Industrial Production and Capacity Utilization - G.17

Annual Revision (400 KB PDF) (ASCII)

Industrial Production and Capacity Utilization: The 2011 Annual Revision

The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization. Although the revisions affect these data for January 1972 through February 2011, the most significant effects are for the period from 2008 through 2010. Measured from fourth quarter to fourth quarter, total IP is now reported to have declined 1.4 percentage points and 1.7 percentage points more sharply in 2008 and in 2009, respectively, and to have risen 0.5 percentage point more rapidly in 2010. That said, the broad contour of total IP in recent years is similar to previous estimates, and the dates of the recent peak (September 2007) and the recent trough (June 2009) are unchanged from the earlier estimates. However, the peak-to-trough decline in total IP, at 17.1 percent, is 2.0 percentage points larger than previously estimated. As of February 2011, total IP is now shown to have reversed about 55 percent of its peak-to-trough decline, somewhat less than previously reported.

The revised IP indexes incorporate detailed data from the U.S. Census Bureau's 2009 Annual Survey of Manufactures (ASM), which showed a lower level of annual output than had been previously estimated. In addition to the 2009 ASM, data from selected editions of the Census Bureau's 2009 Current Industrial Reports and annual data from the U.S. Geological Survey regarding metallic and nonmetallic minerals (except fuels) for 2009 were used in the revised estimates. The monthly estimates of production were updated to incorporate late-arriving or revised monthly indicator data (either product data or input data), and they also reflect recalculations of seasonal factors.

The revisions show that the rate of capacity utilization for total industry was about 3/4 percentage point lower than previously estimated in the fourth quarters of 2008 and 2009, as downward revisions to IP were only partly mirrored by downward revisions to estimates of industrial capacity. In contrast, overall capacity utilization in the fourth quarter of 2010, at 76.2 percent, was 0.6 percentage point higher than previously reported.

The revised estimates of capacity and capacity utilization incorporate data from the Census Bureau's Quarterly Survey of Plant Capacity for the fourth quarter of 2010, which covered the manufacturing sector, along with new data on capacity in the energy and mining sectors from the U.S. Geological Survey, the Department of Energy, and other organizations.

Results of the Revision

The tables show the summary statistics for the annual revision. Tables 1A and 1B present the monthly, quarterly, and annual average index levels for total IP and for total capacity and utilization for January 1981 through February 2011, along with the percentage changes in total IP. Tables 2 through 4 show the revised rates of change in IP from 2006 through 2010 for market groups, industry groups, special aggregates, and selected detail. Table 5 presents the revised rates of change in capacity by industry groups for the 2006-10 period. Tables 2 through 5 also show the differences between the revised and previous estimates of the rates of change. Table 6 contains the revised capacity utilization rates for the final quarters of 2007 through 2010 and the differences between the revised and previous estimates. Table 7 reports revised semiannual rates of change for industrial production for 2006 through 2010. Table 8 contains revised capacity utilization rates for the second and fourth quarters of 2006 through 2010. Tables 9A, 9B, 10A, 10B, 11A, and 11B report the revised production, capacity, and utilization series for total manufacturing, total industry excluding selected high-technology industries, and manufacturing excluding selected high-technology industries. Table 12 displays the annual proportions in IP by market and industry groups for 2003 through 2010. Table 13 reports revised IP indexes and capacity utilization rates for the major market and industry groups for the most recent six months. Table 14 shows price indexes for data networking equipment.

Industrial Production

The changes in total IP were revised down for 2008 and 2009 (table 2), but the overall contour for IP during recent years was little changed--moderate gains in 2006 and 2007 are still followed by a steep drop in the index in 2008 and in the first half of 2009; the index still shows a solid gain in the second half of 2009 and in 2010.[1]

Production by Industry Group

Manufacturing production expanded in 2006 and 2007 before contracting sharply in 2008 and in the first half of 2009; the gain in factory output in the second half of 2009 and in 2010 was nearly equivalent to its decline in the first half of 2009.[2] The drop in 2008 was widespread, as output fell for all major manufacturing industries; for most of these industries, the current estimates show steeper declines than were previously reported. The net decline in manufacturing for 2009 as a whole was also broadly based, and the current estimates show larger drops than those reported earlier. For durable goods industries as a whole, output posted a modest gain in 2006 and rose solidly in 2007; the increase over this period was revised up on balance. Durable goods output fell sharply in 2008 and 2009, and those declines are now reported to have been even steeper than previously estimated. For 2010, the production of durable goods moved up strongly, and the gain is now reported to have been a little stronger than the previous estimate. All major categories of durables posted increases in 2010, and, with only two exceptions (machinery, and computer and electronic products), these gains are now reported to have been faster than stated earlier.

