Summary of Methods for the manufacturing sector and manufacturing industries
Summary of methods for the manufacturing sector and manufacturing industries The manufacturing multifactor productivity measures describe the relationship between output in real terms and the inputs involved in its production. They do not measure the specific contributions of labor, capital, or any other factor of production. Rather, multifactor productivity is designed to measure the joint influences on economic growth of technological change, efficiency improvements, returns to scale, reallocation of resources due to shifts in factor inputs across industries, and other factors. The multifactor productivity indexes are derived by dividing an output index by an index of the combined input of labor, capital services, energy, non-energy materials, and business service inputs. The multifactor productivity measures for manufacturing differ in several ways from those for private business and private nonfarm business in their treatment of labor input, output, and classes of factor inputs. First, the manufacturing measure of labor input is a direct aggregate of hours. This is in contrast to the major sector measures for which estimates of the effects of changing labor composition have been developed. Next, the output concept used for multifactor productivity in manufacturing is “sectoral output.” Sectoral output is similar to gross output, but excludes shipments from one establishment to another within the same manufacturing industry or sector. In contrast, the output concept used for private business and nonfarm business is “gross product originating” and is similar to “real value added”. Gross product originating in private business equals gross domestic product in the economy less general government, government enterprises, private households (including the rental value of owner-occupied real estate), and non-profit institutions. Gross product originating excludes intermediate transactions between businesses. The output index for manufacturing is computed using a chained superlative index (Tornqvist) of three-digit NAICS industry outputs. Industry output is measured as sectoral output, the total value of goods and services leaving the industry. Wherever possible, the indexes of industry output are calculated with a Tornqvist formula. This formula aggregates the growth rates of the various industry outputs between two periods, using their relative shares in industry value of production averaged over the two periods as weights. Industry output measures for manufacturing industries are constructed using data from the economic censuses and annual surveys of the Bureau of the Census, U.S. Department of Commerce, together with information on price changes, primarily from BLS. The resulting manufacturing multifactor productivity measure compares what is produced in the manufacturing sector with the inputs used to produce it. The comparison excludes flows of intermediate inputs between manufacturing establishments from measures of both output and inputs. However, the comparison does include capital service inputs and capital goods produced, even when these goods are produced and consumed in manufacturing. Multifactor productivity in manufacturing compares "sectoral output" to three classes of inputs: 1) hours at work of labor employed within manufacturing; 2) capital services employed by manufacturing establishments; and 3) purchases of energy, materials, and business services from outside of manufacturing (intermediates). Hours paid of production workers are obtained from the Current Employment Statistics (CES) survey. The hours of these employees are then converted to an at-work basis by using information from the Employment Cost Index (ECI) of the National Compensation Survey (NCS) and the Hours at Work Survey. Hours at work for nonproduction workers are derived using data from the Current Population Survey (CPS), the CES, and the NCS. The hours at work of proprietors are derived from the CPS. Hours at work data reflect Productivity and Costs data as of the March 5, 2008 news release. Therefore, it reflects the benchmark revisions to the CES survey and other revisions to hours released on February 1, 2008. The construction of hours at work follows the methods used in the private business sector described in USDL 08-0410, Multifactor Productivity Trends, 2006, http://www.bls.gov/news.release/pdf/prod3.pdf, except that hours in manufacturing are directly aggregated and do not include the effects of changing labor composition. Capital input measures the services derived from the stock of physical assets and software. The assets included are fixed business equipment, structures, inventories, and land. Among equipment, BLS provides additional detail for information processing equipment and software (IPES). IPES is composed of four broad classes of assets: computers and related equipment, software, communications equipment, and other IPES equipment. Computers and related equipment includes mainframe computers, personal computers, printers, terminals, tape drives, storage devices, and integrated systems. Software is comprised of pre-packaged, custom, and own-account software. Communications equipment is not further differentiated. “Other IPES" includes medical equipment and related instruments, electromedical instruments, nonmedical instruments, photocopying and related equipment, and office and accounting machinery. The aggregate capital input measures are obtained by Tornqvist aggregation of the capital stocks for each asset type within each of the eighteen manufacturing NAICS industry groupings using estimated rental prices for each asset type. Each rental price reflects the nominal rate of return to all assets within the industry and rates of economic depreciation and revaluation for the specific asset; rental prices are adjusted for the effects of taxes. Data on investments in physical assets and software are obtained from BEA. Nonfarm industry detail for land is based on IRS book value data. Current-dollar gross product originating (GPO) data, obtained from BEA, are used in estimating capital rental prices. In manufacturing, intermediates are the largest input in terms of costs. Furthermore, research has shown that substitution among inputs, including intermediates, affects productivity change. Therefore, it is important to include intermediates in productivity measures at the level of manufacturing. In contrast, the more aggregate productivity measures compare "value-added" output with two classes of inputs, capital and labor. Because of these differences in methods, productivity change in manufacturing cannot be directly compared with changes in private business or private nonfarm business. Intermediate inputs (energy, materials, and purchased business services) are obtained from BEA based on BEA annual input-output tables. Tornqvist indexes of each of these three input classes are derived at the 3-digit NAICS level and then aggregated to total manufacturing. As with the sectoral output measures, materials inputs are adjusted to exclude transactions between establishments within the same sector. The five input indexes (capital services, hours, energy, materials, and purchased business services) are combined using Tornqvist aggregation, employing weights that represent each component's share of total costs. Total costs are defined as the value of manufacturing sectoral output. The index uses changing weights: The share in each year is averaged with the preceding year's share. Multifactor productivity data incorporate NAICS input-output tables and revised BEA chain-type price and quantity indexes for intermediate inputs (energy, materials, and business services). See tables at http://www.bea.gov/Industry/Index.htm , Gross Domestic Product by Industry. BLS built multifactor productivity measures from three-digit NAICS detail. Most of the critical data used to calculate these measures were not reported on a NAICS basis for years prior to 1998. Detailed GDP by industry data were available from 1998 forward. But from 1987 to1997, many of the income components needed to construct capital rental prices were obtained by applying 1997 SIC-to-NAICS conversion factors to SIC data and adjusting to the estimated NAICS totals. A similar procedure was applied to manufacturing inventories, energy, materials, and business services. Land data were only available from 1998 to 2004 on a NAICS basis. As a consequence, land estimates from 1987 to 1997 were calculated using a combination of SIC to NAICS conversion factors and more detailed IRS data. Data for 2005 and 2006 were extrapolated using detailed IRS data for 2004. Comprehensive tables containing additional data beyond the scope of this press release are available upon request at 202-691-5606 or at http://www.bls.gov/mfp/mprdload.htm . More detailed information on methods, limitations, and data sources of capital and labor are provided in BLS Bulletin 2178 (September 1983), Trends in Multifactor Productivity, 1948-81. Methods for measuring manufacturing multifactor productivity are discussed in "Measurement of productivity growth in U.S. manufacturing” in the July 1995 issue of the Monthly Labor Review. See http://www.bls.gov/mfp/mprgul95.pdf. More detailed data can be obtained from our web site at http://www.bls.gov/mfp or by request at 202-691-5606.
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Last Modified Date: May 01, 2008