Growth and renewal in the U.S.: Retooling Americas economic engine McKinsey Global Institute...

Growth and renewalin the U.S.: Retooling America’s economic engine

McKinsey Global Institute

February 2011

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

McKinsey & Company 2 |

1 Total non-farm employment, seasonally adjusted2 Preliminary numbers subject to change

SOURCE: U.S. Bureau of Labor Statistics

Decline from peak U.S. employment1

Percentage from peak month prior to recession

Months since employment peak

-6.5

-6.0

-5.5

-5.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0

6 0 36 30 24 42 12 18

▪ 8.4 million jobs lost from peak-to-trough (Dec. 2007 to Dec. 2009)

▪ 1.1 million net job gains since the start of 2010 (Jan. 2010 through Dec. 2010)

▪ U.S. employment today (Dec. 2010) is 7.2 million jobs below peak of December 2007

The U.S. job market has lost more than twice as many jobsas in previous downturns

Dec. 2007-Dec. 20102

Feb. 2001-Jan. 2005

June 1990-Jan. 1993

July 1981-Oct. 1983

March-Nov.1980

July 1974-Jan. 1976


2002 to

2007 139

1991 to

2001 166

1983 to

1990 211

1975 to

1980 240

1961 to

1969 122

SOURCE: Bureau of Labor Statistics; NBER; Moody’s Analytics; Global Insight; McKinsey Global Institute

1 Projections based on current labor force statistics as of Jan 2011 with unemployment rate of 9.0%2 Growth in labor force is average between Moody’s Analytics and Global Insight; Assumes participation of approximately 65%

Number of months1 required to bring back unemployment rate below 5.0%2

Average job growth during major expansions

Thousands per month

The U.S. needs to create 200,000 jobs per month until mid-2017– a feat not seen since the 1980s

3

0

20

40

60

80

100

120

140

300200

Number of jobs created per monthIn thousands

400150 250

Months to close the gap# of months

0 350

Full employment reached in Q2 2017


-4

-6

-12

-6

74

65

6552

77

4557

38

0

50

100

150

200

250

300

U.S. debt1 by sector, 1952-Q3 2010Percent of GDP

287

91

45

69

220

41

204

24

59

154

16

49

Q3-101990

2000

ChangeP.p. of GDP

1 Includes all instruments that constitute direct credit market borrowing (includes all bond market borrowing and commercial paper); asset-backed securities have been removed from financial sector borrowing to avoid double counting of the underlying loan. Due to a reclassification of GSE MBS in Q1 2010 we have estimated the amount outstanding of GSE MBS in that quarter.

1980

16

13

29

15

74Financial institutions

Households

Non-financial business

Government

2008-102000-08

17

SOURCE: Federal Reserve Flow of Funds; SIFMA; McKinsey Global Institute analysis

After decades of growth, deleveraging has begun


12,000

14,000

16,000

18,000

20,000

22,000

24,000

Growth that is 1 percentagepoint below trend

Double dip recession,then trend

Trend based on historicalrates of growth

202020152010 2025 2030

U.S. GDP to 2030 under various scenariosBillions of chained 2005 dollars

Cumulativeincrease

43%

63%

74%

SOURCE: U.S. Bureau of Economic Analysis; CMU scenarios; Moody’s Economy.com; MGI analysis

Notes: Historical rate of growth for 1990-2008 is 2.8%; double dip recession assumes GDP declines 1% in 2011, is stagnant in 2012, and trend thereafter

A decline in long-term trend growth could be far more damaging to U.S. wealth and job creation than even a severe double dip recession


MGI’s current work tackles the two horizons to sustained growth and renewal in the United States

. . . And reignite growth and

renewal of the economy

Retool America’s productivity engine

Revive U.S. competitiveness

Future of R&D and advanced industries

Overcome the drag from

recession . . . Rebalance through deleveraging

Tackle unemployment

Other new and ongoing efforts…

Primary focus of today's discussion

The Productivity Imperative

Productivity growth matters . . .

