Private nonfarm business sector multifactor productivity increased at a 3.2 percent annual rate in 2010, the largest increase recorded in this series which began in 1987, the U.S. Bureau of Labor Statistics reported. The multifactor productivity gain in 2010 reflected a 3.7 percent increase in output and a 0.5 percent increase in the combined inputs of capital and labor. Capital services grew by 0.6 percent, the smallest gain in the series which began in 1987. The combination of fast-rising output and a modest increase in capital services caused output per unit of capital services to jump 3.0 percent, the largest gain since the series began in 1987. Labor input, the combined effect of hours worked and labor composition, increased 0.5 percent in the private nonfarm business sector after falling in the previous two years.

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 BLS publishes quarterly 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 by 3.2 percent in 2010, the largest gain in the series which began in 1987. The multifactor productivity gain in 2010 reflected a 3.7 percent increase in output and a 0.6 percent increase in the combined inputs of capital and labor.

Historical trends in private nonfarm business

Multifactor productivity in private nonfarm business grew 1.0 percent annually from 1987 to 2010. For the 2007-2010 period, multifactor productivity grew 0.7 percent, primarily due to a 0.4 percent decline in output coupled with a 1.1 percent decline in combined inputs. In contrast, the 3.2 percent increase in multifactor productivity in 2010 was a result of an increase in output much larger than the increase in combined inputs. The 3.7 percent rise in output over the year represents the largest increase since 2004.

For the 2007-2010 period, the contribution of capital intensity increased at a 1.6 percent annual rate and the contribution of labor composition increased at a 0.4 percent annual rate, faster than the gains seen in the 1995-2000 and 2000-2007 periods. Gains made in private nonfarm business output per hour due to the rising contributions of capital intensity and of labor composition were tempered by slower multifactor productivity growth. As a result, output per hour was little changed during 2007-2010 compared to the two previous periods.