Full text of 2005 : Text File, USDL 07-0822
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Historical, technical USDL 07-0822
information: (202) 691-5606 For Release: 10:00 AM EDT
Media contact: (202) 691-5902 Thursday, June 7, 2007
MULTIFACTOR PRODUCTIVITY TRENDS IN MANUFACTURING, 2005
The Bureau of Labor Statistics of the U.S. Department of Labor today reported
multifactor productivity data�output per unit of combined inputs�for the
manufacturing sector and for durable goods, nondurable goods, and three-digit
(NAICS) manufacturing industries for the year 2005.
In manufacturing, the annual rates of multifactor productivity change for 2005
were:
3.4 percent in the manufacturing sector and
3.3 percent in the durable goods manufacturing sector and
3.2 percent in the nondurable goods manufacturing sector.
At 3.4 percent, multifactor productivity growth in the manufacturing sector
slowed somewhat compared to 2004 (3.8 percent). This was due to a
deceleration in durable goods manufacturing productivity growth from 4.5
percent to 3.3 percent. A small acceleration in nondurable goods
manufacturing productivity growth from 2.5 percent to 3.2 percent partially
offset the slower growth of multifactor productivity in durable goods
manufacturing. The 2004-05 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 USDL 07-0758, Preliminary Multifactor
Productivity Trends, 2006 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 2005
1987-05 1987-90 1990-95 1995-00 2000-05 2004-05
Productivity
Multifactor
productivity1 1.6 0.2 1.2 2.0 2.5 3.4
Output per hour
of all persons 3.7 1.7 3.4 4.7 4.3 4.7
Output per unit
of capital services 0.2 -0.1 0.6 0.4 -0.1 3.9
Sectoral Output 2.5 2.1 3.3 4.5 0.1 3.5
Inputs
Hours2 -1.2 0.4 -0.1 -0.2 -4.1 -1.1
Capital services 2.3 2.2 2.7 4.1 0.1 -0.3
Energy -1.3 1.9 1.6 -2.5 -4.7 -3.3
Non-energy materials 1.8 1.6 3.6 4.9 -2.9 1.0
Purchased business
services 2.2 5.4 3.0 2.4 -0.7 1.3
Combined inputs3 0.9 2.0 2.1 2.4 -2.4 0.1
1. Output per unit of combined hours, capital, energy, materials, and business
services inputs.
2. Hours at work of all persons.
3. The growth rate of each input is weighted by its share of nominal costs.
Manufacturing sector
Multifactor productivity in the manufacturing sector rose 3.4 percent in 2005
(see table A). This is the fourth consecutive year that multifactor
productivity rose in manufacturing (see table 2). The multifactor productivity
gain in 2005 reflected a 3.5 percent increase in sectoral output and a 0.1
percent increase in combined inputs, which, while modest, was the first
increase since 1999. Capital services declined 0.3 percent in 2005, after
having also declined in 2004. Hours declined 1.1 percent in 2005, materials
rose 1.0 percent and purchased business services rose 1.3 percent.
Historical trends in manufacturing
Labor productivity (output per hour worked) differs from multifactor
productivity (output per unit of combined inputs) 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 input-hours ratio) 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 viewed as the sum of
five components: multifactor productivity growth, and the contribution of the
intensity of the following inputs: capital, energy, materials, and business
services (see table B).
The contribution of input intensity equals the change in the input-hours ratio
multiplied by the input's cost share. Historically the labor share is about a
third of total cost, the capital share about a sixth, the materials share a
little over a fourth of total cost, and the business services share a little
less than a fourth. The energy share is historically only about 3 percent of
total cost.
Multifactor productivity in manufacturing grew 1.6 percent annually between
1987 (the starting point of the series) and 2005 (see table A). Sectoral
output increased at a 2.5 percent annual rate over the period, and combined
inputs rose an average of 0.9 percent per year. Of the 3.7 percent growth
rate in output per hour (labor productivity), 1.6 percent can be attributed to
increases in multifactor productivity, 0.6 percent to the contribution of
capital intensity, 0.8 percent to changes in materials intensity, and 0.7
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 accelerated more
rapidly than in previous periods, averaging growth of 2.0 percent per year.
