Board of Governors of the Federal Reserve System

Performance Evaluation of the Federal Reserve G.17 (419) Statistical Release
June 2020 PDF

II. Changes in Indexes since June 2017

Since mid-2017, when the Federal Reserve most recently reported to the Office of Management and Budget (OMB) on the G.17 statistical release, the methods for estimating a number of industrial production indexes and capacity series were changed in response to either the availability of new data or the discontinuance of previous data sources. Detailed descriptions of the revised IP and capacity measures and of the methodology changes for the indexes are available in the press releases for the 2018 and 2019 annual revisions.

The annual revision issued in March 2018 incorporated annual benchmark data for manufacturing production from the 2016 Annual Survey of Manufactures (ASM). The upcoming 2020 annual revision will incorporate benchmark information from the 2017 Census of Manufactures and the 2018 Annual Survey of Manufactures.

II.A. Incorporation of the Quarterly Survey of Plant Capacity into Monthly Estimates for IP Indexes Based on Production-Worker Hours

For the IP indexes based on production-worker hours, the 2018 revision incorporated information from the Quarterly Survey of Plant Capacity (QSPC) into the adjustment factor that aligns the monthly data with the annual benchmark indicator. For all IP indexes, the standard adjustment factor is calculated in two steps—first, by creating a historical ratio of the annual benchmark indicator to the annual average of the monthly (or quarterly) raw data, and second, by projecting this ratio ahead for years when benchmark data are not yet available. The annual adjustment factor is converted to a monthly frequency for use in the monthly IP indexes. For the IP indexes based on production-worker hours, the adjustment factors are effectively measures of productivity. The 2018 revision modified the standard adjustment factor formula for indexes based on production-worker hours by including data from the QSPC in the calculation.

For an IP index based on production-worker hours, the updated annual adjustment factor is constructed as the ratio of the benchmark indicator to the annual average of the production-worker hours index, as was done in the past. The principal innovation in the 2018 revision was in the projection of this annual adjustment factor past the end of the benchmark data; rather than being based solely on a time-series model, the projection was based on a model that also includes QSPC utilization rates when available. In addition, up until the 2018 revision, the annual adjustment factor was interpolated to a monthly frequency using a procedure that attempted to make the resulting monthly series as smooth as possible. With the 2018 revision, the resulting monthly adjustment factors take on some of the contour of the utilization rates from the QSPC if the annual averages of the QSPC rates were helpful in forecasting the annual adjustment factors

II.B. COVID-19 Effects on the IP Estimates

The methods for estimating IP for March 2020 were modified to better capture production cutbacks caused by the COVID-19 pandemic. These modifications were necessary because the estimates for many IP indexes rely on data—namely, the BLS’s Current Establishment Survey (CES) measures of production-worker hours for the pay period that contains March 12—that were likely unrepresentative of the month, as a large number of establishments slowed or suspended production in late March to protect workers from the spread of COVID-19. The CES survey period for April is thought to be representative of the month, so no special adjustments were made to the procedures for estimating April IP. The updated methods relied on weekly data by industry for initial claims for unemployment insurance. These additional data allowed for the estimation of industry-level employment in the weeks between the February and April BLS survey periods, which were then used to improve estimates for employment and production-worker hours for the month of March as a whole.

II.C. Other Changes to the Indexes

In addition to the incorporation of the QSPC data into the monthly indexes and the pandemic-related modification of the procedures for March 2020, the methods for estimating several other indexes were revised in the three years since the 2017 report to the OMB.

The following changes were instituted with the 2018 annual revision:

1. The IP index that previously combined electricity generation from fossil fuels with electricity generation from some other sources was broken into two published indexes—one for fossil fuels and another for “other technologies,” which are primarily based on renewable energy sources.

2. An annual benchmark index (from 1991 forward) for drilling oil and gas wells was introduced. This new benchmark index combines data on the amount of footage drilled from the American Petroleum Institute with data from Baker Hughes on the number of onshore and offshore drilling rigs in operation. Previously, the monthly index for this industry did not have an annual benchmark—the only source data for the IP index were the weighted onshore and offshore rig counts from Baker Hughes.

3. The benchmark price deflators for different types of communications equipment were updated and expanded to include 25 detailed annual price indexes that cover the full range of output in the communications equipment industry. The price indexes and additional explanatory detail are published on the Federal Reserve’s website.

4. Industry-level data for capital expenditures, capital stocks, and capital input used in the estimation of industrial capacity were converted to a 2012 North American Industry Classification System (NAICS) basis. Previously, these variables had been constructed on the basis of earlier NAICS systems.

The following changes were instituted with the 2019 annual revision:

1. The IP indexes for wool fabrics and for cotton and synthetic fabrics were consolidated into a single index for broadwoven fabric mills. The index for broadwoven fabric mills is based on production-worker hours from 2003 to the present and on other sources before 2003.

2. Four indexes (artificial and synthetic fibers and filaments; copper refining; copper rolling, drawing, extruding, and alloying; and office furniture) that had previously been based on physical product data were converted to a production-worker hours basis. This conversion was necessary because the physical product source data were discontinued.

3. Annual data on deliveries and prices from Aviation Week were incorporated into the IP index for military aircraft. The monthly IP index is based on production-worker hours, and it is also 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.

4. Data from the QSPC was incorporated as source data for the capacity index for artificial and synthetic fibers and filaments for the period beginning in 2017. For the period before 2017, the capacity index remains based on data for capacity in pounds from the Fiber Economics Bureau.

5. The published measures of gross value of final products and nonindustrial supplies were updated to be reported in billions of 2012 dollars, which is consistent with the base year used in the national income and product accounts published by the BEA.