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Economic News Release

Total factor productivity, 2022

For release 10:00 a.m.(ET) Thursday, March 23, 2023 USDL-23-0540
Technical information:(202) 691-5606 • 
Media contact:	      (202) 691-5902 •

Total factor productivity (TFP) in the private nonfarm business sector 
decreased 1.2 percent in 2022, the U.S. Bureau of Labor Statistics 
reported today. (See table A.) The 2022 decline in TFP reflects
a 2.3-percent increase in output and a 3.6-percent increase in the combined
inputs of capital and labor. Capital input grew by 2.9 percent and labor 
input–which is the combined effect of hours worked and labor 
composition–increased by 4.0 percent. This is the first time since 1993 that
both capital and labor growth have outpaced output growth, leading to the 
decline in total factor productivity. Besides the COVID-19 pandemic year of
2020, this is the largest decline in productivity since 1982. 

Total factor productivity is calculated by dividing an index of real output
by an index of combined units of labor input and capital input. Total factor
productivity annual measures differ from BLS quarterly labor productivity 
(output per hour worked) measures because TFP includes the influences of 
capital input and shifts in the composition of workers. Measures for the
most recent year of this release are preliminary estimates. See the Technical
Notes for additional information.

|	Methodology Change for Labor Composition Data                        |
|                                                                            |
| Starting with data released on November 18, 2022, the BLS Productivity     |
| program incorporated new methodology that uses a combination of the Census |
| American Community Survey (ACS), BLS Current Population Survey (CPS), and  |
| the CPS Annual Demographic Supplement to estimate labor composition for    |
| all NAICS industries and Major Sectors.                                    |

Private business sector total factor productivity also decreased 1.2 percent
in 2022, as output increased 2.2 percent and combined inputs increased 3.5 
percent. (See table A.) 

Total Factor Productivity Trends

The 1.2-percent decline in TFP in private nonfarm business in 2022 resulted
from combined inputs growth outpacing the growth of output. The 2.3-percent
growth of output in 2022 represents a stabilization of private nonfarm 
business output after the COVID-19 pandemic, as this growth is in line with
the previous business cycle (2007-19) growth of 2.0 percent. 

Combined inputs continued its recovery from the 2020 recession with 3.8 
percent growth in 2021 and 3.6 percent growth in 2022. However, due to the
large decline in this measure in 2020, combined inputs growth during the 
current business cycle (2019-22) is now in line with the 2007-19 growth.

Productivity growth is often viewed as a long run measure, especially when 
an economic shock like the COVID-19 pandemic happens. While total factor 
productivity growth has been volatile the last 3 years, 2019-22 shows similar
growth to the previous business cycle. 

Combined input growth is made up of growth in three components: capital input,
hours worked, and labor composition. The index of capital input has continued
its pre-pandemic trend of positive growth and is now 8.0-percent higher in 
2022 than in 2019. Hours worked grew 4.0 percent in 2022 and has now fully 
recovered from the historic decline in 2020, with the 2022 index 1.4-percent
higher than in 2019. The index of labor composition experienced historically
high growth in 2020 and has remained near this level over the last 2 years.

Labor Productivity Trends

Labor productivity growth is the approximate sum of three components: total
factor productivity growth, the contribution of capital intensity, and the 
contribution of shifts in the composition of labor. In 2022, private nonfarm
business labor productivity decreased 1.7 percent, the largest decline since
the series began in 1948. (See table B.)

The 2022 private nonfarm business sector decline in labor productivity was 
a result of the 1.2-percent decline in total factor productivity, and a 
0.4-percent decline in the contribution of capital intensity to labor 
productivity growth. Capital intensity is the ratio of capital input growth
to labor hours growth. The 2022 decline in capital intensity was driven by
the increase in hours worked of 4.0 percent relative to the slower capital
input growth of 2.9 percent. (See tables A and B.)

The contribution of labor composition to labor productivity for private 
nonfarm business was unchanged in 2022. Labor composition estimates the 
effect of shifts in the age, education, and gender composition of the 
workforce on hours worked. The historic contribution of labor composition 
to labor productivity growth in 2020 was followed by a decline in 2021, 
the first time this measure declined since 1977. Over the 2019-22 business
cycle, the contribution to labor productivity growth from labor composition 
was 0.4 percent. 

Detailed Capital Input Trends 2021

Capital input in the private nonfarm business sector increased at an average
annual rate of 2.3 percent in 2021, the latest year of available detailed 
capital data. The 2021 capital input growth declined 0.3 percentage point 
(see table C) from the 2020 annual rate of 2.6 percent and continues the 
deceleration of capital growth from the 2019 annual rate of 3.2 percent. 
This is the first 2-year consecutive decline in capital growth since 
the Great Recession of 2007-09.

Capital input is made up of different types of capital assets, including 
equipment, structures, and intellectual property products. In the 2000-07 
business cycle, equipment and intellectual property products, which consist
of software, research and development, and artistic originals assets, 
accounted for 2.9 percentage points of the private nonfarm business capital
input growth of 3.5 percent. However, in the following business cycle of 
2007-19, the contribution of equipment decreased by almost half, leading to
capital input growth of only 2.4 percent.

The decline in the contribution of equipment continued into the current 
2019-21 business cycle as equipment now accounts for 0.5 percentage point 
of capital input growth. However, capital input growth was unchanged at 
the previous rate of 2.4 percent due to the increased contribution of
intellectual property products. Intellectual property products increased 
from a 1.0 percentage point contribution in 2007-19 to a 1.5 percentage point
contribution in 2019-21, and now accounts for over half of private nonfarm
business capital input growth. 
Last Modified Date: March 23, 2023