Sectoral output growth increased to an average of 4.5 percent per year
(see table A), while combined inputs advanced at an average of 2.4 percent per
year, a slightly higher rate than in the early 1990s. In the 2000-2005 period,
multifactor productivity growth increased faster than in the 1995-2000 period,
averaging growth of 2.5 percent per year. Labor productivity slowed to a
still-robust average annual growth rate of 4.3 percent per year. The
contribution of capital intensity growth was unchanged in the 2000-2005 period
from the 1995-2000 period, growing at an average annual rate of 0.7 percent
(table B). The contribution of other capital services rose 0.5 percent during
the 2000-2005 period, while the contribution of information processing
equipment grew 0.2 percent. The contribution of materials dropped to an
average growth rate of 0.3 percent from 1.4 percent in the 1995-2000 period,
while the contribution of business services intensity accelerated slightly,
averaging 0.8 percent.
Among detailed manufacturing industries, most durable goods and nondurable
goods industry groups experienced multifactor productivity gains in 2005
(see table 3). The exceptions were petroleum and coal products, and
furniture and related products. In these two industries multifactor
productivity growth declined in 2005. The manufacturing industries that
showed the largest multifactor productivity growth in 2005 were textile mills
and textile product mills, which increased 9.7 percent, and printing and
related support activities, with an 8.7 percent increase.
Table B. Compound average annual rates of growth in output per hour of all
persons and the contributions of capital intensity, labor composition, and
multifactor productivity, manufacturing sector, 1987 to 2005
1987-05 1987-90 1990-95 1995-00 2000-05 2004-05
Manufacturing
Output per
hour of all persons 3.7 1.7 3.4 4.7 4.3 4.7
Contribution of
capital intensity1 0.6 0.3 0.4 0.7 0.7 0.1
Contribution ofinformation
processing equipment and
software2 0.2 0.1 0.2 0.4 0.2 0.0
Contribution of all
other capital services 0.3 0.1 0.2 0.4 0.5 0.0
Contribution of energy
intensity3 0.0 0.0 0.0 -0.1 0.0 -0.1
Contribution of
materials intensity4 0.8 0.3 1.0 1.4 0.3 0.6
Contribution of
business services
intensity5 0.7 0.9 0.6 0.6 0.8 0.5
Multifactor productivity6 1.6 0.2 1.2 2.0 2.5 3.4
1. Growth rate in capital services per hour multiplied by capital's share
of current dollar costs.
2. Growth rate of information processing equipment and software per hour
multiplied by its share of total costs.
3. Growth rate in energy services per hour multiplied by energy�s share of
current dollar costs.
4. Growth rate in materials services per hour multiplied by materials�
share of current dollar costs.
5. Growth rate in business services per hour multiplied by business
services� share of current dollar costs.
6. Output per unit of combined inputs.
Over the full 1987-2005 period, multifactor productivity advanced most rapidly
in the computer and electronic products industry. This industry�s 9.6-percent
average annual growth rate during this period is 7.8 percentage points higher
than the industry with the next highest growth rate, textile mills and textile
product mills. In the 1995-2000 period, multifactor productivity grew very
rapidly in the computer and electronic products industry, 15.8 percent per
year. In the 2000-2005 period, the growth rate slowed to 6.3 percent. Three
industries experienced a decline in multifactor productivity over the 1987-2005
period: food, beverage and tobacco products; machinery; and electrical
equipment, appliances and components.