McKinsey & Company 8 |SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis

1 2000-08 data used for 2000s

Contributions to growth in real U.S. GDP, overall economyShare of compound annual growth rate, 1960-2008, %

46

6553 47

20 23

100% =

Increases in the workforce (labor inputs)

Increases in value added per worker (productivity)

2010-20E

2.2

77

2000s1

2.1

80

1990s

3.3

53

1980s

3.2

47

1970s

3.1

35

1960s

4.1

54

More than ever before, the U.S. now relies on productivity gains for GDP growth


0 5 10 15 20 25 30 35 40

Improvement in per capita GDP by year of birth1

Indexed to 100

260

240

220

200

180

160

140

120

100

Years from birth

SOURCE: U.S. Bureau of Economic Analysis; U.S. Census Bureau; Moody’s Economy.com; McKinsey analysis

40-year growth in per capita GDP Multiplier

2.54x

2.04x

1.96x

1.78x

1 GDP data for 2010–15 is based on McKinsey and Moody’s consensus projections. Thereafter, we assume 1.7 percent productivity growth in line with the historical rate. The share of the working-age population will decline with UN projections (66 percent in 2009; 60 percent in 2030)

Forecast

1.63x

Birth year

1960

1970

1980

1990

2000

Without a productivity boost, younger generations will experience slower increases in their standard of living


2.2

1.1

1.5

1.8

1.6

2.32.1

1960s

1970s

1980s

1990s

2000s1

1 Includes 2000-08

to sustain historical 2.8% GDP growth

to sustain historical 1.7% GDP per capita growth

Productivity growth rates Compound annual growth rate, %

Productivity gain required . . .

The productivity gains needed to sustain historic GDP growth rates are ambitious

SOURCE: U.S. Bureau of Economic Analysis; Census 2009 population estimates; McKinsey Global Institute analysis


GDP (PPP) growth decompositionCompound annual growth rate, 1991–2008, %

SOURCE: U.S. Bureau of Economic Analysis; Census 2009 population estimates; The Conference Board;United Nations Population Division; McKinsey Global Institute analysis

Productivity increase required %

1.21.0

1.2-1.0

2.10.8

1.4-0.1

1.7

2.8

0.50.6

34

59

81

8.2

9.3

0.2

Historic GDP growth, 1990-2008

Required acceleration in productivity

0.9

Historic productivity

growth, 1990-2008Growth of working-age population, 2010-20

11China

EU-15

Japan

United States

0.6

0.8

1.0

0.9

Many advanced economies face a similar productivity imperative


2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

0 10 20 30 40 50 60 70 80 90 100 110 120 130

Labor productivity, 2008GDP at purchasing power parity (PPP), per worker, $ Thousands

Global competitiveness score, 2008-09

SOURCE: World Economic Forum, Global competitiveness report 2008-09; The Conference Board

Correlation between productivity and competitiveness for a sample of countries

At the national level, productivity correlates closely with competitiveness



Productivity growth is not a job-killer and not just about efficiency – value-added growth and innovation matters more


Rolling periods of employment and productivity change, 1929-2009%; periods

8

1521

6

Increasing employment

and productivity

Declining employment

and increasing productivity

69

4

80

89

76

Five-year periods

1

99

71

Increasing employment

and decreasing productivity

Declining employment

and productivity

Ten-year periods

33

Three-year periods

5

78

Annual

77

At the national level, the “trade-off” between aggregate employment and productivity levels is at best short-term . . .

