Industrial Production and Capacity Utilization: The 2019 Annual Revision PDF  ASCII RSS DDP

Release Date: March 27, 2019

The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization.[1] On net, the revisions to the growth rates for total IP for recent years were small and positive, with the estimates for 2016 and 2017 a bit higher and the estimates for 2015 and 2018 slightly lower.[2] Total IP is still reported to have increased from the end of the recession in mid-2009 through late 2014 before declining in 2015 and rebounding in mid-2016. Subsequently, the index advanced around 7 1/2 percent over 2017 and 2018.

Capacity for total industry expanded modestly in each year from 2015 to 2017 before advancing 1 1/2 percent in 2018; it is expected to advance about 2 percent in 2019. Revisions for recent years were very small and showed slightly less expansion in most years relative to earlier reports.

In the fourth quarter of 2018, capacity utilization for total industry stood at 79.4 percent, about 3/4 percentage point above its previous estimate and about 1/2 percentage point below its long-run (1972–2018) average. The utilization rate in 2017 is also higher than its previous estimate.

This revision incorporated newly available annual data on output and prices. The IP indexes for publishing reflect new data for 2017 and revised data for 2016 from the U.S. Census Bureau's Service Annual Survey, and the IP indexes for logging were updated with 2017 data from the U.S. Forest Service. In addition, the indexes for metallic and nonmetallic minerals were updated with revised annual data for 2017 from the U.S. Geological Survey (USGS). The nominal benchmark data used for manufacturing industries—the Census Bureau's Census of Manufactures—are not yet available for 2017. However, data on prices from the Bureau of Labor Statistics (BLS) were incorporated into most of the manufacturing indexes.

The monthly estimates of production have been updated to include late-arriving or revised quarterly or monthly indicator data. These data include direct measures of output as well as the benchmark revisions to production-worker hours from the BLS's Current Employment Statistics report.[3] The monthly IP estimates also now reflect recalculations of seasonal factors.

The revised estimates of capacity and capacity utilization incorporated data from the Census Bureau's Quarterly Survey of Plant Capacity Utilization (QSPC) for the fourth quarter of 2018, along with new data on capacity from the USGS, the Energy Information Administration (EIA), and other organizations.

RESULTS OF THE REVISION

Industrial Production

Manufacturing output edged up in 2016 before advancing more than 2 percent in both 2017 and 2018. Compared with previous reports, the gain in 2018 is a little smaller, while the rates of change for 2017 and 2016 are larger. Despite the net upward revision, manufacturing IP in February 2019 was about 4 1/2 percent below its pre-recession peak.

The revised contour for mining output is little different from before: Output dropped significantly in 2015 and 2016 but then jumped more than 10 percent in both 2017 and 2018. The output of utilities advanced moderately in 2016 through 2018; the gains in 2016 and 2018 are now reported to be slightly weaker than before, while the gain in 2017 is stronger.

Production by Industry Group

The output of durable manufacturing industries edged down in 2016 before rising about 2 1/2 percent and 4 percent in 2017 and 2018, respectively. The output of nondurable goods increased about 3/4 percent in 2016, jumped more than 2 1/2 percent in 2017, and then moved up about 3/4 percent again in 2018. For both durable and nondurable manufacturing, current estimates of growth rates are slightly higher for 2016 and 2017 and slightly lower in 2018 than previously reported. The revisions for the 2016–18 period were generally small and were widespread across industries.

The output index for industries in scope for manufacturing IP that are not part of manufacturing under the North American Industry Classification System (NAICS)—that is, logging and publishing—fell in every year from 2014 to 2018. Relative to earlier reports, the index now declines more steeply in 2015 and 2018 and less steeply in 2016 and 2017.

Production by Market Group

The index for consumer goods has increased in each of the past six years, with the revised index growing at roughly the same pace as the previously published index over this period. Likewise, the index for business equipment was little revised; it increased 4.0 percent or more in both 2017 and 2018 after falling in the previous two years. The indexes for construction supplies and business supplies have increased in each of the past three years, with somewhat stronger gains in 2016 and 2017 and weaker gains in 2018 than what was previously published. The revisions to the output of defense and space equipment are more notable; the index is now estimated to have fallen significantly more slowly in 2017 and to have risen less steeply in 2018. The index for materials has increased sharply in each of the past two years, with the gain in 2017 a bit faster than previously reported.

Capacity

Manufacturing capacity contracted slightly in 2015 but then increased modestly in subsequent years, with annual increases averaging about 3/4 percent. These rates of changes are generally a little lower than previously reported values. The capacity indexes for durables and nondurables have increased in recent years, while capacity for ``other manufacturing'' (logging and publishing) has declined fairly steeply.

Capacity at mines declined nearly 3 percent in 2016 but then edged up in 2017 and jumped 7 percent in 2018; it is expected to advance 5 percent in 2019. Capacity was previously reported to have fallen in 2017, and the rates of change for 2016 and 2018 were also revised up. Capacity at utilities is reported to have increased about 1 1/2 percent per year from 2016 to 2018; these rates of increase are modestly lower than reported earlier.