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�. 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 3-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 T�rnqvist 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 for use outside of manufacturing with the
inputs used in the manufacturing process obtained from outside of
manufacturing. 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 largely obtained from the Current
Employment Statistics (CES) survey. These hours of 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 6, 2007 news release. Therefore,
it does reflect benchmark revisions to the CES survey and other revisions to
hours released on February 2, 2007. The construction of hours at work follows
the methods used in the private business sector described in USDL 07-0758,
Preliminary 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 for the 1987-2005 period reflect a number of
changes in source data. For example, current NAICS input-output tables and
revised BEA chain-type price and indexes for intermediate inputs (energy,
materials, and business services),
(see tables at http://www.bea.gov/Industry/Index.htm ,
Gross Domestic Product by Industry) have been incorporated.
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 2003 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 2004 and 2005 were extrapolated
using detailed IRS data for 2002.
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 ).
Additional data not contained in the release can be obtained in print at
202-691-5606 or at http://www.bls.gov/mfp.
Table 1. Manufacturing Sector: Productivity and related measures, 1987-2005
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 put2 Hours3 ices4 Energy ials services inputs5
1987 63.9 95.4 84.8 64.1 100.3 67.2 99.3 62.9 65.3 75.6
1988 65.2 98.7 86.3 67.4 103.4 68.3 103.3 63.8 71.0 78.1
1989 65.9 98.2 85.8 68.5 104.0 69.8 103.0 65.1 75.3 79.9
1990 67.3 95.2 85.2 68.3 101.5 71.7 105.2 66.0 76.6 80.1
1991 69.1 91.5 85.0 67.1 97.2 73.4 104.8 65.6 76.0 79.0
1992 71.7 92.3 84.5 69.4 96.7 75.1 103.8 71.3 81.5 82.1
1993 73.5 93.6 86.7 72.1 98.0 77.0 107.1 71.9 81.7 83.1
1994 76.1 96.6 89.0 76.4 100.3 79.0 110.4 74.8 84.7 85.8
1995 79.4 98.2 90.6 80.4 101.2 81.8 113.7 78.8 88.9 88.7
1996 82.4 97.6 91.0 83.1 100.8 85.2 110.3 86.0 88.5 91.3
1997 86.9 100.2 93.6 89.2 102.6 89.0 108.2 92.9 92.1 95.3
1998 91.7 100.5 95.8 93.8 102.3 93.4 105.4 97.7 95.0 98.0
1999 95.8 100.3 96.5 97.4 101.6 97.1 105.5 102.6 100.0 100.9
2000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
2001 101.5 93.6 98.7 94.9 93.5 101.4 90.6 93.3 100.7 96.2
2002 108.6 92.5 102.4 94.3 86.8 101.9 89.3 88.3 98.2 92.1
2003 115.3 93.5 105.3 95.2 82.6 101.8 84.4 87.7 99.1 90.5
2004 117.9 95.9 109.2 96.9 82.2 101.1 81.1 85.5 95.2 88.7
2005 123.4 99.6 113.0 100.3 81.3 100.7 78.5 86.3 96.5 88.8
See footnotes following table 2.