SOURCE: U.S. Bureau of Economic Analysis; McKinsey Global Institute Analysis


-10

-8

-6

-4

-2

0

2

4

6

8

10

-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8

Growth in U.S. employment two quarters afterproductivity growth

Growth in labor productivity two quarters earlier

▪ In 71% of quarters since 1947, productivity growth was followed by employment growth

▪ Only in 7% of periods did employment decline after productivity growth

Annual change, 1947-2010%

SOURCE: U.S. Bureau of Economic Analysis; Bureau of Labor Statistics; McKinsey Global Institute Analysis

Percent of total

In the United States, every point of GDP growth creates between 500,000 and 750,000 jobs

. . . And even in the short term, employment growth has been positively related to productivity, but with a time lag

11% 71%

10% 7%


-5

-4

-3

-2

-1

0

1

2

3

4

5

6

Wholesale

-2 -1 17167654

Utilities

Retail

3

Value-added growth2

-3

Employment growth

2

Transport

10

Arts/recreationConstruction

Finance/insurance

Education

Agriculture

and mining

Administration

Accommodation/

food services

Realestate

Professional services

Otherservices

Manufacturing

Management

Information

Government

Healthcare

Total productivity growth 1990-2000 was 1.8 percent

Productivity gains were driven by sectors that experienced positive employment growth and increasing value added growth

Positive

Negative

Size represents productivity contribution1

Compound annual growth rate, 1990-2000%

1 Productivity contribution calculated using Moody’s Economy.com data2 Valued-added growth is the contribution of each sector to total GDP growth

In the 1990s, productivity growth was driven by a virtuous cycle of increasing value added and jobs growth

SOURCE: U.S. Bureau of Economic Analysis; Moody’s Economy.com; McKinsey Global InstituteSunrise Productivity Model


-5

-4

-3

-2

-1

0

1

2

3

4

5

6

0-1-2 1 3 4-3 7 1716

Employment growth

52

WholesaleUtilities Transport

Retail

Real estate


Value-added growth2

6

Information

Health care

Govt. Finance/insurance

Education

Agriculture

and mining

Accommodation/

food servicesConstruction

Computers/

electronics

Arts/recreation

Manufacturing

Administration

Other services

Manage-ment

Total productivity growth 2000-08 was 1.6 percent

Large share of productivity gains came from tradable sectors with large efficiency gains and job losses

Negative

Positive

Size represents productivity contribution1


Since 2000, the largest contributions to productivity gainswere driven by declining employment

SOURCE: U.S. Bureau of Economic Analysis; Moody’s Economy.com; McKinsey Global InstituteSunrise Productivity Model

1 Manufacturing sector excluding Computers/electronics and Other transportation equipment sectors2 Valued-added growth is the contribution of each sector to total GDP growth



There are productivity opportunities for laggards AND leaders



0.2

0.10.1

0.1

0

0

0

0.1

0.10.2

0.2

0.2

0.3

0.3

0.40.4

Total productivity growth 1.6

Construction

Other services

Accommodation/food services

Education

Health care

Government

Retail

Transport

Administration


Finance/insurance

Wholesale

Real estate

Manufacturing

Information

Computers/electronics

SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis

Contributions to labor productivity growth1

Compound annual growth rate, 2000-08, %

Positive contributors to productivity growth

Negative contributors to productivity growth

1 Excludes sectors with contributions with an absolute value of less than 0.015%. Numbers may not sum due to rounding.

Share of GDP% of total

1

5

10

13

6

8

8

3

3

6

13

7

1

3

2

4

The top five sector contributors had a disproportionate impacton total productivity growth between 2000 and 2008

The top five contributors

accounted for nearly 75% of total positive productivity growth and 35% of GDP



There are productivity opportunities for laggards AND leaders

The U.S. can meet the challenge, but a broad productivity agenda is required



0.4 0.6

1.2

1.0

Potential GDP growth

Productivity enablers(increase in productivity)

Changes in regulated sectors(increase in productivity)

0.2-0.5+

Increases in labor utilization and immigration(increase in labor input)

0.7-1-1

Next-wave innovation(increase in productivity)

Adoption of best practice(increase in productivity)

Change in share of working-age population

Population increase

SOURCE: Organisation for Economic Co-operation and Development; Central Intelligence Agency; World Bank; McKinsey Global Institute analysis

Potential GDP growthCompound annual growth rate, 2010-20, %

GDP growth 1990-2008 = 2.8

(not quantified)

Demographic changes Levers available to companies

Levers involving multiple actors

The U.S. can achieve historic levels of GDP growth, or better . . .


