Internet address:	        http://www.bls.gov/mfp
Historical, technical		USDL 08-0857
information:	(202) 691-5606	For Release: 10:00 AM EDT
Media contact:	(202) 691-5902	Thursday, May 1, 2008


MULTIFACTOR PRODUCTIVITY TRENDS IN MANUFACTURING, 2006


Multifactor productivity, defined as output per unit of combined inputs, was
reported today by  the Bureau of Labor Statistics (BLS) of the U.S. Department
of Labor for the manufacturing sector and for durable goods, nondurable 
goods, and three-digit (NAICS) manufacturing industries for the year 2006.  

In manufacturing, the annual rates of multifactor productivity change for 2006
were:

	1.6 percent in the manufacturing sector,
	3.2 percent in the durable goods manufacturing sector, and
       -0.2 percent in the nondurable goods manufacturing sector.

At 1.6 percent, multifactor productivity growth in the manufacturing sector 
grew more rapidly than the 0.4 percent increase posted in 2005 (as revised).
This occurred as durable goods manufacturing productivity growth accelerated
to 3.2 percent from 2.5 percent and nondurable goods manufacturing 
producitivity fell less, dropping 0.2 percent in 2006 after a 1.8 percent 
decrease in 2005.  The 2005-06 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, Multifactor Productivity Trends,
2006, http://www.bls.gov/news.release/pdf/prod3.pdf, 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 2006
						
 	                1987-06	1987-90	1990-95	1995-00	2000-06	2005-06
						
Productivity						
   Multifactor 
   productivity1 	  1.4	 0.2	  1.2	  2.0	  1.6	  1.6
						
   Output per hour
   of all persons	  3.6	 1.8	  3.4	  4.6	  3.8	  1.2
	 					
   Output per unit
   of capital services	  0.2	-0.1	  0.5	  0.3	  0.0	  1.3
   						
Sectoral Output	          2.5	 2.1	  3.3	  4.5	  0.4	  1.8
					 	
Inputs						
   Hours2	         -1.1	 0.4     -0.1    -0.1	 -3.3	  0.6
   Capital services	  2.3	 2.2	  2.8	  4.2	  0.3	  0.5
   Energy	         -0.7	 2.0	  1.6    -2.5	 -2.4	 -5.5
   Non-energy materials   2.0	 1.6	  3.6	  4.9	 -1.5	 -1.0
   Purchased business 
   services	          2.6	 5.5	  3.0	  2.4	  1.1	  2.0
   Combined inputs3	  1.1	 2.0	  2.0	  2.5	 -1.2	  0.3
						
1Output per unit of combined labor hours, capital, energy, materials, and 
business services inputs.
2Hours at work of all persons. 
3The growth rate of each input is weighted by its share of nominal costs.	
	
Changes in 2006

Multifactor productivity in the manufacturing sector rose 1.6 percent in
2006 (see table A).   This is the fifth consecutive year that multifactor 
productivity rose in manufacturing (see table 1).  The 2006 multifactor
productivity gain reflected a 1.8 percent increase in sectoral output and a 
0.3 percent increase in combined inputs. The increase in combined inputs was
down from the sharp 3.3 percent increase in 2005.  Capital services grew 0.5 
percent in 2006, after remaining unchanged in 2005.  Hours grew 0.6 percent 
in 2006, materials declined 1.0 percent and purchased business services rose
2.0 percent.

Within manufacturing, multifactor productivity for durable goods increased 
in 2006 while it fell for nondurable goods (table 3).  The manufacturing 
industries that showed the largest multifactor productivity growth in 2006 
were all durable goods industries; computer and electronic products 
(7.6 percent), transportation equipment (4.0 percent), and wood products 
(3.0 percent).  One durable goods industry showed the sharpest decline in 
multifactor productivity, nonmetallic mineral products (-3.1 percent).  The
other two industries that showed sharp declines were nondurable goods 
industries; textile mills and textile product mills (-2.6 percent) and 
plastics and rubber products (-1.9 percent).

 
Historical trends in manufacturing

Multifactor productivity (output per unit of combined inputs) differs from 
labor productivity (output per hour worked) 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 ratio of other
inputs to labor hours) 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 disaggregated into the
sum of multifactor productivity growth plus the contributions of the 
intensities of capital and of intermediate inputs.

