Multifactor Productivity Trends for Detailed Industries - 2015

 
For release 10:00 a.m. (EDT) Thursday, July 20, 2017	                                   USDL-17-1012

Technical Information:	(202) 691-5618    productivity@bls.gov   www.bls.gov/mfp 
Media Contact:	        (202) 691-5902    PressOffice@bls.gov


                    MULTIFACTOR PRODUCTIVITY TRENDS FOR DETAILED INDUSTRIES -- 2015

Multifactor productivity -- defined as output per unit of combined inputs -- rose in 21 of the 86 4-digit 
NAICS manufacturing industries in 2015, as well as in one of the two transportation industries that are 
measured, the U.S. Bureau of Labor Statistics reported today. This was down from 2014, when 
multifactor productivity increased in 42 manufacturing industries and in both of the 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. See the technical note for more information.

Methodology Change to BLS Productivity Measures

A methodology change has been implemented with the release of these data. BLS has updated the way 
intrasectoral transactions are estimated. More information about these changes can be found at 
www.bls.gov/mfp/sectoraloutputrevisions.htm.

2015 Trends in Multifactor Productivity

Among all 86 manufacturing industries, 3 industries posted multifactor productivity gains greater than 
3.0 percent: 
      *	Leather and hide tanning and finishing (7.5 percent)
      *	Iron and steel mills and ferroalloys (3.8 percent)
      *	Basic chemicals (3.5 percent)
      
Multifactor productivity declined by 6.0 percent or more in 13 manufacturing industries in 2015. This 
is the largest number of industries that have declined by this magnitude since 2009. 

Multifactor productivity moved in opposite directions in the two measured transportation industries: 
      *	Air transportation (0.4 percent)
      *	Line-haul railroads (-0.1 percent)

Components of Multifactor Productivity Growth: Output and Combined Inputs

In 2015, output increased in 50 manufacturing industries, compared to 57 industries in 2014. 

Output increased by 7.0 percent or more in the following 3 industries in 2015:
       * Other transportation equipment (8.0 percent)
       * Sawmills and wood preservation (7.4 percent) 
       * Household and institutional furniture (7.0 percent) 
       
Combined inputs of capital, labor, and intermediate purchases rose in 67 manufacturing industries in 
2015, compared to 60 industries in 2014. A majority of industries saw growth in intermediate purchases 
(71 industries), while approximately half of the industries had growth in hours worked (43 industries) 
and capital services (46 industries).

The following industries had the largest increases in combined inputs in 2015:
       * Other transportation equipment (10.6 percent)
       * Motor vehicles (8.5 percent)
       * Other food products (8.2 percent)
       * Dairy products (7.8 percent) 

For some manufacturing industries, multifactor productivity rose despite falling output, as combined 
inputs fell more rapidly. This occurred in five industries:
      *	Iron and steel mills and ferroalloys (3.8 percent)
      *	Other nonferrous metal production (2.4 percent)
      *	Turbine and power transmission equipment (1.6 percent)
      *	Apparel knitting mills (1.4 percent)
      *	Communications equipment (1.4 percent)
      
In the air transportation industry, output increased 4.5 percent and combined inputs increased 4.0 
percent in 2015. In line-haul railroads, output fell 0.2 percent and combined inputs decreased 0.1 
percent.

Trends in Multifactor Productivity for Selected Time Periods

Year-to-year movements and long-term trends in industry multifactor productivity may 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 saw multifactor productivity growth over the long term than the short term. Over the 
long term period from 1987 to 2015, multifactor productivity grew in 54 manufacturing industries, 
compared to only 21 from 2014 to 2015. (See tables 1 and 2.) Average annual rates of change in 
multifactor productivity for nearly all manufacturing industries ranged between -2.0 and 2.0 percent 
over the long term. 
 
In contrast, multifactor productivity declined by 2.0 percent or more in 42 industries in 2015. Only two 
industries (pharmaceuticals & medicines and accessories & other apparel) saw an average annual 
decline of that magnitude from 1987 to 2015.

Between 1987 and 2015, 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. 

Table 3 displays the average annual percent changes in multifactor productivity by industry for sub 
periods between 1987 and 2015. The sub period from 2000 to 2007 saw the greatest number of 
manufacturing industries with multifactor productivity growth.

From 1987 to 2015, multifactor productivity rose in both air transportation and line-haul railroads by 
an average annual rate of 1.3 percent and 1.7 percent, respectively. While both industries posted gains 
in output, 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-three out of the 86 manufacturing industries posted gains in labor productivity from 1987 to 
2015. Among these 83 industries, substitution of intermediate purchases for labor was the leading 
source of labor productivity growth. (See table 4.) 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. 

Strong growth in multifactor productivity was the dominant source of labor productivity growth in 
the industries that manufacture computers and electronic products (computer and peripheral equipment, 
semiconductors and electronic components, and communications equipment). 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 saw greater growth in factor substitution of 
intermediate purchases for labor.
 
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Last Modified Date: July 20, 2017