Internet address: http://www.bls.gov/mfp
Historical, technical USDL 08-0857
information: (202) 691-5606 For Release: 10:00 AM EDT
Media contact: (202) 691-5902 Thursday, May 1, 2008
MULTIFACTOR PRODUCTIVITY TRENDS IN MANUFACTURING, 2006
Multifactor productivity, defined as output per unit of combined inputs, was
reported today by the Bureau of Labor Statistics (BLS) of the U.S. Department
of Labor for the manufacturing sector and for durable goods, nondurable
goods, and three-digit (NAICS) manufacturing industries for the year 2006.
In manufacturing, the annual rates of multifactor productivity change for 2006
were:
1.6 percent in the manufacturing sector,
3.2 percent in the durable goods manufacturing sector, and
-0.2 percent in the nondurable goods manufacturing sector.
At 1.6 percent, multifactor productivity growth in the manufacturing sector
grew more rapidly than the 0.4 percent increase posted in 2005 (as revised).
This occurred as durable goods manufacturing productivity growth accelerated
to 3.2 percent from 2.5 percent and nondurable goods manufacturing
producitivity fell less, dropping 0.2 percent in 2006 after a 1.8 percent
decrease in 2005. The 2005-06 annual changes are summarized in table A and
further detail and historical measures are shown in tables 1 through 3.
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.
The data sources and methods used in the preparation of the manufacturing
series differ from those used in preparing the private business and private
nonfarm business multifactor series and therefore the measures are not
directly comparable. See BLS News Release, Multifactor Productivity Trends,
2006, http://www.bls.gov/news.release/pdf/prod3.pdf, for information on
multifactor productivity measurement in the private business and private
nonfarm business sectors.
Table A. Compound average annual rates of growth for multifactor
productivity, output per hour of all persons, output per unit of capital
services and related measures in the manufacturing sector for selected
periods, 1987 to 2006
1987-06 1987-90 1990-95 1995-00 2000-06 2005-06
Productivity
Multifactor
productivity1 1.4 0.2 1.2 2.0 1.6 1.6
Output per hour
of all persons 3.6 1.8 3.4 4.6 3.8 1.2
Output per unit
of capital services 0.2 -0.1 0.5 0.3 0.0 1.3
Sectoral Output 2.5 2.1 3.3 4.5 0.4 1.8
Inputs
Hours2 -1.1 0.4 -0.1 -0.1 -3.3 0.6
Capital services 2.3 2.2 2.8 4.2 0.3 0.5
Energy -0.7 2.0 1.6 -2.5 -2.4 -5.5
Non-energy materials 2.0 1.6 3.6 4.9 -1.5 -1.0
Purchased business
services 2.6 5.5 3.0 2.4 1.1 2.0
Combined inputs3 1.1 2.0 2.0 2.5 -1.2 0.3
1Output per unit of combined labor hours, capital, energy, materials, and
business services inputs.
2Hours at work of all persons.
3The growth rate of each input is weighted by its share of nominal costs.
Changes in 2006
Multifactor productivity in the manufacturing sector rose 1.6 percent in
2006 (see table A). This is the fifth consecutive year that multifactor
productivity rose in manufacturing (see table 1). The 2006 multifactor
productivity gain reflected a 1.8 percent increase in sectoral output and a
0.3 percent increase in combined inputs. The increase in combined inputs was
down from the sharp 3.3 percent increase in 2005. Capital services grew 0.5
percent in 2006, after remaining unchanged in 2005. Hours grew 0.6 percent
in 2006, materials declined 1.0 percent and purchased business services rose
2.0 percent.
Within manufacturing, multifactor productivity for durable goods increased
in 2006 while it fell for nondurable goods (table 3). The manufacturing
industries that showed the largest multifactor productivity growth in 2006
were all durable goods industries; computer and electronic products
(7.6 percent), transportation equipment (4.0 percent), and wood products
(3.0 percent). One durable goods industry showed the sharpest decline in
multifactor productivity, nonmetallic mineral products (-3.1 percent). The
other two industries that showed sharp declines were nondurable goods
industries; textile mills and textile product mills (-2.6 percent) and
plastics and rubber products (-1.9 percent).
Historical trends in manufacturing
Multifactor productivity (output per unit of combined inputs) differs from
labor productivity (output per hour worked) in the treatment of both capital
and intermediate inputs (energy, materials, and business services). Labor
productivity measures do not explicitly account for the effects of capital
nor do they account for changes in the effects of intermediate inputs on
output growth. As a result, changes in input intensity (the ratio of other
inputs to labor hours) can influence labor productivity growth. In contrast,
multifactor productivity treats capital and intermediate inputs as explicit
factors of production and, therefore, is net of changes in input intensity.
