Total factor productivity (TFP) in the private nonfarm business sector decreased 1.2 percent in 2022, the U.S. Bureau of Labor Statistics reported today. (See table A.) The 2022 decline in TFP reflectsa 2.3-percent increase in output and a 3.6-percent increase in the combinedinputs of capital and labor. Capital input grew by 2.9 percent and labor input–which is the combined effect of hours worked and labor composition–increased by 4.0 percent. This is the first time since 1993 thatboth capital and labor growth have outpaced output growth, leading to the decline in total factor productivity. Besides the COVID-19 pandemic year of2020, this is the largest decline in productivity since 1982.
Total factor productivity is calculated by dividing an index of real outputby an index of combined units of labor input and capital input. Total factorproductivity annual measures differ from BLS quarterly labor productivity (output per hour worked) measures because TFP includes the influences of capital input and shifts in the composition of workers. Measures for themost recent year of this release are preliminary estimates. See the TechnicalNotes for additional information.
Private business sector total factor productivity also decreased 1.2 percentin 2022, as output increased 2.2 percent and combined inputs increased 3.5 percent.
Total Factor Productivity Trends
The 1.2-percent decline in TFP in private nonfarm business in 2022 resultedfrom combined inputs growth outpacing the growth of output. The 2.3-percentgrowth of output in 2022 represents a stabilization of private nonfarm business output after the COVID-19 pandemic, as this growth is in line withthe previous business cycle (2007-19) growth of 2.0 percent.
Combined inputs continued its recovery from the 2020 recession with 3.8 percent growth in 2021 and 3.6 percent growth in 2022. However, due to thelarge decline in this measure in 2020, combined inputs growth during the current business cycle (2019-22) is now in line with the 2007-19 growth.
Productivity growth is often viewed as a long run measure, especially when an economic shock like the COVID-19 pandemic happens. While total factor productivity growth has been volatile the last 3 years, 2019-22 shows similargrowth to the previous business cycle.
Combined input growth is made up of growth in three components: capital input,hours worked, and labor composition. The index of capital input has continuedits pre-pandemic trend of positive growth and is now 8.0-percent higher in 2022 than in 2019. Hours worked grew 4.0 percent in 2022 and has now fully recovered from the historic decline in 2020, with the 2022 index 1.4-percenthigher than in 2019. The index of labor composition experienced historicallyhigh growth in 2020 and has remained near this level over the last 2 years.
Labor Productivity Trends
Labor productivity growth is the approximate sum of three components: totalfactor productivity growth, the contribution of capital intensity, and the contribution of shifts in the composition of labor. In 2022, private nonfarmbusiness labor productivity decreased 1.7 percent, the largest decline sincethe series began in 1948.
The 2022 private nonfarm business sector decline in labor productivity was a result of the 1.2-percent decline in total factor productivity, and a 0.4-percent decline in the contribution of capital intensity to labor productivity growth. Capital intensity is the ratio of capital input growthto labor hours growth. The 2022 decline in capital intensity was driven bythe increase in hours worked of 4.0 percent relative to the slower capitalinput growth of 2.9 percent.
The contribution of labor composition to labor productivity for private nonfarm business was unchanged in 2022. Labor composition estimates the effect of shifts in the age, education, and gender composition of the workforce on hours worked. The historic contribution of labor composition to labor productivity growth in 2020 was followed by a decline in 2021, the first time this measure declined since 1977. Over the 2019-22 businesscycle, the contribution to labor productivity growth from labor composition was 0.4 percent.
Detailed Capital Input Trends 2021
Capital input in the private nonfarm business sector increased at an averageannual rate of 2.3 percent in 2021, the latest year of available detailed capital data. The 2021 capital input growth declined 0.3 percentage point (see table C) from the 2020 annual rate of 2.6 percent and continues the deceleration of capital growth from the 2019 annual rate of 3.2 percent. This is the first 2-year consecutive decline in capital growth since the Great Recession of 2007-09.
Capital input is made up of different types of capital assets, including equipment, structures, and intellectual property products. In the 2000-07 business cycle, equipment and intellectual property products, which consistof software, research and development, and artistic originals assets, accounted for 2.9 percentage points of the private nonfarm business capitalinput growth of 3.5 percent. However, in the following business cycle of 2007-19, the contribution of equipment decreased by almost half, leading tocapital input growth of only 2.4 percent
The decline in the contribution of equipment continued into the current 2019-21 business cycle as equipment now accounts for 0.5 percentage point of capital input growth. However, capital input growth was unchanged at the previous rate of 2.4 percent due to the increased contribution ofintellectual property products. Intellectual property products increased from a 1.0 percentage point contribution in 2007-19 to a 1.5 percentage pointcontribution in 2019-21, and now accounts for over half of private nonfarmbusiness capital input growth.
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