Drive productivity gains in the public and regulated sectors

1

Reinvigorate the innovation economy2

Develop the U.S. talent pool and harness the full capabilities of the U.S. population

3

Build 21st-century infrastructure to meet the demands of a globally competitive economy

4

Enhance the competitiveness of the U.S. regulatory and business environment

5

Embrace the energy productivity challenge6

Harness regional and local capacities to boost overall U.S. growth and productivity

7

. . . However, a broad agenda is required

www.mckinsey.com/mgi


APPENDIX: ADDITIONAL SUPPORTING PAGES


83.5

87.1

75.6-11.5

68.7

74.0

64.9-9.0

9.1

7.3

17.6+10.3

6.1

5.7

4.3-1.4

2009; %

SOURCE: Organisation for Economic Co-operation and Development; World Bank; CIA Fact Book; McKinsey Global Institute analysis

Women (25–64) participation rate Senior workers (55–64) participation rate

Youth unemployment Migration

2010

2000

International comparisons suggest there is room to increase the labor inputs to U.S. growth through increased participation and migration

McKinsey & Company 26 |SOURCE: Organisation for Economic Co-operation and Development; Central Intelligence Agency; World Bank;

McKinsey Global Institute analysis

1 Assumes all else remains constant (e.g., working hours and productivity levels). Numbers may not sum due to rounding2 Excludes impact of dynamic demographic changes over a ten-year period3 All assumptions are based on 2009 data comparing U.S. with international levels; the exception is net migration, which compares U.S. data for 2000

with U.S. projections for 2010

Total impact of labor increases

0.7-1.1

Net migration

0.2-0.3

Youth

unemployment

0.1-0.2

Senior

participation

0.1-0.2

Female

participation

0.3-0.5

Assumptions3 Increase participation of females aged 25-54 in labor force from 76 to 87 percent (Sweden)

Increase participation of workers aged 55-64 from 65 to 74 percent (Sweden)

Reduce unemployment in 15-24 age group from 18 to 7 percent (Netherlands)

Increase net migration from 4.3 per thousand to 5.7 (level of U.S. net migration in 2000)

Increases in the workforce by lever1

Compound annual growth rate, 2009-19, %2

Increasing the U.S. labor force could add a significant amount to GDP growth but would likely require major changes in policy and practices

Total impact of labor force increase is equivalent to ~30 percent of

historic GDP growth of 2.8 percent


Workers, millions

SOURCE: U.S. Bureau of Labor Statistics; National Center for Education Statistics; National Science Foundation; McKinsey Global Institute analysis

3.1 3.4

17.7

15.814.8

2018 predicted talent demand

Talent

gap

0.2

2008 employ-ment

1.9

Additions from high-skill foreign workers

2018

talent supply

Predicted increase in supply

Absorption of extra capacity

0.4

Predicted attrition

NOTE: Numbers may not sum due to rounding

Industries requiring analytical and technical workers are likelyto experience a talent shortage over the next decade

A substantial talent gap of 10% of total demand will remain, even

under conservative assumptions


The relative quality of U.S. infrastructure has been declining

SOURCE: World Economic Forum, Global competitiveness report 2010-2011

5.55.55.55.55.65.65.75.85.85.85.85.95.95.96.06.06.06.06.0

6.26.36.36.46.46.4

6.66.66.66.76.8

TunisiaSaudi ArabiaEstoniaMalaysiaBahrainNamibiaChileUnited StatesSpainOmanBelgiumTaiwanBarbadosNetherlandsLuxembourgJapanPortugalCanadaSouth KoreaUnited Arab EmiratesDenmarkGermanyFinlandSwedenAustriaIcelandFranceSingaporeHong KongSwitzerland

