Economic News Release

Summary of Methods

The methodology for preliminary estimates is discussed in 
“Preliminary estimates of multifactor productivity growth” located 
at http://www.bls.gov/opub/mlr/2005/06/art3abs.htm.  This release uses a
methodology for preliminary estimates that uses data that are available 
shortly after the end of the calendar year.  The methodology is a simplified
version of the full methodology that BLS uses when more detailed information
is available.  Preliminary estimates for the private nonfarm business sector
are produced using the same methodology as that used for the production of 
estimates for the private business sector; the only difference is that the 
farm sector is excluded.  

Capital Input:   Capital input measures the services derived from the stock 
of physical assets and software.  The assets included are computers, software,
communications and other information processing equipment, other fixed 
business equipment, structures, inventories, rental residences, and land.  
Investments, depreciation, capital income, and rental prices are estimated 
for each of these eight aggregates.  Rental prices reflect the nominal rates
of return and the 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 are obtained from the Bureau of Economic
Analysis (BEA).  Capital input measures constructed for the preliminary MFP 
measures are based on less detail than those for the full MFP measures. 

Labor Input:    Labor input in private business and private nonfarm business 
is obtained by chained superlative (Tornqvist) aggregation of the hours at 
work by all persons, classified by age, education, and gender with weights 
determined by their shares of labor compensation.  Hours paid of employees 
are largely obtained from the Current Employment Statistics program (CES).  
These hours of 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 
and supervisory workers are derived using data from the Current Population 
Survey (CPS), the CES, and the NCS.  The hours at work of proprietors, unpaid
family workers, and farm employees are derived from the Current Population 
Survey.  Hours at work data reflect Productivity and Costs data as of the
March 5, 2009 news release.  Therefore it reflects the benchmark revisions
to the CES and other revisions to hours released on February 6, 2009.  The 
preliminary estimate of the 2008 labor composition index assumes that relative
wages across groups remained constant between 2007 and 2008.  The growth rate
of labor composition is defined as the difference between the growth rate of 
weighted labor input and the growth rate of the hours of all persons. 
Additional information concerning data sources and methods of measuring labor 
composition can be found in BLS Bulletin 2426 (December 1993),
"Labor Composition and U.S. Productivity Growth, 1948-90." 

Combined Inputs:  Labor and capital input are combined using Tornqvist weights
that represent each component's share of total costs.  Total costs are defined 
as the value of output (Gross Product Originating) less a portion of taxes 
on production and imports.  Most taxes on production and imports, such as 
excise taxes, are excluded from costs; however, property and motor vehicle 
taxes remain in total costs.  The index uses changing weights: The share in
each year is averaged with the preceding year's share.

Output:  This release presents data for the private business and private 
nonfarm business sectors.  The private business sector, which accounted for
approximately 77 percent of gross domestic product in 2000, includes all of
gross domestic product except the output of general government, government 
enterprises, non-profit institutions, the rental value of owner-occupied 
real estate, and the output of paid employees of private households.  
Additionally, the private nonfarm business sector excludes farms from the
private business sector, but includes agricultural services.  Multifactor 
measures exclude government enterprises, while the BLS quarterly Productivity 
and Cost series include them.
 
Multifactor Productivity:  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 of output, capital, and labor 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 for private business and private nonfarm 
business are derived by dividing an output index by an index of labor input
and capital services.  The output indexes are computed as chained superlative
indexes (Fisher Ideal indexes) of components of real output.  BLS adjusts BEA
output measures to remove the output of government enterprises.