The relationship between labor productivity growth and these components can
be seen in table B and chart 1.  Chart 1 shows how the relative contributions
of multifactor productivity, capital intensity, and intermediate input 
intensity shifted in the latter half of the 1990’s.  These contributions have
somewhat slowed during the 2000-2006 period.

The contribution of each input’s intensity equals the change in the ratio of
that input to hours multiplied by that input's cost share.  Historically, the 
labor share is about a third of total cost, the capital share about a sixth, 
the materials share about 30 percent of total cost, and the business services
share about 20 percent.  The energy share is historically only about 3 percent
of total cost.

Multifactor productivity in manufacturing grew 1.4 percent annually between 
1987 (the starting point of the series) and 2006 (see table A).  Sectoral 
output increased at a 2.5 percent annual rate over the period and combined 
inputs rose an average of 1.1 percent per year.   Of the 3.6 percent growth 
rate in output per hour (labor productivity), 1.4 percent can be attributed 
to increases in multifactor productivity, 0.5 percent to the contribution of
capital intensity, 0.8 percent to changes in materials intensity, and 0.8 
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 rose more 
rapidly than in previous periods, averaging 2.0 percent per year.  Sectoral
output growth increased to an average of 4.5 percent per year (table A) 
while combined inputs advanced an average of 2.5 percent per year, slightly 
faster than in the early 1990s.  In the 2000-2006 period, multifactor 
productivity grew at a slower rate than in the 1995-2000 period, averaging 
1.6 percent per year.  Labor productivity slowed to a still-robust average 
annual growth rate of 3.8 percent per year.  The contribution of capital 
intensity was slightly slower in the 2000-2006 period than in the 1995-2000
period, increasing an average of 0.6 percent annually (table B).  The 
contribution of the intensity of information processing equipment grew 0.2 
percent while that of other capital services rose 0.4 percent during the 
2000-2006 period.  The contribution of materials intensity dropped to an 
average annual increase of 0.5 percent from the 1.4 percent growth shown in 
the 1995-2000 period while the contribution of business services intensity
accelerated to 1.0 percent.


Table B.  Compound average annual rates of growth in output per hour of all
persons and the contributions of capital intensity, intermediate inputs 
intensity, and multifactor productivity, manufacturing sector, 1987 to 2006
						
	                1987-06	1987-90	1990-95	1995-00	2000-06	2005-06
Manufacturing						
						
Output per hour
of all persons	          3.6	  1.8	  3.4	  4.6	  3.8	 1.2
						
Contribution of
capital intensity1	  0.5	  0.3	  0.4	  0.7	  0.6	 0.0
						
Contribution of 
information processing
equipment and software2	  0.2	  0.2	  0.2	  0.4	  0.2	 0.1
				  		
Contribution of
all other capital 
services	          0.3	  0.1	  0.2	  0.4	  0.4	-0.1
						
Contribution of 
energy intensity3	  0.0	  0.0	  0.0    -0.1	  0.0	-0.2
						
Contribution of 
materials intensity4	  0.8	  0.3	  1.0	  1.4	  0.5	-0.5
						
Contribution of
purchased business
services intensity5	  0.8	  0.9	  0.6	  0.5	  1.0	 0.3
						 
Multifactor 
productivity6	          1.4	  0.2	  1.2	  2.0	  1.6	 1.6
						
1Growth rate in capital services per hour multiplied by capital's share
of current dollar costs.
2Growth rate of information processing equipment and software per hour 
multiplied by its share of total costs.
3Growth rate in energy services per hour multiplied by energy’s share of
current dollar costs.
4Growth rate in materials services per hour multiplied by materials’ share
of current dollar costs.
5Growth rate in business services per hour multiplied by business services’
share of current dollar costs.
6Output per unit of combined inputs.


Over the entire 1987-2006 period, multifactor productivity advanced most 
rapidly in the computer and electronic products industry (see table 3).  
This industry’s 9.6-percent average annual growth rate during this period
was 8.0 percentage points higher than the industry with the next highest 
growth rate, apparel, leather, and allied products.  In the 1995-2000 period,
multifactor productivity grew very rapidly in the computer and electronic 
products industry, 15.9 percent per year.  In the 2000-2006 period, the 
growth rate slowed to 6.7 percent.  Three industries experienced a decline 
in multifactor productivity over the 1987-2006 period: food, beverage, and 
tobacco products (-0.3 percent); chemical products (-0.1 percent); and 
electrical equipment, appliances, and components (-1.0 percent).