302928272625242322212019181716151413121110

987654321

2010 rankingEvolution of rank for United StatesDistance from top ranking

-24

-22

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

201009080706050403022001

Quality of overall infrastructure


Broadband penetration in the United States is lower than in other countries and varies widely across states

SOURCE: International Telecommunication Union; Federal Communications Commission

Broadband subscriptions per 100 population

24.9

25.325.4

25.8

27.1

29.3

29.4

29.4

29.7

29.830.4

31.1

32.9

33.2

33.8

34.6

35.6

37.3

37.941.1

Japan

Estonia

Australia

Israel

United States

Hong Kong

Finland

Belgium

Canada

United Kingdom

Germany

France

Luxembourg

Iceland

South Korea

Switzerland

Netherlands

Norway

Denmark

Sweden

0

2,500

5,000

7,500

10,000

12,500

15,000

MO

MS

TX

PA

DC

WA

RICO

NJ

CA

NY

PR

0.500.450.20 0.55

HouseholdsThousand

0.700.650.60

Subscribership ratioSubscribed households/total households

0.800.75

Overall United States 0.61

Broadband penetration


Economic fundamentals

Business climate

Human capital

Infrastructure

SOURCE: McKinsey Global Institute synthesis of data from numerous sources

Leader

Top quartile

Average

Bottom quartile

Key metrics Ten years ago Today Trend

U.S. relative position

Household consumptionHousehold consumption growthGDPStock market capitalizationIndustrial productionTrade as percentage of GDPNational spending on R&D

Business environmentFDI as percentage of GDP1

Growth of local innovation clustersTax incentives for R&DPopulation and demographic profileAvailability of high-quality laborRetention of foreign-born talentCost-adjusted labor productivityPublic expenditure on educationNumber of patent applicationsTransportationTelecommunications

Statutory corporate tax rate

1 Foreign direct investment

U.S. performance on a sample of country competitiveness indicators is declining relative to other countries


Household electricity bill savings$ per year

SOURCE: U.S. Energy Information Administration; McKinsey Low Carbon Economics tool

0-50

51-75

76-100

101-150

The economic benefit of a 5% increase in energy efficiencyvaries across states

McKinsey & Company 32 |SOURCE: U.S. Bureau of Economic Analysis; McKinsey Global Institute analysis

Productivity growth has been much faster in automotive than in aerospace1

19

79

Automotive Aerospace 1

Applying several practices from best-in-class automotive could drive significant benefit for aerospace2

Production planning techniquesTotal cost

Productivity growth, 2000-08

Assembly line cycle time reductionProduction cycle time

Real-time performance managementLabor productivity

1 Other transportation equipment in the North American Industry Classification System. Aircraft and spacecraft represented around 76% of value added in other transportation equipment in 2006

2 The various practices complement each other; the sizing estimates should not be considered additive

Before

After

80

100 -20%

70

100

-30%100

120

+20%

%

Aerospace can apply the lessons of lean manufacturing and performance management learned in other sectors such as best-in-class automotive

ESTIMATES


1.8

1.91.9

1.61.61.71.6

1.8

1.6

1.4

1.11.0

1.1

0.80.7

0.50.50.5

0.4

0.60.6

0.8

1.21.2

23222120191817161514131211109876543210Hour patient left emergency room

Supply of patient transport specialists1

1 Based on two specialists transporting patients up to wards 25 percent of their time; assumes 30 minutes per transport.

SOURCE: McKinsey analysis

Admissions to the ward from the emergency room by time of dayNumber of patients per hour per day

In some U.S. hospitals, fixed staffing of patient transport specialists means demand outstrips supply for 15 hours of the day


