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 total factor productivity growth. The large TFP and labor input declines among industries in 2020 led to an overall decline in output growth for the private business sector. The charts that follow illustrate the drivers of the economic slowdown in output growth over a select time-period by examining the contributions of 8 aggregate sectors that encompass the private business economy.
The charts that follow examine in more detail, the impact of TFP, labor input and capital services through the contributions of 8 aggregate sectors that encompass the private business economy. Using these sectors provides a greater understanding of where and how economic losses were experienced in the U.S. in 2020 relative to those from the Great Recession of 2008-2009.
Data For Charts
See the data presented in these charts.
The negative contribution of total factor productivity growth to private business output decline of -3.38 percentage points in 2020 was widespread across the economy. Six of the eight sectors were a drag on economic growth compared to only 4 sectors slowing output in 2008-2009. While manufacturing led the decline in TFP contribution to output during the Great Recession, we see that services were the primary sector contributing to the decline in TFP and output.
During the years of the Great Recession in 2008-2009, services TFP growth had a small positive contribution to private business output growth. However, in the most recent year, services TFP growth led to the decline of TFP by contributing -1.75 percentage points to the private business output decline. This negative shift is a result of the health care and social assistance industry (-0.62 percentage points) and the air transportation industry (-0.55 percentage points), which were the main downward drivers. See the data on all 61 industries.
TFP declines in the manufacturing sector during the Great Recession mirrored the contribution declines experienced in 2020 but were intensified due to declines from nondurable manufacturing. One notable difference between the Great Recession and the current year is that in 2008-2009, the FIRE sector was the largest offset to the output decline with a positive contribution of 0.24 percentage points, while in 2020 it contributed negatively with a contribution of -0.33 percentage points. The more recent decline is a result of the decline in insurance carriers and related activities as well as real estate. Also of note is the increased decline in transportation and warehousing in 2020 compared to the Great Recession, as the air transportation industry was hit especially hard with the onset of the COVID-19 pandemic.
In 2020, the contribution of labor input to private business output growth significantly declined from 0.61 percentage points in 2019 to -2.64 percentage points. This substantial decline was led by the services sector which had the largest negative contribution in 2020 of -1.54 percentage points. The main downward driver of this sector was the accommodation and food services major industry with a negative contribution of 0.58 percentage points. Within this major industry, the food services and drinking places industry accounted for almost 70% of this decline with a contribution of negative 0.40 percentage points as this industry experienced record declines in employment and hours when the pandemic struck the United States. During the period of the Great Recession, Manufacturing led the decline in labor input contributions to output growth. See the data on all 61 industries.
By contrast, the only offset to the labor contribution to the decline in output in 2020 came from the FIRE sector where financial institutions flourished despite steep employment declines in the economy during the pandemic. In contrast, during the Great Recession, the FIRE sector had negative labor contributions as the Great Recession hit the banks, hedge funds, and many in the FIRE sector hard.
Capital services positive contribution to output growth in 2020 kept output from declining at a faster rate with a positive from contribution of 0.95 percentage points in 2020. All sectors demonstrated a positive contribution of capital to output growth in 2020 as well as most sectors during the Great Recession but the magnitude of the FIRE sector was far greater in 2020.
The contribution of the FIRE sector in 2020 was driven by the banking, insurance, and real estate industries with contributions of 0.10, 0.07 and 0.03 percentage points, respectively. During the Great Recession these three industries combined had a contribution of 0.07 illustrating the improvement to this sector relative to the previous recession. Within the Information sector, the data processing, internet publishing, and other information services industry contributed the most to output growth in 2020 with a contribution of 0.14 percentage points compared to only a 0.01 percentage point contribution during the 2008-2009 period. See the data on all 61 industries.
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 (total factor 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 TFP 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 TFP 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 TFPís contribution to growth.
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 TFP growth accounts roughly accounts for the same percentage of growth, the source of growth in TFP 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.
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.
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.
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 November 18, 2021.
For further information, contact the Division of Major Sector Productivity, Office of Productivity and Technology(firstname.lastname@example.org). Bureau of Labor Statistics, U.S. Department of Labor, Washington D.C., 20212, Telephone: (202) 691-5606.
Last Modified Date: November 19, 2021