U.S. multifactor productivity shows slowest gain since 1995

Private non-farm business sector multifactor productivity increased at a 0.1 percent annual rate in 2008, the U.S. Department of Labor’s Bureau of Labor Statistics reported on August 24. This was the slowest gain in multifactor productivity since 1995. 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 modest multifactor productivity gain in 2008 reflected a 0.2 percent decrease in output and a 0.3 percent decrease in the combined inputs of capital and labor. Capital services grew by 2.8 percent, the slowest rate of growth since 2004. Labor input fell 1.7 percent, the largest decline since 2002.

Private business sector multifactor productivity grew 0.1 percent in 2008, the slowest annual growth rate since 1995. The multifactor productivity gain in 2008 reflected no change in the growth rate of output and a 0.1 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 year of the series) and 2008. Output increased at a 3.2 percent annual rate over that period and combined inputs of labor and capital rose an average of 2.2 percent per year. Output per hour worked (labor productivity) grew at a 2.2 percent rate. For the 2000-2007 period, multifactor productivity in private non-farm business rose more rapidly than in previous periods, averaging 1.4 percent per year, slightly outpacing the 1.3 percent growth rate during the 1995-2000 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 on the BLS Web site). Chart 2 shows how relative to output per hour, contributions of multifactor productivity and of capital intensity increased during the latter half of the 1990s. These contributions have continued to be relatively high over the 2000-2007 period.

Of the 2.2 percent growth rate in labor productivity for the 1987-2008 period, 1.0 percent can be attributed to increases in multifactor productivity, 0.9 percent to the contribution of capital intensity, and 0.3 percent to changes in labor composition.

Previous and revised multifactor productivity data for 1987-2008 for the private non-farm business sector are displayed in Table C. The differences in 2008 are largely due to the fact that previous results were based on preliminary information. The 0.1-percent change in multifactor productivity growth for the private non-farm business sector is much lower than the 1.1-percent change reported on May 6, 2009, based on preliminary information. This downward revision was due to output being revised down to a decline of 0.2 percent from an increase of 0.8 percent.