Historical trends in labor productivity growth can be disaggregated into the
sum of multifactor productivity growth plus the contributions of the
intensities of capital and of intermediate inputs.
The relationship between labor productivity growth and these components can
be seen in table B and chart 1. Chart 1 shows how the relative contributions
of multifactor productivity, capital intensity, and intermediate input
intensity shifted in the latter half of the 1990’s. These contributions have
somewhat slowed during the 2000-2006 period.
The contribution of each input’s intensity equals the change in the ratio of
that input to hours multiplied by that input's cost share. Historically, the
labor share is about a third of total cost, the capital share about a sixth,
the materials share about 30 percent of total cost, and the business services
share about 20 percent. The energy share is historically only about 3 percent
of total cost.
Multifactor productivity in manufacturing grew 1.4 percent annually between
1987 (the starting point of the series) and 2006 (see table A). Sectoral
output increased at a 2.5 percent annual rate over the period and combined
inputs rose an average of 1.1 percent per year. Of the 3.6 percent growth
rate in output per hour (labor productivity), 1.4 percent can be attributed
to increases in multifactor productivity, 0.5 percent to the contribution of
capital intensity, 0.8 percent to changes in materials intensity, and 0.8
percent to changes in business services intensity (see table B). The
remaining input, energy, was a very small share of total inputs; therefore,
it made no discernable contribution to output per hour.
From 1995 to 2000, multifactor productivity in manufacturing rose more
rapidly than in previous periods, averaging 2.0 percent per year. Sectoral
output growth increased to an average of 4.5 percent per year (table A)
while combined inputs advanced an average of 2.5 percent per year, slightly
faster than in the early 1990s. In the 2000-2006 period, multifactor
productivity grew at a slower rate than in the 1995-2000 period, averaging
1.6 percent per year. Labor productivity slowed to a still-robust average
annual growth rate of 3.8 percent per year. The contribution of capital
intensity was slightly slower in the 2000-2006 period than in the 1995-2000
period, increasing an average of 0.6 percent annually (table B). The
contribution of the intensity of information processing equipment grew 0.2
percent while that of other capital services rose 0.4 percent during the
2000-2006 period. The contribution of materials intensity dropped to an
average annual increase of 0.5 percent from the 1.4 percent growth shown in
the 1995-2000 period while the contribution of business services intensity
accelerated to 1.0 percent.
Table B. Compound average annual rates of growth in output per hour of all
persons and the contributions of capital intensity, intermediate inputs
intensity, and multifactor productivity, manufacturing sector, 1987 to 2006
1987-06 1987-90 1990-95 1995-00 2000-06 2005-06
Manufacturing
Output per hour
of all persons 3.6 1.8 3.4 4.6 3.8 1.2
Contribution of
capital intensity1 0.5 0.3 0.4 0.7 0.6 0.0
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 0.4 0.4 -0.1
Contribution of
energy intensity3 0.0 0.0 0.0 -0.1 0.0 -0.2
Contribution of
materials intensity4 0.8 0.3 1.0 1.4 0.5 -0.5
Contribution of
purchased business
services intensity5 0.8 0.9 0.6 0.5 1.0 0.3
Multifactor
productivity6 1.4 0.2 1.2 2.0 1.6 1.6
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 costs.
3Growth rate in energy services per hour multiplied by energy’s share of
current dollar costs.
4Growth rate in materials services per hour multiplied by materials’ share
of current dollar costs.
5Growth rate in business services per hour multiplied by business services’
share of current dollar costs.
6Output per unit of combined inputs.
Over the entire 1987-2006 period, multifactor productivity advanced most
rapidly in the computer and electronic products industry (see table 3).
This industry’s 9.6-percent average annual growth rate during this period
was 8.0 percentage points higher than the industry with the next highest
growth rate, apparel, leather, and allied products. In the 1995-2000 period,
multifactor productivity grew very rapidly in the computer and electronic
products industry, 15.9 percent per year. In the 2000-2006 period, the
growth rate slowed to 6.7 percent. Three industries experienced a decline
in multifactor productivity over the 1987-2006 period: food, beverage, and
tobacco products (-0.3 percent); chemical products (-0.1 percent); and
electrical equipment, appliances, and components (-1.0 percent).
Summary of methods for the manufacturing sector and manufacturing industries
The manufacturing 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, 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 input of labor, capital services, energy, non-energy materials,
and business service inputs.
The multifactor productivity measures for manufacturing differ in several ways
from those for private business and private nonfarm business in their
treatment of labor input, output, and classes of factor inputs. First,
the manufacturing measure of labor input is a direct aggregate of hours.
This is in contrast to the major sector measures for which estimates of the
effects of changing labor composition have been developed.
