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Multifactor productivity increases 3.5% in 2010, the largest increase in the series

MULTIFACTOR PRODUCTIVITY TRENDS - 2010

Private nonfarm business sector multifactor productivity increased at a 3.5
percent annual rate in 2010, the U.S. Bureau of Labor Statistics reported 
today. This was the largest increase recorded in the series, which began in 
1987. (See chart 1, table A.) The multifactor productivity gain in 2010 
reflected a 4.0 percent increase in output and 0.5 percent increase in the
combined inputs of capital and labor. Capital services grew by 0.4 percent,
and labor input – which is the combined effect of hours worked and labor 
composition – grew 0.5 percent. (See table A, table 1.) The combination of
fast-rising output and a modest increase in capital services caused output
per unit of capital services to rise 3.6 percent, the largest gain since
the series began in 1987.  

Multifactor productivity measures the change in output per unit of combined
capital and labor input. It is designed to measure the joint influences of 
technological change, efficiency improvements, returns to scale, reallocation
of resources, and other factors on economic growth, 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. Multifactor productivity includes information on capital services,
hours worked, and shifts in the composition of labor. Estimates of capital 
services and labor composition are not included in the quarterly labor 
productivity measures. Additionally, much of the source data needed to 
construct multifactor productivity measures are not available quarterly.

Private business sector multifactor productivity increased at a 3.4 percent
annual rate in 2010, reversing a decline of 0.8 percent in 2009. The 
multifactor productivity gain in 2010 reflected a 4.0 percent increase in 
output and 0.5 percent increase in the combined inputs of capital and labor.
Capital services grew by 0.5 percent, and labor input grew by 0.6 percent. 
(See table A, table 2.)   

Historical trends in private nonfarm business

Multifactor productivity in private nonfarm business grew 0.9 percent
annually from 1987 to 2010. (See table A.)  For the 2007-2010 period, 
multifactor productivity grew 0.3 percent, due to a 0.9 percent decline in 
output coupled with a 1.2 percent decline in combined inputs. In contrast, 
the 3.5 percent increase in multifactor productivity in 2010 was a result 
of an increase in output much larger than the increase in combined inputs. 
The 4.0 percent rise in output over the year represents the largest increase
since 2004. (See table 1.)

Annual labor productivity growth can be viewed as the sum of three components:
multifactor productivity growth, the contribution of capital intensity, and 
the contribution of shifts in labor composition. Output per hour shifted 
sharply upwards after the 1990-1995 period. In particular, the contribution of 
capital intensity to labor productivity growth became more pronounced after 
1995. (See chart 2, table B.)  

For the 2007-2010 period, the contribution of capital intensity increased at 
a 1.6 percent annual rate and the contribution of labor composition increased 
at a 0.5 percent annual rate, faster than the gains seen in the        
1995-2000 and 2000-2007 periods. Gains made in private nonfarm business output
per hour due to the rising contributions of capital intensity and of labor
composition were tempered by slower multifactor productivity growth. 
(See chart 2, table B.)

For the 2000-2007 period, information processing equipment and software (IPES)
grew 8.1 percent annually in the private nonfarm business sector. 
(See table 5.) For the 2007-2010 period, IPES slowed to 4.4 percent annually. 
For both periods, the rate of increase in information processing equipment 
and software was markedly lower than the double-digit increase observed in 
the 1995-2000 period.  

The revised multifactor productivity measure for the most recent year reflects
the use of a more rigorous methodology than that used in the preliminary 
multifactor productivity release published on May 19, 2011 
http://www.bls.gov/news.release/archives/prod3_05192011.pdf. Revisions to
underlying data affect multifactor productivity growth rates for the 
2007-2010 period. (See table C.) In 2010, multifactor productivity growth
in the private nonfarm business sector was 3.5 percent, larger than the 3.2 
percent increase reported May 19, 2011, mainly due to a 0.3 percent upward
revision to output. For 2009, multifactor productivity growth in the private 
nonfarm business sector was revised downward to a 1.0 percent decline, a 1.1 
percent downward revision. This was largely due to a revision to output from
a 3.7 percent decline to a fall of 5.0 percent.

Table A.  Compound annual growth rates for productivity, output, and inputs
in the private nonfarm business and private business sectors for selected
periods,1987-2010

In percent

                            1987-  1987-  1990-  1995-  2000-  2007-  2009-
                            2010   1990   1995   2000   2007   2010   2010

Private nonfarm business1

Productivity
  Multifactor Productivity2  0.9    0.5    0.5    1.3    1.4    0.3    3.5
    Output per hour of all
      persons                2.2    1.4    1.6    2.7    2.6    2.4    4.1
    Output per unit of
      capital services      -0.8   -0.4   -0.4   -1.0   -0.5   -2.2    3.6


Output                       2.8    3.2    2.9    5.0    2.7   -0.9    4.0


Inputs

  Combined inputs3           1.9    2.7    2.4    3.6    1.3   -1.2    0.5
   Labor input4              1.1    2.3    2.0    2.5    0.4   -2.5    0.5
     Hours                   0.6    1.7    1.3    2.2    0.1   -3.2   -0.1
     Labor Composition5      0.5    0.6    0.7    0.3    0.3    0.7    0.7
   Capital services          3.6    3.6    3.3    6.0    3.2    1.3    0.4

