Multifactor Productivity Trends for Detailed Industries - 2014

For release 10:00 a.m. (EDT) Tuesday, September 20, 2016                                   USDL-16-1865

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Multifactor productivity rose in 38 of the 86 4-digit NAICS manufacturing industries in 2014, 
as well as in the two transportation industries that are measured, the U.S. Bureau of Labor 
Statistics reported today. This was down from 2013, when multifactor productivity increased in 
47 manufacturing industries and in the two transportation industries. 

Multifactor Productivity: Definition and Concepts

Multifactor productivity relates the change in real output to the change in the combined inputs of 
labor, capital, and intermediate purchases (energy, materials, and purchased services) used in 
producing that output. Multifactor productivity is also known as total factor productivity.

A variety of factors that influence economic growth are not specifically accounted for among 
measured inputs, including: technological change, returns to scale, enhancements in managerial 
and staff skills, changes in the organization of production, and other efficiency improvements. 
Multifactor productivity reflects these factors.
2014 Trends in Multifactor Productivity

Among all manufacturing industries, there were four industries which experienced multifactor 
productivity gains greater than 6.0 percent: 
      * Magnetic media manufacturing and reproducing (7.4 percent)
      * Audio and video equipment (7.3 percent)
      * Seafood product preparation and packaging (7.1 percent)
      * Other textile product mills (6.2 percent)

The two measured transportation industries experienced multifactor productivity increases: 
      * Air transportation (1.3 percent)
      * Line-haul railroads (0.6 percent)

Components of Multifactor Productivity Growth: Output and Combined Inputs

In 2014, 43 industries experienced increases in both output and combined inputs. Similarly, in 
2013, 42 industries experienced increases in both components.

In 2014, output increased in 52 manufacturing industries, as opposed to 60 in 2013. The 
following industries had either double-digit increases or decreases in output in 2014:
      * Railroad rolling stock (13.9 percent)
      * Motor vehicle bodies and trailers (10.9 percent) 
      * Communications equipment (-10.1 percent)
      * Tobacco (-11.7 percent) 

Combined inputs of capital, labor, and intermediate purchases rose in 59 manufacturing 
industries in 2014, compared to 52 industries in 2013. A majority of industries experienced 
growth in intermediate purchases (57 industries) and hours worked (56 industries). Fewer 
manufacturing industries experienced growth in capital services (28 industries).

The following industries had the largest increases in combined inputs in 2014:
      * Railroad rolling stock (15.3 percent)
      * Motor vehicle bodies and trailers (10.7 percent)
      * Apparel knitting mills (8.7 percent)
      * Motor vehicles (8.0 percent) 

For some manufacturing industries, multifactor productivity rose despite falling output, as 
combined inputs fell more rapidly. This occurred in six industries:
      * Other leather products (5.6 percent)
      * Basic chemicals (4.1 percent)
      * Soaps, cleaning compounds, and toiletries (3.2 percent)
      * Cutlery and handtools (1.6 percent)
      * Footwear (1.1 percent)
      * Animal slaughtering and processing (1.0 percent)

In the air transportation industry, output increased 2.8 percent and combined inputs increased 1.4 
percent in 2014. In line-haul railroads, output rose 4.3 percent and combined inputs increased 3.6 

Trends in Multifactor Productivity for Selected Time Periods

Year-to-year movements and long-term trends in industry multifactor productivity may both 
reflect cyclical changes in the economy. However, long-term average annual percent changes in 
multifactor productivity are more reliable indicators of historical trends in industry performance.

More industries experienced multifactor productivity growth over the long term than the short 
term. From 1987 to 2014, multifactor productivity grew in 54 manufacturing industries, 
compared to 38 in 2014. Average annual rates of change in multifactor productivity for nearly all 
manufacturing industries ranged between -2.0 percent and 2.0 percent over the long term.

In contrast, multifactor productivity declined by 2.0 percent or more in 19 industries in 2014. 
Only one industry (pharmaceuticals and medicines) experienced an average annual decline of 
that magnitude from 1987 to 2014.
Between 1987 and 2014, the number of manufacturing industries with growth in multifactor 
productivity was highest in 2003 and 2010. These were years of economic growth following 
recessions. In contrast, relatively few manufacturing industries saw multifactor productivity 
growth in the recession years of 2001 and 2009.

From 1987 to 2014, multifactor productivity rose in both air transportation and line-haul 
railroads by 1.3 percent and 1.8 percent, respectively. While both industries experienced 
increases in output, multifactor productivity grew more in line-haul railroads because its 
combined inputs showed little change over the long term.

Multifactor Productivity as a Source of Labor Productivity Growth

Multifactor productivity is equal to labor productivity minus the effects of factor substitution; 
that is, the combined effects of changes in weighted capital services relative to hours worked and 
weighted intermediate purchases relative to hours worked. These factor substitutions are referred 
to as contribution of capital intensity and contribution of intermediate purchases intensity. 

Eighty-one out of the 86 manufacturing industries experienced growth in labor productivity from 
1987 to 2014. Among these 81 industries, the contribution of intermediate purchases intensity 
was the leading source of labor productivity growth. Growth in the contribution of intermediate 
purchases intensity occurs when firms purchase a greater share of materials instead of using 
their own labor. Contribution of intermediate purchases intensity may also occur when firms 
substitute contracted labor for payroll labor. 

Between 2000 and 2007, labor productivity growth in over one third of 
manufacturing industries was driven by multifactor productivity growth. In contrast, labor 
productivity growth was driven mostly by contribution of intermediate purchases intensity in the 
other two sub periods.

Strong growth in multifactor productivity was the dominant source of labor productivity growth 
in the industries that manufacture computers and electronic products (NAICS 334). Labor 
productivity growth in the measured transportation industries (air transportation and line-haul 
railroads) was also primarily driven by multifactor productivity growth. The remaining 
manufacturing industries with high average annual growth in labor productivity mostly 
experienced greater growth in contribution of intermediate purchases intensity. 

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Last Modified Date: September 20, 2016