Next, the output concept used for multifactor productivity in manufacturing
is “sectoral output.” Sectoral output is similar to gross output, but
excludes shipments from one establishment to another within the same
manufacturing industry or 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.
The resulting manufacturing multifactor productivity measure compares what is
produced in the manufacturing sector with the inputs used to produce it. The
comparison excludes flows of intermediate inputs between manufacturing
establishments from measures of both output and inputs. However, the
comparison does include capital service inputs and capital goods produced,
even when these goods are produced and consumed in manufacturing.
Multifactor productivity in manufacturing compares "sectoral output" to
three classes of inputs: 1) hours at work of labor employed within
manufacturing; 2) capital services employed by manufacturing establishments;
and 3) purchases of energy, materials, and business services from outside
of manufacturing (intermediates).
Hours paid of production workers are obtained 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. Hours at work data
reflect Productivity and Costs data as of the March 5, 2008 news release.
Therefore, it reflects the benchmark revisions to the CES survey and other
revisions to hours released on February 1, 2008. The construction of hours
at work follows the methods used in the private business sector described
in USDL 08-0410, Multifactor Productivity Trends, 2006,
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.
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 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.
In manufacturing, intermediates are the largest input in terms of costs.
Furthermore, research has shown that substitution among inputs, including
intermediates, affects productivity change. Therefore, it is important to
include intermediates 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 methods, 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. As with the sectoral output
measures, materials inputs are adjusted to exclude transactions between
establishments within the same sector.
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.
Multifactor productivity data incorporate NAICS input-output tables and
revised BEA chain-type price and quantity indexes for intermediate inputs
(energy, materials, and business services). See tables at
http://www.bea.gov/Industry/Index.htm , Gross Domestic Product by Industry.
BLS built multifactor productivity measures from three-digit NAICS detail.
Most of the critical data used to calculate these measures were not reported
on a NAICS basis for years prior to 1998. Detailed GDP by industry data were
available from 1998 forward. But from 1987 to1997, many of the income
components needed to construct capital rental prices were obtained by applying
1997 SIC-to-NAICS conversion factors to SIC data and adjusting to the
estimated NAICS totals. A similar procedure was applied to manufacturing
inventories, energy, materials, and business services. Land data were only
available from 1998 to 2004 on a NAICS basis. As a consequence, land
estimates from 1987 to 1997 were calculated using a combination of SIC to
NAICS conversion factors and more detailed IRS data. Data for 2005 and 2006
were extrapolated using detailed IRS data for 2004.
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, 1988-2006
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 1.7 4.0 1.4 8.9 3.4
1989 1.0 -0.6 -0.5 1.6 0.6 2.2 -0.2 1.9 6.0 2.2
1990 2.2 -3.0 -0.7 -0.3 -2.5 2.8 2.1 1.4 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 0.8 -0.6 3.3 -0.5 2.4 -0.9 8.6 7.1 3.9
1993 2.5 1.3 2.7 3.9 1.3 2.5 3.2 0.9 0.2 1.2
1994 3.5 3.1 2.7 6.0 2.4 2.8 3.1 3.9 3.7 3.1
1995 4.5 1.5 1.8 5.3 0.7 3.7 3.0 5.3 4.9 3.4
1996 3.6 -0.7 0.5 3.4 -0.2 4.1 -2.9 9.0 -0.4 2.9
1997 5.5 2.6 2.8 7.4 1.7 4.6 -1.9 8.0 4.1 4.4
1998 5.4 0.1 2.3 5.2 -0.2 5.0 -2.6 5.2 3.2 2.9
1999 4.5 -0.3 0.8 3.8 -0.7 4.1 0.1 5.0 5.3 3.0
2000 4.0 -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 -4.2
2003 6.2 1.0 2.8 1.0 -4.9 0.0 -5.5 -0.8 0.9 -1.8
2004 2.3 2.3 2.6 1.7 -0.5 -0.6 -0.5 -0.4 -2.1 -0.9
2005 4.8 3.7 0.4 3.7 -1.1 0.0 9.1 5.9 7.8 3.3
2006 1.2 1.3 1.6 1.8 0.6 0.5 -5.5 -1.0 2.0 0.3
1. Sectoral output per unit of combined inputs.
2. Hours at work of all persons.
3. Combined units of capital services, hours, energy, non-energy materials,
and purchased business services, superlative chain index.
Source: Output data are from the Bureau of the Census, U.S. Department of
Commerce, and modified by the Bureau of Labor Statistics (BLS),
U.S. Department of Labor. Compensation and hours data are from BLS.
Capital measures are based on data supplied by BEA. See also
Summary of Methods in this release.
