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Multifactor Productivity
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Announcement

  • New subsectors within the finance, insurance, real estate and leasing sector and the services sector have been added to the data associated with this webpage. For an example on how to use these new data, see the "How to use contributions" section below.

Contributions To Output Growth

Using the growth accounting identities, the nation's output growth can be decomposed into the contributions of labor input, capital services, and multifactor productivity growth. In the most recent business cycle (2007-2018) the deceleration of the nation's output growth was mainly driven by the deceleration in MFP growth in addition to a modest deceleration of industryís use of capital services. The charts that follow illustrate the drivers of the economic slowdown in output growth over the last two business cycles by examining the contributions of 8 aggregate sectors that encompass the private business economy.

Chart 1 illustrating the percentage points of Contributions to Output Growth in Private Business for Multifactor Productivity, Labor Input, and Capital Services

The charts that follow illustrate the drivers of the economic slowdown in output growth over the last three business cycles by examining the contributions of 8 aggregate sectors that encompass the private business economy.

  • Agriculture, Forestry, and Fishery (Ag)
  • Mining, Utilities, and Construction (Mine, Util, Cons)
  • Manufacturing (Manf)
  • Trade
  • Transportation and Warehousing (Trans & Ware)
  • Information
  • Finance, Insurance, and Real Estate (FIRE)
  • Services

Data For Charts

See the data presented in these charts.


Chart 2 illustrating the percentage points of Multifactor Productivity Contributions to Output Growth by Sectors in Private Business

The contributions of multifactor productivity growth to private business output growth has declined from 1.12 percentage points in 2000-2007 to 0.30 percentage points in 2007-2018. The contributions from the manufacturing sectorís MFP growth significantly changed when it went from being the largest contributor to the nationís MFP growth in the 2000-2007 business cycle to being a drag on MFP growth in the 2007-2018 business cycle.

Manufacturing MFP growth contributed 0.56 percentage points to private business output growth in the 2000-2007 business cycle, with the computers and electronic products industry making up almost half of that growth (0.24). However, in the current 2007-2018 business cycle, computer and electronic products MFP growth has slowed substantially and now only contributes 0.07 percentage points to private business output growth. Additionally, the MFP growth in the chemical products industry has been in decline in the current business cycle and contributed -0.10 percentage points to private business output growth in 2007-2018. See the data on all 61 industries.

Similarly, from 1990-2000, MFP growth in the trade sector added strong positive contributions to private business output growth (0.51), however more recently, the contributions of trade MFP are flat. Together, the decline in MFP for manufacturing and trade explain the entirety of the nation's MFP slowdown.


Chart 3 illustrating the percentage points of Labor Contributions to Output Growth by Sectors in Private Business

During the 2000-2007 business cycle, the contribution of labor input to private business output growth declined over a full percentage point from 1.34 to just 0.23 percentage points. This substantial decline was due to job losses and hours declines in the manufacturing and service sectors, illustrating why this time period has sometimes been referred to as the "jobless recovery." The computers and electronic products industryís labor input growth had the most significant decline among the detailed industries within the manufacturing sector, with its labor input growth contribution declining from 0.01 percentage points in 1990-2000 to a -0.06 percentage points in 2000-2007. See the data on all 61 industries. For services, the decline in labor input contributions are most notable in the miscellaneous professional, scientific, and technical services and administrative and support services industries with their contributions declining by 0.04 and 0.11 percentage points, respectively.

Labor's contribution began to rebound in the most recent business cycle as a result of manufacturing and information. The computers and electronic products industry and broadcasting and telecommunications industry were less of a drag on private business output growth. However, the services sector has yet to see a full recovery from the 2000-2007 decline and finance, insurance, and real estate sector has continued to experience declining labor input contributions.


Chart 4 illustrating the percentage points of Capital Contributions to Output Growth by Sectors in Private Business

The capital services contribution to output growth gradually declined over the three business cycles, declining from 1.39 percentage points in 1990-2000 to 0.81 percentage points in the current business cycle. The decline in the contribution of capital from the finance, insurance, and real estate (FIRE) sector is the main driver Ė as the fall out of the financial crisis and housing collapse during the 2007-2009 period clearly impacted this sector.

The banking and rental and leasing services industries are the largest contributors to capital growth in the FIRE sector and both have experienced substantial decline in the last two business cycles. The contribution of banking capital growth to private business output growth has declined by over two thirds from 0.16 percentage points in 1990-2000 to just 0.05 percentage points in 2007-2018. Rental and leasing services also experienced a similar decline of 0.16 percentage points from the 1990-2000 business cycle to 0.03 percentage points during the most recent (2007 -2018) business cycle.

Despite the overall gradual decline in capital services contribution to output growth, the contribution of capital in the information sector is a significant source of growth in the current business cycle. This is a result of a rise in the data processing, internet publishing, and other information services and broadcasting and telecommunications industries. In the 1990-2000 business cycle these two industries had a combined contribution of 0.15 percentage points but now in the current business cycle these two industries have a combined contribution of 0.20 percentage points, which accounts for a quarter of all private business capital growth in 2007-2018. See the data on all 61 industries.


About

Contributions of factors of production are calculated as the natural log change in the factor index weighted by its share of Private Business value added growth.

