Report: U.S. multifactor productivity increased at 0.7% annual rate in 2009

Private non-farm business sector multifactor productivity increased at a 0.7 percent annual rate in 2009, the U.S. Bureau of Labor Statistics reported on October 6. This was the largest gain in multifactor productivity since 2005. Multifactor productivity measures the change in output per unit of combined inputs of labor and capital. 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 and labor. 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. Additionally, multifactor productivity measures for the private business and private non-farm business sectors account for shifts in the composition of labor. Estimates of labor composition are not included in the quarterly labor productivity measures.

The multifactor productivity gain in 2009 reflected a 3.6 percent decrease in output and a 4.3 percent decrease in the combined inputs of capital and labor. Capital services grew by 1.2 percent, the slowest gain in the series which began in 1987. Labor input fell 6.9 percent, the largest decline for the series which began in 1987.

Private business sector multifactor productivity grew 0.8 percent in 2009, the largest gain in multifactor productivity since 2005. The multifactor productivity gain in 2009 reflected a 3.5 percent decline in output and a 4.2 percent decrease in the combined inputs of capital and labor.

Historical trends in private non-farm business
Multifactor productivity in private non-farm business grew 1.0 percent annually between 1987 (the starting point of the series) and 2009. Output increased at a 2.9 percent annual rate over the period and combined units of labor input and capital services rose an average of 1.9 percent per

year. Output per hour (labor productivity) grew 2.3 percent. For the 2007-2009 period, multifactor productivity in private non-farm business slowed, averaging 0.4 percent per year, a sharp decline from the 1.4 percent growth rate in the 2000-2007 period.

Historical trends in labor productivity growth can be viewed as the sum of three components: multifactor productivity growth, the contribution of increased capital intensity, and the contribution of shifts in labor composition. The relationship between labor productivity growth and these three components can be seen in Table B and Chart 2 of the news release (found at www.bls.gov). Chart 2 shows how, relative to output per hour, multifactor productivity and the contribution of capital intensity shifted upward in the latter half of the 1990s. These contributions continued to be relatively high over the 2000-2007 period. For 2007-2009, the contribution of capital intensity rose sharply compared to previous periods.  

Of the 2.3 percent growth rate in labor productivity for the 1987-2009 period, 1.0 percent can be attributed to increases in multifactor productivity, 1.0 percent to the contribution of capital intensity, and 0.3 percent to changes in labor composition.

The methodology for measuring preliminary multifactor productivity for 2009 is a simplified version of the methodology that BLS uses when more detailed information is available. Data will be revised in mid-year 2011.