Source: Bureau of Labor Statistics
Table 2. Manufacturing Sector: Productivity and related measures, 1988-2005
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 put2 Hours3 ices4 Energy ials services inputs5
1988 2.1 3.4 1.7 5.2 3.1 1.7 4.0 1.4 8.7 3.4
1989 1.0 -0.6 -0.5 1.6 0.6 2.2 -0.3 2.0 6.0 2.2
1990 2.2 -3.0 -0.7 -0.3 -2.4 2.7 2.1 1.4 1.7 0.4
1991 2.6 -3.9 -0.3 -1.7 -4.2 2.3 -0.4 -0.6 -0.7 -1.4
1992 3.9 0.9 -0.6 3.3 -0.5 2.4 -0.9 8.7 7.2 4.0
1993 2.5 1.4 2.6 3.9 1.4 2.4 3.2 0.9 0.3 1.2
1994 3.5 3.2 2.7 5.9 2.4 2.7 3.1 3.9 3.8 3.2
1995 4.3 1.6 1.7 5.2 0.9 3.6 3.0 5.4 4.9 3.4
1996 3.9 -0.6 0.5 3.4 -0.4 4.0 -3.0 9.2 -0.4 2.9
1997 5.4 2.7 2.8 7.4 1.8 4.5 -1.9 8.0 4.0 4.4
1998 5.5 0.2 2.3 5.2 -0.3 4.9 -2.7 5.2 3.2 2.8
1999 4.4 -0.2 0.8 3.8 -0.6 4.0 0.1 5.0 5.3 3.0
2000 4.4 -0.3 3.6 2.7 -1.6 3.0 -5.2 -2.6 0.0 -0.8
2001 1.5 -6.4 -1.3 -5.1 -6.5 1.4 -9.4 -6.7 0.7 -3.8
2002 6.9 -1.1 3.8 -0.7 -7.1 0.5 -1.5 -5.3 -2.5 -4.3
2003 6.2 1.0 2.8 1.0 -4.9 0.0 -5.5 -0.8 0.9 -1.8
2004 2.3 2.6 3.8 1.8 -0.5 -0.8 -3.9 -2.5 -3.9 -2.0
2005 4.7 3.9 3.4 3.5 -1.1 -0.3 -3.3 1.0 1.3 0.1
See footnotes following table 2.
Source: Bureau of Labor Statistics
Table 3. Manufacturing industries: Multifactor productivity trends. 1987-2005
Average annual growth rates (percent)
Industry 1987- 1987- 1990- 1995- 2000- 2004-
2005 1990 1995 2000 2005 2005
Manufacturing 1.6 0.2 1.2 2.0 2.5 3.4
Nondurable 0.6 -0.6 0.7 -0.3 2.0 3.2
manufacturing
Food, beverage, -0.1 -1.7 1.6 -1.8 1.0 4.5
and tobacco
products
Textile mills 1.8 0.9 0.7 1.4 3.7 9.7
and textile
product mills
Apparel, leather, 1.3 0.1 2.8 0.7 1.1 0.0
and allied
products
Paper products 0.6 -0.4 -0.1 0.2 2.2 3.1
Printing and 0.8 0.6 -0.4 0.4 2.7 8.5
related support
activities
Petroleum and coal 0.3 -0.1 0.6 0.3 0.3 -4.8
products
Chemicals products 0.4 -0.8 -0.8 0.0 2.9 5.4
Plastics and rubber 1.0 0.7 0.6 1.3 1.2 0.1
products
Durable manufacturing 2.3 0.8 1.6 3.6 2.7 3.3
Wood products 0.4 1.0 -1.3 0.1 2.1 4.2
Nonmetallic mineral 0.9 0.3 1.0 0.9 1.2 0.6
products
Primary metals 1.1 1.1 0.1 0.5 2.6 2.1
Fabricated metal 0.8 -0.1 1.0 0.1 1.8 4.6
products
Machinery -0.1 1.0 -1.8 -0.7 1.6 1.6
Computer and 9.6 5.6 9.5 15.8 6.3 5.7
electronic
products
Electrical -0.7 -2.2 -1.9 -1.1 1.6 1.0
equipment,
appliances,
and components
Transportation 0.1 -1.7 -0.3 0.3 1.2 1.8
equipment
Furniture and 0.6 -0.8 0.6 0.7 1.4 -1.5
related products
Miscellaneous 1.7 2.4 0.3 1.9 2.6 5.8
manufacturing
Note: Multifactor productivity measures by industry are not directly
comparable to measures for aggregate manufacturing because industry measures
exclude transactions only within the specific industry while the aggregate
manufacturing measures also exclude transactions between all manufacturing
industries.
Footnotes, Tables 1-2
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.
(1) Sectoral output per combined units of capital, hours, energy, non-energy
materials, and purchased business services.
(2) Manufacturing gross output excluding transactions between manufacturing
establishments, superlative chained index.
(3) Hours at work of all persons.
(4) A measure of the flow of capital services used in the sector.
(5) Combined units of capital services, hours, energy, non-energy materials,
and purchased business services, superlative chained index.