Multi-factor productivity in manufacturing sector fell 0.7%

Manufacturing sector multi-factor productivity decreased at a 0.7 percent annual rate in 2008, the U.S. Department of Labor’s Bureau of Labor Statistics reported on November 18. This was the largest annual decline in multi-factor productivity since 2001. Multi-factor productivity measures the change in output per unit of combined inputs. Multi-factor 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). Multi-factor 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.

Durable manufacturing sector multi-factor productivity grew 0.3 percent in 2008, after increasing 4.9 percent in 2007. Nondurable manufacturing sector multi-factor productivity fell 1.6 percent in 2008, following a 4.6 percent increase in 2007.

Historical trends in manufacturing
Multi-factor productivity in manufacturing grew 1.6 percent annually between 1987 (the starting point of the series) and 2008. Sectoral output increased at a 2.2 percent annual rate over the period and combined inputs rose an average of 0.6 percent per year. Output per hour (labor productivity) grew 3.5 percent. For the 2000-2007 period, multi-factor productivity in manufacturing rose more rapidly than in previous periods, averaging 2.6 percent per year, outpacing the 2.1 percent growth rate in the 1995-2000 period.

Of the 3.5 percent growth rate in labor productivity in the 1987-2008 period, 1.6 percent can be attributed to increases in multi-factor productivity, 0.6 percent to the contribution of capital intensity, 0.1 percent to energy intensity, 0.8 percent to materials intensity, and 0.4 percent to purchased business services intensity. Multi-factor productivity, the contribution of intermediate inputs, and the contribution of capital intensity may not sum to output per hour due to independent rounding.

Fewer industries recorded multi-factor productivity, output, and combined input increases in 2008 than in any other year since 2001. Of the 18 industries that comprise the manufacturing sector, fewer industries each year experienced growth in output and combined inputs from 2005 to 2008.