Economic News Release

Technical note

                                         Technical Note

Multifactor Productivity:  Multifactor productivity measures are derived by dividing an index of real 
industry output by an index of the combined inputs of labor, capital, and intermediate purchases. The 
multifactor productivity indexes do not measure the specific contributions of capital, labor, and 
intermediate inputs.  Rather, they reflect the joint influences on economic growth of a number of factors 
that are not specifically accounted for on the input side, including technological change, returns to scale, 
improved skills of the workforce, better management techniques, or other efficiency improvements.

Output:  Manufacturing industry output is measured as annual sectoral output, the total value, in real 
terms, of goods and services produced for sale outside the industry. Industry value of production is 
derived by adjusting industry shipments for changes in inventories and subtracting intra-industry 
transfers and resales. For most manufacturing industries, real output is measured by deflating nominal 
value of production, but for some industries physical quantities of output are measured. For air 
transportation and line-haul railroads, output is measured by aggregating passenger-miles and freight ton-
miles with weights based on revenues or operating expenses.  

Output measures for manufacturing industries are constructed using data primarily from the economic 
censuses and annual surveys of the Bureau of the Census, U.S. Department of Commerce, together with 
information on price changes chiefly from the Bureau of Labor Statistics (BLS). Output measures for air 
transportation and line-haul railroads are constructed using data primarily from the Bureau of 
Transportation Statistics (BTS) and the Surface Transportation Board (STB), both in the U.S. 
Department of Transportation (DOT), together with information from the Association of American 
Railroads (AAR), AMTRAK, and several other sources.  

Combined Inputs:  The index of combined inputs is a Törnqvist index of separate quantity indexes of 
capital, labor, and intermediate purchases (including fuels, electricity, materials, and purchased services). 
The annual growth rates of the various inputs are aggregated using their relative cost shares in total 
industry value of production as weights. The labor weight is based on labor compensation including 
fringe benefits. The weight for intermediate purchases is based on the total cost of materials, fuels, 
electricity, and purchased services. The capital weight is based on total capital cost, which is calculated 
as the value of sectoral production minus the costs of labor compensation and intermediate purchases.

Capital Input:  Capital input reflects the flow of services derived from the stock of physical assets. 
Capital services are estimated by calculating productive capital stocks and are assumed to be 
proportional to changes in these capital stocks for each asset. The capital index is a Törnqvist index of 
separate quantity indexes of equipment, structures, inventories, and land. 

For manufacturing industries, physical capital is comprised of 26 categories of equipment, 2 categories of 
structures, 3 categories of inventories, and land. Measures of total capital services for each industry are 
estimated by aggregating the capital stocks of individual asset types. Estimates of investment by asset 
type for each industry are derived using annual capital expenditures for detailed industries from the 
economic censuses and annual surveys of the Bureau of the Census, in combination with benchmark 
capital flow tables and annual detailed asset investment by industry from the Bureau of Economic 
Analysis (BEA). Price changes are removed from the annual investment data before calculating stocks. 
Price deflators for each asset category are constructed by combining detailed price indexes (mostly BLS 
Producer Price Indexes) with weights that reflect each industry’s use of individual asset commodities.

The capital stocks for the different assets are combined using weights based on estimated annual rental 
prices for each asset type, averaged between two time periods. Each rental price reflects the nominal rate 
of return to all assets within the industry and the rates of economic depreciation and revaluation of the 
specific asset. Rental prices are adjusted for the effects of taxes. 

For air transportation, a weighted index of 44 types of airframes and 34 types of engines is derived from 
quantities and purchase prices from BTS. For assets other than airframes and engines, capital stocks are 
calculated as is done for manufacturing industries. For these assets, a more detailed breakdown of 
annual expenditures on equipment and structures from the BEA is used for the first time in this release. 
Inventories of parts and supplies are also included; the current dollar series is deflated with a weighted 
cost index based on data from Airlines for America (A4A) and BTS. Indexes for aircraft and engines, 
non-aircraft assets, and parts and supplies inventories are aggregated using cost share weights to derive 
an overall measure of capital input.

For line-haul railroads, current dollar investment for 10 categories of equipment and 13 categories of 
structures, obtained from STB and AMTRAK, are deflated with BLS PPIs and deflators based on BEA 
data. The capital stocks for each of the items are calculated as is done for manufacturing industries. 
Inventories of materials and supplies are also included. Estimates of investments in land from STB and 
AMTRAK were deflated with price indexes from BEA.  

Labor Input:  For manufacturing industries, the primary source of industry employment and hours data 
is the BLS Current Employment Statistics (CES) survey. The CES provides monthly data on the number 
of total and production worker jobs held by wage and salary workers in nonfarm establishments, as well 
as data on the average weekly hours of production workers in those establishments. CES data are 
supplemented with data from the Current Population Survey (CPS) to estimate employment and hours 
of self-employed and unpaid family workers in each industry. Data from the CPS, together with the 
CES data, are also used to estimate the historical average weekly hours of nonproduction workers for 
each industry. CES and CPS data are supplemented or further disaggregated for some industries using 
data from the BLS Quarterly Census of Employment and Wages (QCEW), the Bureau of the Census, or 
other sources. Hours of all persons in an industry are treated as homogeneous and are directly 

For air transportation, annual labor input estimates are based on monthly employment data from DOT 
supplemented by employment and hours from the CES program and hours from the CPS. For line-haul 
railroads, labor input measures are derived primarily from DOT data and supplemented with data from 
AAR. For the railroad industry, the labor input measure includes an adjustment to remove capitalized 
labor hours in order to avoid double-counting because some capitalized labor costs are embedded in the 
railroad investment data.

Intermediate Purchases Input:  The index of intermediate purchases is a Törnqvist index of separate 
quantities of materials, purchased services, fuels, and electricity consumed by each industry. Except for 
electricity consumed by manufacturing industries, for which direct quantity data are available, quantities 
are derived by deflating current-dollar values with appropriate price deflators. 

For manufacturing industries, nominal values of materials, fuels and electricity, along with quantities of 
electricity consumed by each industry are obtained from economic censuses and annual surveys of the 
Bureau of the Census. To avoid double counting, an adjustment is made to the materials estimates to 
exclude the value of intra-industry commodity transfers. Purchased business services are estimated using 
annual industry data and benchmark input-output tables from BEA.  

Constant-dollar materials consumed are derived by dividing annual current-dollar industry purchases by 
a weighted price deflator for each industry. Aggregate materials deflators are constructed for each 
industry by combining producer price indexes and import price indexes from BLS for detailed 
commodities.  The deflators are combined using weights based on detailed commodity data from the 
BEA benchmark input-output tables. Aggregate price indexes to deflate purchased business services are 
constructed in a similar manner using consumer price indexes (CPIs), PPIs, and deflators developed by 
BEA. The value of fuels consumed by each industry is deflated with a weighted price deflator based on 
PPIs for individual fuel categories; the weights reflect fuel expenditures by industry from the Energy 
Information Administration (EIA), U.S. Department of Energy.

For air transportation, detailed cost of materials, services, fuels, and electricity from the BTS were 
deflated using cost indexes from A4A. For line-haul railroads, intermediate purchases data from STB 
were supplemented with data from other sources including AAR, AMTRAK, EIA, and the Edison 
Electric Institute. The nominal values were deflated with producer price indexes from BLS and implicit 
price deflators calculated from BEA investment data.

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Last Modified Date: September 25, 2013
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