How to use contributions

For each factor input into the economy (multifactor productivity, capital and labor) we can decompose output growth by its contributing input growth, by sector and industry. To demonstrate this we will focus on the contribution of MFP to private business output growth and drill down the change in contributions over the last 3 business cycles by the Finance, insurance, real estate, and leasing (FIRE) sector and the real estate industry.

First, letís look at the contribution of each input to private business output growth. Table 1 shows us that the MFP contribution to the Private Business output growth has slowed in the last business cycle. We can see that the ďslowĒ growth of output in this business cycle relative to previous cycles, has largely come from a deceleration in MFPís contribution to growth.

Table 1.
Input Contributions to Output Growth1990-20002000-20072007-2018

Private Business Output Growth*

4.0%2.9%1.9%

Capital

1.391.100.81

Labor

1.340.230.48

MFP

0.901.120.30

*Contributions may not sum due to aggregation, rounding, and integration of top line to industry.

Productivity growth has been a key ingredient to the growth in output, accounting for roughly a quarter of the growth in the current business cycle and the business cycle in the 1990ís (Table1). While MFP growth accounts roughly accounts for the same percentage of growth, the source of growth in MFP between the business cycle in the 1990ís and the current business cycle have been significantly different (Table 2). For instance, the Finance Insurance and Real Estate Sector (FIRE) productivity growth went from being a drag on private business output growth in the 1990-2000 business cycle to contributing positively in the last two business cycles. Similarly, manufacturing was a solid contributor to growth until this most recent business cycle where Services have led the nationís productivity growth.

Table 2.
Sector MFP Contributions to Private Business Output Growth1990-20002000-20072007-2018

Private Business MFP Contribution

11.40.5

Sector Sums

0.91.10.3

Agriculture, Forestry, and Fishery

0.0550.0180.030

Mine, Util, Cons

-0.072-0.0490.057

Manufacturing

0.5740.560-0.090

Trade

0.5050.1910.011

Transportation and Warehousing

0.0780.068-0.001

Information

-0.0780.2940.090

FIRE

-0.0300.0130.039

Professional and Business Services

-0.1070.0940.155

Education Health Social

-0.097-0.0200.023

Arts Entertainment Recreation Accomodation Food

0.0260.0110.007

Other Services Except Government

0.041-0.058-0.026

Using the FIRE sector as an example, the subsectors in FIRE are: Finance and insurance and Real estate and rental and leasing. Table 3 illustrates that within FIRE, the Real estate and rental and leasing subsector is main driver of the aggregate sector and has positively impacted the nationís productivity growth over the last to business cycles.

Table 3.
Sub-Sector MFP Contributions to Private Business Output Growth1990-20002000-20072007-2018

FIRE MFP Contributions Private Business Output Growth

-0.030.010.04

Sub-Sector Sums

-0.030.010.04

Finance and insurance

0.089-0.007-0.071

Real estate and rental and leasing

-0.1190.0200.110

So now letís ask the question: what industry within the Real estate and rental and leasing subsector is the main contributor to the subsectors rising importance in the economyís productivity growth? Table 4 shows us that itís all the Real Estate industry. Without the strong growth of this industryís productivity growth, the subsector and sector it belongs to would be a drag on private business output growth.

Table 4.
Industry MFP Contributions to Private Business Output Growth1990-20002000-20072007-2018

FIRE MFP Contributions Private Business Output Growth

-0.030.010.04

Finance and insurance

0.10-0.1

Industry Sums

0.10-0.1

Federal Reserve banks, credit intermediation, and related activities

-0.07-0.09-0.07

Securities, commodity contracts, and investments

0.140.02-0.01

Insurance carriers and related activities

0.050.050.01

Funds, trusts, and other financial vehicles

-0.030.010

Real estate and rental and leasing

-0.100.1

Industry Sums

-0.100.1

Real estate

-0.020.080.11

Rental and leasing services and lessors of intangible assets

-0.1-0.060

In this way, all the inputs to production can be viewed as a contribution to the nationís private output growth. Industry capital and labor inputs can also be used to decompose output further by industry in a similar manner.

Note: The 8 sectors' data in this file are calculated using a KLEMS growth accounting framework. The source of sectoral output differs among industries and sectors. Output for manufacturing industries, mining and utilities, air transportation, information, and food and beverage industries constructed primarily using data from the Economic Censuses and Annual Surveys of the U.S. Census Bureau together with data on price changes from BLS. Other data sources include: the Energy Information Administration, U.S. Department of Energy; and the Bureau of Transportation Statistics, U.S. Department of Transportation. For all other nonmanufacturing industries, sectoral output is based on indexes of real quantity and cost measures from the Bureau of Economic Analysis (BEA). Due to the different methods of measuring output growth through the use of natural logs, contributions of each factor will not sum directly to the factor growth of the private business sector.

Data in this file are consistent with the data released on July 21, 2020.


Contact

For further information, contact the Division of Major Sector Productivity, Office of Productivity and Technology(productivity@bls.gov). Bureau of Labor Statistics, U.S. Department of Labor, Washington D.C., 20212, Telephone: (202) 691-5606.

 

Last Modified Date: July 21, 2020