Private nonfarm business sector multifactor productivity grew at a modest 0.1 percent annual rate in 2009, the U.S. Bureau of Labor Statistics reported. In 2009, the gain in multifactor productivity reflected decreases of 3.7 percent in output and 3.8 percent in the combined inputs of capital and labor. Capital services grew by 1.1 percent, and labor input which is the combined effect of hours worked and labor composition – fell 6.3 percent. For both the private nonfarm business and private business sectors, the declines recorded in output, combined inputs of capital and labor, and labor input were the largest in the series, which began in 1987. Growth in capital services was also the slowest recorded since the series began.

Multifactor productivity measures the change in output per unit of combined capital and labor. Multifactor productivity is designed to measure the joint influences of technological change, efficiency improvements, returns to scale, reallocation of resources, and other factors on economic growth, allowing for the effects of capital and labor. 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. Additionally, multifactor productivity measures for the private business and private nonfarm business sectors account for shifts in the composition of labor. Estimates of labor composition are not included in the quarterly labor productivity measures.

Private business sector multifactor productivity grew 0.2 percent in 2009, reversing a decline of 0.9 percent in 2008. The multifactor productivity gain in 2009 reflected decreases of 3.6 percent in output and 3.8 percent in the combined inputs of capital and labor. Capital services grew by 1.0 percent, and labor input fell by 6.3 percent.

Historical trends in private nonfarm business

Multifactor productivity in private nonfarm business grew 0.9 percent annually between 1987 (the starting year of the series) and 2009. Output increased at a 2.8 percent annual rate over that period and combined inputs of capital and labor rose an average of 1.9 percent per year. Output per hour worked (labor productivity) grew at a 2.2 percent rate. For the 2000-2007 period, multifactor productivity in private nonfarm business rose more rapidly than in previous periods, averaging 1.4 percent per year. Multifactor productivity decreased for the 2007-2009 period, averaging a decline of 0.5 percent per year. Output decreased at a 2.4 percent annual rate over that period and combined inputs of capital and labor fell an average of 1.9 percent per year.

Labor productivity growth, or output per hour, can be viewed as the sum of three components: multifactor productivity growth, the contribution of capital intensity, and the contribution of shifts in labor composition. Multifactor productivity and the contribution of capital intensity contributed more to output per hour during the latter half of the 1990s. The growth rate of these two components continued to be relatively high over the 2000-2007 period. For 2007-2009, the contribution of capital intensity, reflecting the ratio of capital to hours worked, rose sharply compared to previous periods due to a sharp decline in hours worked. Of the 2.4 percent growth rate in private nonfarm business labor productivity for the 2007-2009 period, 2.3 percent can be attributed to the contribution of capital intensity, while the 0.5 percent contribution of labor composition was offset by the 0.5 percent decrease in multifactor productivity.

Capital services grew 3.8 percent for the 1987-2009 period. Within capital services, equipment was the fastest growing component, averaging 5.9 percent. The increase in equipment was largely due to capital services of information processing equipment and software, averaging 10.8 percent. The fastest growth in equipment was in computers and related equipment, which grew 20.8 percent.

For the 2000-2007 period, within equipment, information processing equipment and software (IPES) grew 8.3 percent annually. For the 2007-2009 period, IPES slowed to 5.6 percent annually. For both periods, the rate of increase in information processing equipment and software was markedly lower than the double-digit increase observed in the 1995-2000 period.