1.6 percent in the manufacturing sector,
3.2 percent in the durable goods manufacturing sector, and
-0.2 percent in the nondurable goods manufacturing sector.
At 1.6 percent, multifactor productivity growth in the manufacturing sector grew more rapidly than the 0.4 percent increase posted in 2005 (as revised). This occurred as durable goods manufacturing productivity growth accelerated to 3.2 percent from 2.5 percent and nondurable goods manufacturing producitivity fell less, dropping 0.2 percent in 2006 after a 1.8 percent decrease in 2005.
Changes in 2006
Multifactor productivity in the manufacturing sector rose 1.6 percent in 2006. This is the fifth consecutive year that multifactor productivity rose in manufacturing. The 2006 multifactor productivity gain reflected a 1.8 percent increase in sectoral output and a 0.3 percent increase in combined inputs. The increase in combined inputs was down from the sharp 3.3 percent increase in 2005. Capital services grew 0.5 percent in 2006, after remaining unchanged in 2005. Hours grew 0.6 percent in 2006, materials declined 1.0 percent and purchased business services rose 2.0 percent.
Within manufacturing, multifactor productivity for durable goods increased in 2006 while it fell for nondurable goods. The manufacturing industries that showed the largest multifactor productivity growth in 2006 were all durable goods industries; computer and electronic products (7.6 percent), transportation equipment (4.0 percent), and wood products (3.0 percent). One durable goods industry showed the sharpest decline in multifactor productivity, nonmetallic mineral products (-3.1 percent). The other two industries that showed sharp declines were nondurable goods industries; textile mills and textile product mills (-2.6 percent) and plastics and rubber products (-1.9 percent).
Historical trends in manufacturing
Multifactor productivity (output per unit of combined inputs) differs from labor productivity (output per hour worked) in the treatment of both capital and intermediate inputs (energy, materials, and business services). Labor productivity measures do not explicitly account for the effects of capital nor do they account for changes in the effects of intermediate inputs on output growth. As a result, changes in input intensity (the ratio of other inputs to labor hours) can influence labor productivity growth. In contrast, multifactor productivity treats capital and intermediate inputs as explicit factors of production and, therefore, is net of changes in input intensity. Historical trends in labor productivity growth can be disaggregated into the sum of multifactor productivity growth plus the contributions of the intensities of capital and of intermediate inputs.
The contribution of each input’s intensity equals the change in the ratio of that input to hours multiplied by that input's cost share. Historically, the labor share is about a third of total cost, the capital share about a sixth, the materials share about 30 percent of total cost, and the business services share about 20 percent. The energy share is historically only about 3 percent of total cost.
Multifactor productivity in manufacturing grew 1.4 percent annually between 1987 (the starting point of the series) and 2006. Sectoral
output increased at a 2.5 percent annual rate over the period and combined inputs rose an average of 1.1 percent per year. Of the 3.6 percent growth rate in output per hour (labor productivity), 1.4 percent can be attributed to increases in multifactor productivity, 0.5 percent to the contribution of capital intensity, 0.8 percent to changes in materials intensity, and 0.8 percent to changes in business services intensity. The remaining input, energy, was a very small share of total inputs; therefore, it made no discernable contribution to output per hour.
From 1995 to 2000, multifactor productivity in manufacturing rose more rapidly than in previous periods, averaging 2.0 percent per year. Sectoral output growth increased to an average of 4.5 percent per year while combined inputs advanced an average of 2.5 percent per year, slightly faster than in the early 1990s. In the 2000-2006 period, multifactor productivity grew at a slower rate than in the 1995-2000 period, averaging 1.6 percent per year. Labor productivity slowed to a still-robust average annual growth rate of 3.8 percent per year. The contribution of capital intensity was slightly slower in the 2000-2006 period than in the 1995-2000period, increasing an average of 0.6 percent annually. The contribution of the intensity of information processing equipment grew 0.2 percent while that of other capital services rose 0.4 percent during the 2000-2006 period. The contribution of materials intensity dropped to an average annual increase of 0.5 percent from the 1.4 percent growth shown in the 1995-2000 period while the contribution of business services intensity accelerated to 1.0 percent. Over the entire 1987-2006 period, multifactor productivity advanced most rapidly in the computer and electronic products industry. This industry’s 9.6-percent average annual growth rate during this period was 8.0 percentage points higher than the industry with the next highest growth rate, apparel, leather, and allied products. In the 1995-2000 period, multifactor productivity grew very rapidly in the computer and electronic products industry, 15.9 percent per year. In the 2000-2006 period, the growth rate slowed to 6.7 percent. Three industries experienced a decline in multifactor productivity over the 1987-2006 period: food, beverage, and tobacco products (-0.3 percent); chemical products (-0.1 percent); and electrical equipment, appliances, and components (-1.0 percent).
