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For release 10:00 a.m. (ET) Thursday, November 19, 2020 USDL-XX-XXXX Technical information:(202) 691-5606 • email@example.com • www.bls.gov/mfp Media contact: (202) 691-5902 • PressOffice@bls.gov TOTAL FACTOR PRODUCTIVITY IN MAJOR INDUSTRIES – 2019 Total factor productivity rose in 12 of the 20 industries measured in 2019, the U.S. Bureau of Labor Statistics (BLS) reported today. The largest annual increases were in the mining, management of companies and enterprises, and utilities industries, with increases of 4.2 percent, 3.7 percent, and 3.0 percent, respectively. (See chart 1 and table 1). In 2018, total factor productivity (TFP) increased in 14 of the 20 industries. Total factor productivity is defined as output per unit of combined inputs. TFP shows the relationship between real output and changes in the combined inputs of capital services, labor input, and intermediate purchases (energy, materials, and purchased services) used in producing that output. It reflects a variety of factors that influence economic growth not specifically accounted for among measured inputs, including: technological change, changes in the organization of production, and other efficiency improvements. The TFP increase in 2019 was dispersed among the 20 major industries measured. TFP increases are most often achieved by the change in output outpacing the change in combined inputs, as with the mining industry in 2019 when output increased 6.5 percent and combined inputs increased 2.2 percent leading to an increase in TFP of 4.2 percent. However, TFP increases can also be achieved when the change in combined inputs declines more than the change in output, as was the case with utilities. For this industry, combined inputs declined 4.7 percent and output declined 1.8 percent, leading to a TFP increase of 3.0 percent. TFP declines occurs when the change in output is less than of the change in combined inputs. Wholesale trade experienced the largest TFP decline in 2019 (-2.2 percent) as output declined 2.1 percent and combined inputs grew at 0.1 percent. Total factor productivity and KLEMS as sources of labor productivity trends Total factor productivity annual measures differ from BLS quarterly labor productivity, or output per hour measures, because the former also includes information on capital intensity, shifts in the composition of the workforce, energy, materials, and purchased services. Labor productivity relates output to only hours worked and is equal to total factor productivity plus the effects of factor substitution. Thus, an increase in labor productivity can be expressed as the sum of six components: •Total factor productivity (TFP) •Contribution of energy (E) •Contribution of capital intensity (K) •Contribution of materials (M) •Contribution of labor composition (L) •Contribution of purchased services (S) The contribution of each KLEMS input is definied as the ratio of the weighted services provided by that input to hours worked in the production process. By examining input contributions the substitution effect of increased use of an input on an industry’s labor producitivty can be measured. Chart 2 illustrates sources of labor productivity trends in 2019 for each industry. The information industry had the largest increase in labor productivity in 2019, increasing 6.6 percent, driven by an increase in capital of 2.9 percent. While the education industry had the largest decline in 2019, decreasing 3.5 percent, driven by a 2.4-percent decline in services. TFP and input contributions to output The nation's output growth can be viewed as the sum of three components: total factor productivity, and the contributions of capital services and labor input. In the most recent business cycle (2007-2019) the deceleration of output was mainly driven by the deceleration in TFP and a modest deceleration of the use of capital services. Industry level data can be used to further explain any changes in the private business sector output. Chart 4 aggregates industries into one of four sectors: goods producing, information communication technologies (ITC) finance, insurance, and real estate (FIRE); and service producing. (See technical note for industry makeup.) TFP contribution The contribution of total factor productivity growth to private business output growth has declined from 1.12 percentage points in 2000-2007 to 0.33 percentage points in 2007-2019. This decline can be attributed to negative contribution from manufacturing industries within the goods producing sector and a steep decline in ICT TFP contribution. Within ICT, computer and electronic products TFP has slowed substantially and now only contributes 0.06 percentage points to private business output growth compared to 0.24 percentage points in the previous business cycle. Capital contribution Capital services contribution to output growth gradually declined over the three business cycles, declining from 1.39 percentage points in 1990-2000 to 0.83 percentage points in the current business cycle. The decline in the contribution of capital from both the services industry and the finance, insurance, and real estate (FIRE) sectors are the main drivers – as the fall out of the financial crisis and housing collapse during the 2007-2009 period impacted this sector. Labor contribution During the 2000-2007 business cycle, the contribution of labor input to private business output growth declined over a full percentage point from 1.34 to just 0.23 percentage points. During the 2000-2007 business cycle labor input contributed -0.13 percentage points in goods producing industries and -0.13 percentage points for ICT industries. During the 2007-2019 business cycle labor input only contributed -0.01 percentage points to goods producing industreis and 0.05 percentage points to ICT industries.