Level of supply chain integration facilitated by RFID

Retail sector supply chain

Producer Distributor Distribution center Retail store

RFID attached to individual items

▪ Linkage with self-checkout counters and other in-store wireless devices▪ Monitor food supply

RFID attached to cases of goods

▪ Accuracy check against case numbers▪ Integration of shelf replenishment systems with data from

RFID readers

RFID attached to pallets of goods

▪ Optimization of the commodity flow from supplier to the store

▪ Measurement of performance of suppliers and service providers

Potential implications

Increased visibility ▪ Early identification and timely reaction

Supply chain cost savings

▪ Reduction of inventories▪ Fewer stock-outs and unplanned markdowns▪ Reduction in logistics costs and fewer delays

Effects beyond the supply chain

▪ Enhanced shopping experience▪ Better theft monitoring

Radio-frequency identification (RFID) could be used to managean increasingly integrated supply chain


Governments can pursue different levels of interventions

SOURCE: McKinsey Global Institute analysis

Government as principal actor

Tilting the playing field

Building enablersSetting ground rules/direction

Agenda items for growth and renewal

Degree of intervention HighLow

Establish and track key productivity metrics by sector

Fund enabling IT infrastructure and training

Set incentives that reward more productive providers/individuals

Conduct “lean” program through the public sector

2 Reinvigorate the innovation economy

Set clear regulatory environment (e.g., GHG1 fiscal)

Establish skill-based points system to manage immigration

Offer tax incentives for private R&D activities

Establish public R&D institutions on strategic industries

3 Cultivate the US talent pool

Set retirement incentives to reward staying in workforce

Establish skill-based points system to manage immigration

Provide subsidized low- cost study loans; attract ex-pats to return

Publicly funded educational systems

4 Build efficient and economically viable infrastructure

Set national standards for construction

Enable private infrastructure investments

Provide fiscal incentives for private infrastructure build-out

Expand and upgrade public infrastructure investment arm

5 Enhance the competitiveness of the business environment

Reduce regulatory complexity

Establish mechanism to share best practices across localities/states

Offer fiscal and other investment incentives

Target multinational companies to attract and pursue

6 Embrace the energy productivity challenge

Set evolving energy efficiency standards

Require energy efficiency reporting for goods and companies

Provide tax benefits to companies engaged in energy-saving activity

Improve efficiency of public buildings and purchasing

7 Harness regional and local capacities

Increase efficiency of local/state business regulation

Strengthen local schools/infrastructure

Offer local fiscal investment incentives

Establish public city broadband networks

1 Drive productivity gains in the public and regulated sectors

1 Greenhouse gases

EXAMPLES

McKinsey & Company 36 |SOURCE: McKinsey Global Institute analysis

What have we learned about the ingredients for productivity

MGI experience over two decades across more than 20 countries and

30 industrysectors

Flexibility in labor and capital markets enables productivity gains by ensuring resources can be deployed quickly and efficiently where they will be most productive

Competitive intensity is the primary driver of innovation and best practice adoption in private companies – this competition leads to aggregate productivity gains as more productive companies gain share and less productive ones exit the market

Innovation that drives value-added growth and efficiency and its diffusion and scaling is the driving force of productivity growth and aggregate economic growth

Large employment sectors need to pull their weight – success in emerging or small innovative sectors is not enough to sustain overall productivity growth

Strong demand is an enabler facilitating balanced growth from both higher efficiency and the transition to higher value goods and services

Sound regulatory and business environment that encourages competition and attracts the most innovative players provides the right incentives for growth

Small improvements in large sectors can make a significant difference for the overall productivity of the economy