Capacity Utilization

Capacity utilization for total industry declined in 2016 but rose in 2017 and 2018.[4] The increases in 2017 and 2018 resulted from sizable gains in the rates for mining and from smaller advances in the rates for both manufacturing and utilities. Compared with earlier estimates, capacity utilization for total industry is now reported to have been somewhat lower in 2015 but higher in 2017 and 2018.

Utilization at manufacturers fell in 2016 and increased in 2017 and 2018; for the fourth quarter of 2018, the utilization rate is estimated to have been around 1 1/4 percentage points below its long-run average. The rates for 2017 and 2018 are now reported to be higher than published earlier. By the fourth quarter of 2018, the utilization rate for durables was about the same as its long-run average. By contrast, the utilization rate for nondurable manufacturing remained below its long-run average at the end of 2018 and had been so for several years. The utilization rate for ``other manufacturing'' industries has been declining for many years; at the end of 2018, it stood far below its long-run average.

Capacity utilization rates for mining fell in 2016 before rising sharply in 2017 and advancing further in 2018. The gains in 2017 and 2018 were largely due to output increases for oil and gas extraction, drilling, and servicing that outstripped capacity growth. By the end of 2018, the utilization rate for mining stood 5 percentage points above its long-run average of 87.1 percent. Relative to the previously published rates, utilization at mines for 2018 is about 2 1/2 percentage points lower; revisions to other recent years were smaller. The operating rate for utilities has been well below its long-run average for the past several years. Compared with the previous estimates, utilization rates for utilities are slightly lower in 2015 and 2016 and somewhat higher in 2017 and 2018.

TECHNICAL ASPECTS OF THE REVISION

The IP indexes represent the level of real output relative to a base year. At the monthly frequency, movements of the indexes are based on indicators that are derived using industry-specific data from a variety of government and private sources. The monthly production indexes, however, are anchored to annual benchmarks that are less timely but typically based on more comprehensive data. In most cases, the annual benchmark is nominal gross output reported by the Census Bureau deflated by a suitable price index.

Annual revisions to the IP and capacity measures involve (1) incorporating new or revised annual benchmark data on output, prices, and value-added proportions; (2) incorporating new monthly or quarterly data that were revised or that arrived too late to be included in the regular six-month reporting window for monthly IP; (3) updating seasonal adjustment factors; and (4) updating the methods and industry structure used to construct the indexes.

Annual Benchmark Data on Output, Prices, and Value-Added Proportions

Output

The annual benchmark output indexes for IP are measures of real gross output at the six-digit NAICS level. The Census Bureau provides annual figures for value added and for the cost of materials for manufacturing industries, which can be summed to obtain nominal gross output. The Census Bureau has not yet published the 2017 Census of Manufactures, so new nominal benchmark data are not available for manufacturing.

New annual data were incorporated for several non-manufacturing industries. The benchmark indexes for metallic and nonmetallic mineral mining were updated with revised 2017 data from the USGS, and the benchmark indexes for logging and publishing were advanced through 2017 based on data from the U.S. Forest Service and the U.S. Census Bureau.

Prices

To obtain individual benchmarks of real gross output, the measures of nominal gross output are deflated by annual price deflators. In general, the benchmark industry price deflators consist of price indexes from the Bureau of Economic Analysis (BEA) through 2011 that are extended with the related producer price indexes (PPIs) from the BLS.[5] However, for a few selected industries, the annual price deflators are constructed by the Federal Reserve.[6]

Value-Added Proportions (Weights for Aggregation)

The IP system is organized as a hierarchical structure where the individual production indexes are combined using a version of the Fisher-ideal index formula to construct broader measures of production. Individual IP measures are combined into more aggregate measures using weights based on the value added from the industry (calculated as gross output less cost of materials). Value-added weights are used to avoid double counting the contributions of upstream producers in the output of their downstream consumers (for example, to avoid double counting the contributions of steel used in automobile production). For IP indexes in manufacturing that are defined at the six-digit (or more aggregate) NAICS level, the value-added weights are derived from either the Economic Census or the Annual Survey of Manufactures. For IP indexes that cover only part of a six-digit NAICS industry, the aggregation weights are constructed by allocating value added (as defined by the Census Bureau) for a six-digit industry across the various components of IP that compose that industry. Data from the Economic Census and the ASM on shipments of different types of products within a six-digit NAICS industry are used to determine the share of an industry's value added that is assigned to each component IP index.

The Federal Reserve derives estimates of value added for the electric and gas utility industries from annual revenue and expense data issued by other organizations. For electric utilities, the measures of value added incorporate data from the Energy Information Administration of the U.S. Department of Energy and from the Edison Electric Institute. For gas utilities, the value-added estimates incorporate data from the American Gas Association. The weights for aggregation for mining industries are derived from value-added data from the Economic Census. For the years between the quinquennial Economic Censuses, measures of value added for mining are estimated based on both output and price changes for the industry.

The weights for aggregation expressed as value added per unit were estimated with data on producer prices for the period after 2016.

