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/art3full.pdf. 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 identical to the April 3, 2014 Multifactor Productivity Trends news release (USDL-14-0529). Capital Services Capital services are the services derived from the stock of physical assets and intellectual property assets. 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 six asset types as opposed to the 90 asset types for fixed business equipment, structures, inventories, land, and intellectual property products included in estimates for all previous years. The assets included in the preliminary estimates are structures, fixed business equipment, intellectual property products, inventories, rental residences, and land. Investments, depreciation, and capital income are estimated for each of these six aggregates. Capital services are calculated by a chained superlative Tornqvist index combining stocks of the six 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 groups share of the total wage bill. 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 estimates of 2013 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 February 6, 2014 Productivity and Costs news release (USDL-14-0167). The estimate of the 2013 labor composition index assumes relative wages across groups remain constant between 2012 and 2013 using the Current Population Survey (CPS). 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 and in Changes in the Composition of Labor for BLS Multifactor Productivity Measures http://www.bls.gov/mfp/mprlabor.pdf. Combined Inputs Labor input and capital services are combined using chained superlative Tornqvist aggregation, applying weights that represent each component's share of total costs. The chained superlative 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. Capital Intensity Capital intensity is the ratio of capital services to hours worked in the production process. The higher the capital to hours ratio, the more capital intensive the production process is. In a production process, profit maximizing/cost-minimizing firms adjust the factor proportions of capital and labor if the price of one factor is less than the other factor; there would be a tendency for the firms to substitute the less expensive factor for the more expensive one. In the short run, changes in hours worked are more variable than changes in capital services. Changes in hours worked in business cycles can result in volatility of the capital intensity ratio over short periods of time. In the long run an increase in wages relative to the price of capital will induce the firm to substitute capital for labor, resulting in an increase in capital intensity. Rising labor costs are, in fact, an incentive for firms to introduce automated production processes. Industry estimates of capital to hours ratios can be obtained at http://www.bls.gov/mfp/mprdload.htm. 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 74 percent of gross domestic product in 2012. 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 are based on the National Income and Product Accounts (NIPA) data released by the Bureau of Economic Analysis (BEA) on January 30, 2014 but do not reflect the revised data released by BEA on February 28, 2014. The preliminary estimates of 2013 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 February 6, 2014 Productivity and Costs news release (USDL-14-0167). 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 or capital, or any other factor of production. Rather, multifactor productivity is designed to measure the joint influences of technological change, efficiency improvements, returns to scale, reallocation of resources, and other factors on economic growth, allowing for the effects of capital and labor. The multifactor productivity indexes for private business and private nonfarm business are derived by dividing an output index by an index of capital services and labor input. The output indexes are computed as chained superlative indexes (Fisher Ideal indexes) of components of real output.