Table 2. Manufacturing Sector: Productivity and related measures, 1987-2006
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 64.1 96.4 85.0 64.1 100.0 66.5 99.1 63.2 65.2 75.4
1988 65.4 99.7 86.4 67.4 103.1 67.6 103.1 64.1 71.0 78.0
1989 66.1 99.1 86.0 68.5 103.7 69.2 102.9 65.3 75.2 79.7
1990 67.5 96.1 85.4 68.3 101.1 71.1 105.1 66.2 76.6 80.0
1991 69.3 92.2 85.1 67.1 96.9 72.8 104.7 65.8 76.0 78.9
1992 71.9 93.0 84.6 69.3 96.4 74.5 103.7 71.5 81.5 82.0
1993 73.8 94.3 86.8 72.0 97.7 76.4 107.1 72.1 81.6 83.0
1994 76.4 97.2 89.2 76.3 100.0 78.5 110.4 74.9 84.7 85.6
1995 79.8 98.7 90.8 80.3 100.6 81.4 113.7 78.9 88.8 88.5
1996 82.7 98.0 91.2 83.1 100.4 84.8 110.4 86.0 88.5 91.1
1997 87.3 100.6 93.8 89.2 102.2 88.7 108.2 92.9 92.1 95.1
1998 92.0 100.7 95.9 93.8 101.9 93.2 105.4 97.7 95.0 97.8
1999 96.1 100.4 96.7 97.4 101.3 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 92.3 102.4 94.3 86.8 102.1 89.3 88.4 98.2 92.1
2003 115.3 93.2 105.2 95.2 82.6 102.1 84.4 87.7 99.1 90.5
2004 117.9 95.4 108.0 96.9 82.2 101.6 84.0 87.3 97.0 89.7
2005 123.5 98.9 108.4 100.4 81.3 101.5 91.6 92.4 104.5 92.7
2006 125.0 100.2 110.1 102.3 81.8 102.0 86.6 91.5 106.6 92.9
1. Sectoral output per unit of combined inputs.
2. Hours at work of all persons.
3. Combined units of capital services, hours, energy, non-energy materials,
and purchased business services, superlative chain index.
Source: Output data are from the Bureau of the Census, U.S. Department of
Commerce, and modified by the Bureau of Labor Statistics (BLS),
U.S. Department of Labor. Compensation and hours data are from BLS.
Capital measures are based on data supplied by BEA. See also
Summary of Methods in this release.
Table 3. Compound average annual rates of growth in the multifactor
productivity measures for manufacturing industries in selected periods,
1987-2006
Average annual percent
Industry 1987- 1987- 1990- 1995- 2000- 2005-
2006 1990 1995 2000 2006 2006
Manufacturing 1.4 0.2 1.2 2.0 1.6 1.6
Nondurable 0.2 -0.6 0.7 -0.3 0.6 -0.2
manufacturing
Food, beverage, -0.3 -1.7 1.5 -1.9 0.3 -0.5
and tobacco
products
Textile mills 0.9 1.0 0.7 1.3 0.8 -2.6
and textile
product mills
Apparel, leather, 1.6 0.1 2.8 0.6 2.0 2.1
and allied
products
Paper products 0.3 -0.4 -0.1 0.1 1.1 -1.2
Printing and 0.4 0.6 -0.3 0.3 1.1 0.6
related support
activities
Petroleum and coal 0.0 -0.1 0.6 0.2 -0.6 0.7
products
Chemical products -0.1 -1.0 -0.8 0.0 1.0 0.4
Plastics and rubber 0.7 0.7 0.6 1.2 0.4 -1.9
products
Durable manufacturing 2.3 0.9 1.6 3.6 2.4 3.2
Wood products 0.3 1.0 -1.2 0.1 1.2 3.0
Nonmetallic mineral 0.5 0.3 1.0 0.8 -0.1 -3.1
products
Primary metals 0.7 1.1 0.1 0.5 1.1 -0.5
Fabricated metal 0.5 -0.1 1.0 0.1 0.7 1.8
products
Machinery 0.0 1.0 -1.7 -0.7 1.7 2.0
Computer and 9.6 5.6 9.6 15.9 6.7 7.6
electronic
products
Electrical -1.0 -2.2 -2.0 -1.1 0.7 -0.7
equipment,
appliances,
and components
Transportation 0.4 -1.7 -0.3 0.3 2.0 4.0
equipment
Furniture and 0.3 -0.8 0.7 0.4 0.3 1.1
related products
Miscellaneous 1.4 2.4 0.3 1.7 1.6 0.7
manufacturing
Note: Multifactor productivity measures by industry do not sum up to aggregate
manufacturing measures because industry measures excluded transactions
only within the specific industry while the aggregate manufacturing
measures also exclude transactions between all manufacturing industries.
United States Department of Labor
