85.3    68.2 101.2   71.3  105.0	 66.1	76.6	 80.0
1991   69.2    92.0    85.0    67.1  96.9   72.9  104.7	 65.7	76.0	 78.9
1992   71.8    92.8    84.5    69.3  96.4   74.7  103.7	 71.4	81.4	 82.0
1993   73.7    94.0    86.7    72.0  97.7   76.6  107.0	 72.0	81.6	 83.0
1994   76.3    97.0    89.1    76.3 100.0   78.6  110.4	 74.8	84.6	 85.6
1995   79.8    98.5    90.7    80.3 100.7   81.5  113.7	 78.8	88.8	 88.5
1996   82.7    97.9    91.2    83.0 100.4   84.8  110.4	 85.9	88.4	 91.1
1997   87.2   100.5    93.8    89.2 102.3   88.7  108.2	 92.8	92.0	 95.1
1998   91.9   100.7    95.9    93.8 102.0   93.2  105.4	 97.7	95.0	 97.8
1999   96.1   100.4    96.6    97.3 101.3   97.0  105.5	102.6  100.0	100.7
2000  100.0   100.0   100.0   100.0 100.0  100.0  100.0	100.0  100.0	100.0
2001  101.6    93.5    98.7    94.9  93.5  101.5   90.6	 93.3  100.7	 96.2
2002  108.6    92.4   102.4    94.3  86.8  102.1   89.3	 88.4	98.3	 92.1
2003  115.4    93.3   105.3    95.3  82.6  102.1   84.4	 87.7	99.1	 90.5
2004  118.0    95.5   108.1    97.0  82.2  101.6   84.0	 87.3	97.0	 89.7
2005  123.6    98.9   108.1   100.4  81.3  101.5   92.5	 92.7  105.2	 92.9
2006  124.6   100.0   110.8   102.0  81.9  102.0   86.3	 90.4  103.9	 92.0
2007  128.8   101.1   116.0   103.6  80.4  102.5   84.0	 83.1  103.5	 89.3

1. Output per unit of combined labor hours, capital, energy, materials, 
   and business services inputs.
2. Hours at work of all persons.
3. Combined units of capital services, hours, energy, non-energy materials, 
   and purchased business services, superlative chained index.

Source:  Output data are from the Bureau of the Census, U.S. Department of 
         Commerce, and modified by the Bureau of Labor Statistics, 
         U.S. Department of Labor.  Compensation and hours data are from 
         the Bureau of Labor Statistics.  Capital measures are based on data 
         supplied by the Bureau of Economic Analysis.  
         See also Technical Notes in this release.


Table 3. Multifactor productivity measures for manufacturing industries
in selected periods, 1987-2007

Compound average annual growth rates 


Industry            1987-   1987-   1990-   1995-   2000-   2005- 
                    2007    1990    1995    2000    2007    2007  

								
Manufacturing         1.6     0.2     1.2     2.0     2.1     4.7
						
Nondurable            0.3    -0.6     0.7    -0.3     1.0     3.0
  manufacturing
Food, beverage,      -0.1    -1.7     1.5    -1.9     0.7     3.5
  and tobacco
  products
Textile mills         0.9     1.0     0.7     1.2     0.7    -2.7
  and textile
  product mills
Apparel, leather,     0.2     0.1     2.8     0.7    -1.9   -17.1
  and allied
  products

Paper products	      0.4    -0.4    -0.1     0.1     1.3    -0.2
Printing and          0.6     0.7    -0.3     0.3     1.4     1.8
  related support
  activities
Petroleum and coal   -0.3    -0.1     0.6     0.2    -1.5    -4.0
  products
Chemical products     0.7    -1.0    -0.8    -0.1     3.1    12.0
Plastics and rubber   0.6     0.7     0.6     1.2     0.1     1.7
  products
						
Durable manufacturing 2.5     0.8     1.6     3.6     3.1     6.0
Wood products 	      0.2     1.0    -1.2     0.1     1.1     4.5
Nonmetallic mineral   0.8     0.3     1.0     0.8     0.9     3.3
  products
Primary metals        1.0     1.1     0.1     0.5     1.9     5.6
Fabricated metal      0.7    -0.1     1.0     0.1     1.3     4.8
  products
Machinery 	      0.1     1.0    -1.7    -0.7     1.7     3.1
						
Computer and          9.8     5.6     9.6    15.9     7.4     9.2
  electronic
  products
Electrical           -0.4    -2.2    -2.0    -1.1     2.1     1.4
  equipment,
  appliances,
  and components
Transportation        0.6    -1.7    -0.3     0.3     2.6     6.5
  equipment
Furniture and         0.6    -0.8     0.7     0.5     1.4     1.8
  related products
Miscellaneous         1.4     2.4     0.3     1.7     1.5    -0.1
  manufacturing


Note: Multifactor productivity measures by industry do not sum up to aggregate 
      manufacturing measures because industry measures exclude transactions 
      only within the specific industry while the aggregate manufacturing 
      measures also exclude transactions between all manufacturing industries.

Last Modified Date: February 25, 2010
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