Productivity levels and growth

Far West

Rocky Mountains

Southwest

Plains

Great Lakes

Southeast

Mideast

New England

1.8

1.4

1.2

1.6

1.3

1.5

1.7

1.6

Productivity growthCompound annual growth rate, 2000-08, %

84

87-88

91

97

102

106

113

Productivity levels, 2008$ Thousands per employee

Productivity performance differs significantly across U.S. regions

SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute


MetropolitanStatistical Area GDP Employment


Population, 2008Millions

Contribution%

GDP, 2008

1.0

Phoenix 1.1

Baltimore 1.1

Austin 1.1

Pittsburgh 1.2

0.9

Tampa

Portland

1.7

1.8

San Diego 1.9

Philadelphia 1.9

Minneapolis 1.4

San Jose 1.5

Miami

Atlanta

San Francisco

Chicago

2.5

2.9

Dallas 3.3

4.1

Los Angeles 6.7

New York 12.2

Boston

2.0

Houston

2.6

Washington, DC

18.8

12.9

5.3

6.1

9.5

4.5

5.6

4.2

5.8

3.0

2.2

5.4

1.8

3.2

2.4

1.6

2.7

4.2

2.7

5.3

Productivity

1.7

0.8

1.2

0.9

0.6

0.8

1.2

0.8

1.6

0.7

1.2

2.1

1.9

2.4

2.0

3.4

2.3

2.5

4.9

8.1

Productivity growth, 2000-08

0.6

0.5

1.5

0.9

0.1

0.1

1.8

-0.4

0.5

1.3

0.8

1.4

-1.3

0.4

0.3

1.8

0.7

2.7

0.7

1.3

2.6

2.4

3.7

2.9

1.3

1.8

3.0

1.1

1.7

3.4

4.3

3.0

1.5

2.0

2.4

4.8

2.3

4.0

2.5

2.0

2.0

1.8

2.2

2.0

1.2

1.8

1.2

1.6

1.2

2.1

3.5

1.6

2.8

1.6

2.2

2.9

1.6

1.3

1.8

0.7

The top 20 U.S. cities account for more than 50% of national productivity growth and approximately 40% of GDP

SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; Moody’s Economy.com;McKinsey Global Institute

Total 53%

Total 41%

McKinsey & Company 39 |SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis

3.6

1.5

Labor productivity (real value added per worker)$ Thousands, 2000 Compound

annual growth rate, 1990–2007%

Recession years

U.S. multinational companies have increased productivity more than twice as fast as other U.S. private sector firms

90

80

70

60

120

110

100

0

U.S.multinationalcompanies

All other

companies

07 052000951990


Opportunities exist for leaders and laggards

1 Productivity contribution was calculated using Moody’s Economy.com data.

Top quartile

25th–50th quartile

Bottom quartile

1990-20001 2000-08

Goods Manufacturing 36.7 19.2

Construction -0.5 -11.0

Natural resources 1.6 0.2

Computer and electronic products n/a 22.5

Real estate and rental and leasing 19.8 18.4

Wholesale trade 17.5 11.2

Information 7.4 21.6

Services Transportation and warehousing 3.8 3.9

Retail trade 9.8 1.5

Administrative and other services -4.7 5.6

Accommodation and food services -2.8 -3.2

Other services (except public admin.) -1.7 -4.8

Arts, entertainment, and recreation -0.7 -0.8

Finance and insurance 16.9 9.9

Professional, scientific, technical services 7.3 9.7

Management of companies 0.7 -0.6

Regulated and public

Government -4.1 1.0

Health care and social assistance -8.1 -1.7

Educational services -1.5 -3.1

Utilities 2.5 0.5

Contribution to productivity growth%

Retail can continue to drive productivity

growth through greater integration of online and offline channels, and innovations in responding to and

engaging customers

Healthcare can increase productivity through

greater use of available technology (e.g., e-mail,

electronic record keeping) and broader

adoption of established lean principles

Aerospace can further improve productivity by

continuing to set the bar for innovation while making use of standard

lean principles

SOURCE: U.S. Bureau of Economic Analysis; Moody’s Economy.com; MGI Sunrise Productivity Model

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Growth and renewal in the U.S.: Retooling Americas economic engine McKinsey Global Institute...

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