Analytic ratio
  Capital services per
    hour of all persons      3.1    1.9    1.9    3.8    3.1    4.7    0.6


Private business1

Productivity
  Multifactor Productivity2  1.0    0.6    0.4    1.5    1.4    0.5    3.4
    Output per hour of all
      persons                2.3    1.6    1.5    2.9    2.7    2.5    4.1
    Output per unit of
      capital services      -0.7   -0.4   -0.3   -0.8   -0.5   -1.9    3.5


Output                       2.8    3.2    2.8    5.0    2.7   -0.8    4.0


Inputs

  Combined inputs3           1.8    2.6    2.4    3.4    1.2   -1.2    0.5
   Labor input4              1.0    2.1    2.0    2.4    0.3   -2.5    0.6
     Hours                   0.5    1.6    1.3    2.0    0.0   -3.2   -0.1
     Labor Composition5      0.5    0.6    0.7    0.3    0.3    0.7    0.7
   Capital services          3.5    3.6    3.1    5.8    3.2    1.2    0.5

Analytic ratio
  Capital services per
    hour of all persons      3.0    2.0    1.8    3.7    3.1    4.5    0.6


1.  Excludes government enterprises.
2.  Output per unit of combined labor input and capital services.
3.  The growth rate of each input is weighted by its share of current dollar
    costs.
4.  Hours at work by age, education, and gender group are weighted by each
    group’s share of the total wage bill.
5.  Ratio of labor input to hours.

Table B.  Compound annual growth rates in output per hour of all persons 
and the contributions of capital intensity, labor composition, and 
multifactor productivity in the private nonfarm business and private 
business sectors for selected periods, 1987-2010

In percent

                            1987-  1987-  1990-  1995-  2000-  2007-  2009-
                            2010   1990   1995   2000   2007   2010   2010

Private nonfarm business1

Output per hour
of all persons               2.2    1.4    1.6    2.7    2.6    2.4    4.1

Contribution of
capital intensity2           1.0    0.6    0.6    1.2    1.0    1.6    0.2

  Contribution of
  information processing
  equipment and software3    0.6    0.5    0.5    0.9    0.5    0.6    0.3

  Contribution of all
  other capital services     0.4    0.1    0.2    0.2    0.4    1.0   -0.1

Contribution of
labor composition4           0.3    0.4    0.5    0.2    0.2    0.5    0.4

Multifactor productivity5    0.9    0.5    0.5    1.3    1.4    0.3    3.5

  Contribution of R&D to
  multifactor productivity   0.2    0.2    0.2    0.2    0.2    0.2    0.2


Private business1

Output per hour
of all persons               2.3    1.6    1.5    2.9    2.7    2.5    4.1

Contribution of
capital intensity2           1.0    0.6    0.6    1.2    1.0    1.5    0.2

  Contribution of
  information processing
  equipment and software3    0.6    0.5    0.4    0.9    0.5    0.6    0.3

  Contribution of all
  other capital services     0.4    0.2    0.1    0.3    0.4    1.0    0.0

Contribution of
labor composition4           0.3    0.4    0.5    0.2    0.2    0.5    0.4

Multifactor productivity5    1.0    0.6    0.4    1.5    1.4    0.5    3.4

1. Excludes government enterprises.
2. Capital services per hour multiplied by capital's share of current
   dollar costs.
3. Information processing equipment and software per hour multiplied by
   its share of current dollar costs.
4. Labor composition multiplied by labor's share of current dollar costs.
5. Output per unit of combined labor input and capital services.

Note: Multifactor productivity plus contribution of capital intensity and
labor composition may not sum to output per hour due to independent
rounding.  Contribution of information processing equipment and all other
capital services may not sum to the contribution of capital intensity due
to independent rounding.

Table C. Annual growth rates of the previous and revised multifactor
productivity measures in the private nonfarm business and private
business sectors for the 1987-2010 period

Annual percent change from previous year

          Private Nonfarm Business      Private Business
Year      Previous      Revised         Previous      Revised


1988         1.0          1.0              0.8          0.8
1989         0.0          0.0              0.3          0.3
1990         0.4          0.4              0.6          0.6
1991        -1.0         -1.0             -1.0         -1.0
1992         2.3          2.3              2.6          2.6
1993         0.3          0.3              0.2          0.2
1994         0.7          0.7              0.7          0.7
1995         0.0          0.0             -0.3         -0.3
1996         1.4          1.4              1.7          1.7
1997         0.6          0.6              0.8          0.8
1998         1.5          1.5              1.5          1.5
1999         1.7          1.6              1.9          1.8
2000         1.6          1.6              1.7          1.7
2001         0.7          0.7              0.8          0.8
2002         2.4          2.4              2.3          2.4
2003         2.4          2.5              2.6          2.7
2004         2.5          2.4              2.6          2.4
2005         1.1          1.1              1.1          1.0
2006         0.4          0.4              0.5          0.5
2007         0.4          0.3              0.3          0.3
2008        -1.0         -1.4             -0.9         -1.2
2009         0.1         -1.0              0.2         -0.8
2010         3.2          3.5              3.2          3.4

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