Multifactor Productivity Trends for Detailed Industries - 2016

For release 10:00 a.m. (EDT) Thursday, June 28, 2018                                                    USDL-18-1059

Technical Information:	(202) 691-5606  •  productivity@bls.gov •  www.bls.gov/mfp 
Media contact:          (202) 691-5902 • PressOffice@bls.gov


                     MULTIFACTOR PRODUCTIVITY TRENDS FOR DETAILED INDUSTRIES - 2016


Multifactor productivity -- defined as output per unit of combined inputs -- rose in 37 of the 86 4-digit 
NAICS manufacturing industries in 2016, the U.S. Bureau of Labor Statistics reported today. This was 
up from 2015, when multifactor productivity increased in 21 manufacturing industries. In 2016, 
multifactor productivity rose in one of the two transportation industries measured (air transportation), 
the same as in 2015.

Of the 12 largest industries, multifactor productivity increased the most in printing and related support 
activities (3.6 percent), as output increased while combined inputs declined. Output growth occurred in 
7 out of the 12 industries. In 5 of these, combined inputs fell or grew at a slower rate than output, 
leading to multifactor productivity growth. However, output fell more than combined inputs in 4 of the 
12 industries, leading to declines in multifactor productivity. In the case of 2 industries (animal 
slaughtering and processing, and motor vehicle parts), increases in output coincided with larger 
increases in combined inputs, causing slight declines in multifactor productivity.

Among all 86 manufacturing industries, 4 industries posted multifactor productivity gains 
greater than 4.0 percent: 

	*  Iron and steel mills and ferroalloys (9.4 percent)
	*  Leather and hide tanning and finishing (7.8 percent)
	*  Alumina and aluminum production (7.3 percent)
	*  Clay products and refractories (4.9 percent)

Multifactor productivity declined by 6.0 percent or more in 5 manufacturing industries in 2016. The 
largest productivity decline occurred in agriculture, construction, and mining machinery (-8.6 percent).

Multifactor productivity moved in opposite directions in the two measured transportation industries: 

	*  Air transportation (0.6 percent)
	*  Line-haul railroads (-0.9 percent)

Multifactor Productivity: Definition and Concepts

Multifactor productivity indexes relate the change in real output to the change in the combined inputs of 
labor, capital, and intermediate purchases (energy, materials, and purchased services) used in producing 
that output. Multifactor productivity is also known as total factor productivity.

A variety of factors that influence economic growth are not specifically accounted for among measured 
inputs, including: technological change, returns to scale, enhancements in managerial and staff skills, 
changes in the organization of production, and other efficiency improvements. Multifactor productivity 
reflects these factors. See the technical note for more information.

Components of Multifactor Productivity Growth: Output and Combined Inputs

In 2016, output increased in 32 manufacturing industries, compared to 46 industries in 2015. Output increased 
by 5.0 percent or more in the following 2 industries in 2016:

	*  Other food products (6.6 percent)
	*  Electric lighting equipment (5.6 percent) 

Combined inputs of capital, labor, and intermediate purchases rose in 28 manufacturing industries in 
2016, compared to 64 industries in 2015. Just under half of the manufacturing industries saw growth in 
hours worked (40 industries), while fewer industries had growth in capital services (35 industries) and 
intermediate purchases (30 industries).

The following industries had the largest increases in combined inputs in 2016:

	*  Agricultural chemicals (6.6 percent)
	*  Footwear (5.6 percent)
	*  Animal slaughtering and processing (5.0 percent)
	*  Petroleum and coal products (4.2 percent) 

In 4 manufacturing industries, multifactor productivity rose more than 3.0 percent despite falling 
output, as combined inputs fell more rapidly. This occurred in: 

	*  Iron and steel mills and ferroalloys (9.4 percent)
	*  Leather and hide tanning and finishing (7.8 percent)
	*  Clay products and refractories (4.9 percent)
	*  Other nonferrous metal production (3.5 percent)

In the air transportation industry, output increased 3.5 percent and combined inputs increased 2.8 
percent in 2016. In line-haul railroads, output fell 4.1 percent and combined inputs decreased 3.2 
percent.

Trends in Multifactor Productivity for Selected Time Periods

Year-to-year movements and long-term trends in industry multifactor productivity may reflect cyclical 
changes in the economy. However, long-term average annual percent changes in multifactor 
productivity are more reliable indicators of historical trends in industry performance.

More industries saw multifactor productivity growth over the long term than the short term. Over the 
long term period from 1987 to 2016, multifactor productivity grew in 53 manufacturing industries, 
compared to only 37 from 2015 to 2016. (See tables 1 and 2.) Over the long term, average annual rates 
of change in multifactor productivity ranged between -2.0 percent and 2.0 percent for nearly all 
manufacturing industries.

In contrast, multifactor productivity declined by 2.0 percent or more in 26 industries in 2016. Only one 
industry (pharmaceuticals and medicines) saw an average annual decline of that magnitude from 1987 to 
2016.

Between 1987 and 2016, the number of manufacturing industries with growth in multifactor productivity 
was highest in 2003 and 2010. These were years of economic growth following recessions. In contrast, 
relatively few manufacturing industries saw multifactor productivity growth in the recession years of 
2001 and 2009.

From 1987 to 2016, multifactor productivity rose in both air transportation and line-haul railroads by an 
average annual rate of 1.3 percent and 1.5 percent, respectively. While both industries posted gains in 
output, productivity grew more in line-haul railroads because its combined inputs showed little change 
over the long term.

Multifactor Productivity as a Source of Labor Productivity Growth

Multifactor productivity measures differ from the BLS labor productivity measures because they 
compare output to the combined inputs of hours worked, capital, and intermediate purchases. Labor 
productivity relates output only to hours worked. Mathematically, an industry’s labor productivity is 
equal to multifactor productivity plus the effects of factor substitution; that is, the combined effects of 
changes in weighted capital services relative to hours worked and weighted intermediate purchases 
relative to hours worked. These factor substitutions are referred to as contribution of capital intensity 
and contribution of intermediate purchases intensity.

Eighty-one out of the 86 manufacturing industries posted gains in labor productivity from 1987 to 2016. 
Among these 81 industries, substitution of intermediate purchases for labor was the leading source of 
labor productivity growth. Growth in the contribution of intermediate purchases intensity 
occurs when firms purchase a greater share of materials instead of using their own labor. Contribution of 
intermediate purchases intensity may also rise when firms substitute contracted labor for payroll labor.

Strong growth in multifactor productivity was the dominant source of labor productivity growth in the 
industries that manufacture computers and electronic products (computer and peripheral equipment, 
semiconductors and electronic components, and communications equipment). Labor productivity growth in the 
measured transportation industries (air transportation and line-haul railroads) was also primarily driven by 
multifactor productivity growth. The remaining manufacturing industries with high average annual growth in 
labor productivity mostly saw greater growth in factor substitution of intermediate purchases for labor.

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Last Modified Date: June 28, 2018