Revised Quarterly and Monthly Data

This revision incorporated source data on production, shipments, inventories, and production-worker hours that became available or were revised after the regular six-month reporting window for monthly IP was closed. These data were released with too great of a lag to be included with monthly IP estimates but were available for inclusion in the annual revision. The revised IP indexes include information from the QSPC for 2018 and from other industry reports.

Revised Seasonal Factors

Seasonal factors for production-worker hours—which adjust for timing, holiday, and monthly seasonal patterns—were updated with data through January 2019. The updated factors for the physical product series, which include adjustments for holiday and workday patterns, used data through December 2018 where available.

Seasonal factors for unit motor vehicle assemblies have been updated, and projections through June 2020 are available on the Board's website at http://www.vwl8.com/releases/g17/mvsf.htm. These factors are based on production data through January 2019 and were revised back to January 2014. The seasonal factors explicitly incorporate the holiday schedule for the industry specified in the latest collective bargaining agreements with domestic manufacturers.

Methodological Changes to Individual Production and Capacity Indexes

Consolidation of Production Indexes for Wool Fabrics and for Cotton and Synthetic Fabrics

This revision combines the indexes for wool fabrics (NAICS 31321pt.) and cotton and synthetic fabrics (NAICS 31321pt.) into a consolidated index for broadwoven fabric mills (NAICS 31321).[7] The individual indexes for both wool fabrics and cotton and for synthetic fabrics used production-worker hours as an indicator of output for the period from 2003 to the present, and the consolidated index relies on production-worker hours. For the period prior to 2003, the monthly index relies on data from other sources (a combination of physical product data and electric power usage).

Change in Source Data for Four Production Indexes

With this revision, four indexes that previously were based on physical product data are now based on production-worker hours. The changes occurred because the issuing organizations discontinued the reports from which the physical product data were derived. The affected indexes include artificial and synthetic fibers and filaments (NAICS 32522); copper refining (NAICS 33141pt.); copper rolling, drawing, extruding, and alloying (NAICS 33142); and office furniture (NAICS 3372). For office furniture, the monthly production index is based on physical product data for the period from 1972 to 2012 and on production-worker hours thereafter. The other three indexes are based on physical product data from 1972 to 2017 and on production-worker hours thereafter.

New Annual Data for Military Aircraft Production Index

The monthly production index for military aircraft (NAICS 336411pt.) is based on production-worker hours for overall aircraft and is influenced by the value of expected and actual annual deliveries for different types of military aircraft for years when benchmark data are not yet available. Prior to this revision, the sources for the value of deliveries were manufacturers' reports for certain aircraft models. The source data used in this revision also include information on deliveries and prices from Aviation Week that were not used previously.

Changes to Capacity Index for Artificial and Synthetic Fibers and Filaments

With this revision, the capacity index for artificial and synthetic fibers and filaments (NAICS 32522) for the period beginning in 2017 is based on data from the Census Bureau's Quarterly Survey of Plant Capacity and Utilization. For the period prior to 2017, the capacity index remains based on data for capacity in pounds from the Fiber Economics Bureau.

Updated Base Year for Gross Value of Output Measures

This revision updates the base year used in the published measures of gross value of final products and nonindustrial supplies. The measures are now reported in billions of 2012 dollars, which is consistent with the measures reported in the national income and product accounts published by the BEA.

Data Availability and Publication Changes

Files containing the revised data and the text and tables from this release are available on the Board's website at http://www.vwl8.com/releases/g17, as are updated data for the annual revision and for all of the regularly issued series on IP, capacity, and capacity utilization. Other changes are listed on the Board's website at http://www.vwl8.com/releases/g17/g17_revision_series.htm.


[1] The revision affected rates of change for IP from 1972 forward. When necessary to maintain consistency with any revisions to the data for 1972 and subsequent years, the levels of production for the years before 1972 were multiplied by a constant. However, the rates of change in IP for the years before 1972 were not revised. Utilization rates and capacity growth rates were revised minimally between 1968 and 1971, but they were unchanged before then.
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[2] Rates of change are calculated as the percent change in the seasonally adjusted index from the fourth quarter of the previous year to the fourth quarter of the year specified.
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[3] Production-worker hours are used as output indicators for IP indexes for which no direct measures of production are available.
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[4] Unless otherwise noted, rates of capacity utilization are reported for the fourth quarter of the reference year.
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[5] Overall, at the industry level, the BEA and PPI measures are quite similar, as the BEA used weighted product-level PPIs to derive its industry-level shipments deflator.
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[6] For selected industries, the Federal Reserve constructs price indexes from alternative sources. These industries include communications equipment (NAICS 3342), computer storage devices (NAICS 334112), semiconductors (NAICS 334413), and pharmaceuticals (NAICS 325412). Updated price indexes for computer storage devices are available on the Board's website at http://www.vwl8.com/releases/g17.
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[7] Industry codes followed by ``pt.'' indicate that the index covers only part of the entire NAICS code listed.
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G.17 Revision Release Tables:

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Last Update: March 27, 2019