Production in nondurable manufacturing industries advanced in 2006 and was little changed in 2007 before falling markedly in 2008 and then moving down modestly in the first half of 2009. Beginning in the second half of 2009, the output of nondurables advanced moderately; by the end of 2010, output was about 6 percent above the level at its 2009 trough but 9 percent below its 2007 level. The rates of change in nondurable production in 2006 and 2007 are nearly identical to previous reports, while the declines for 2008 and for 2009 as a whole are now reported to have been more steep. For the 2008-09 period, the downward revision was concentrated in the indexes for chemicals, for apparel and leather, and for textile and product mills. The bounceback in the output of nondurables in 2010 is a bit stronger than reported earlier.

The output index for industries not in the scope of manufacturing under the North American Industry Classification System (NAICS) (that is, logging and publishing) fell each year from 2006 through 2010. The declines are now reported to have been somewhat smaller in 2006, 2009, and 2010 but notably larger in 2007 and 2008. The index for mining moved up strongly in 2006, posted a much smaller gain in 2007, edged down in 2008, fell substantially in 2009, and then jumped in 2010. On net, the revisions to mining output show rates of change in 2006 and 2009 that are lower than previously reported and a gain in 2010 that is higher. The index for utilities is nearly unchanged from previous estimates, with the exception of 2010, which now shows a stronger gain than reported earlier.

The estimates for selected high-technology industries--computers and peripheral equipment, communications equipment, and semiconductors and related electronic components--were revised modestly, on net, over the 2006-10 period (table 3). Output in the high-technology sector is still reported to have posted robust gains in 2006 and 2007, followed by a decline in 2008. The output of high-technology industries turned up in 2009 and advanced further in 2010. The index for computers and peripheral equipment moved up in each year from 2006 through 2010, except in 2008, when it fell slightly. Relative to earlier estimates, production of computers in 2009 is now considerably stronger; revisions in other recent years are, on net, positive but much smaller. The index for communications equipment recorded a strong gain in 2006, but it fell substantially in 2007 and slipped more in 2008; the index was little changed in 2009 and advanced in 2010. The rates of change for communications equipment are now reported to have been weaker in each year from 2006 through 2010. The output of semiconductors and related electronic components moved up in 2006, 2007, 2009, and 2010 but moved down in 2008; the gain in 2007 was especially strong. These revisions over the 2006-10 period were fairly small, and the gains in 2009 and 2010 are now tempered relative to earlier estimates.

Production by Market Group

The production index for final products and nonindustrial supplies (table 2) posted modest gains in 2006 and 2007 and then fell markedly in 2008 and 2009 before reversing course in 2010. The declines in 2008 and 2009 are steeper than previously reported, and the gain in 2010 is now slightly larger than before.

The production of consumer goods edged higher in 2006 and fell a bit in 2007; it then moved down significantly in 2008 and declined further in 2009. The index moved up in 2010. Compared with previous estimates, output was revised down noticeably in 2008 and 2009; the revisions in other recent years were much smaller. The output of durable consumer goods was little changed, on net, from 2006 through 2007, then dropped steeply in 2008 and declined moderately in 2009; it posted a sizable gain in 2010. Overall revisions were small for the 2006-10 period. Among durable consumer goods, the revised index for automotive products declined sharply in 2008, although by less than reported earlier, and the rebound in 2009 is now larger than before. The index posted a solid gain in 2010. The index for appliances, furniture, and carpeting registered moderate declines in 2006 and 2007 but then tumbled in 2008 and 2009 before moving up somewhat last year. The declines in 2008 and 2009 are now even bigger than reported earlier.

The index for consumer nondurables rose modestly in 2006 and then declined in each of the next three years before moving up in 2010. Relative to earlier reports, the declines are now steeper. The rates of change in the index for consumer nondurable non-energy goods display a similar pattern; the index was little revised in 2006 and 2007, was revised down in 2008 and 2009, and was revised up in 2010. The largest revision occurred in the production of clothing, which is now shown to have fallen substantially more steeply, on net, for 2006 through 2009. The index for consumer energy products posted gains from 2006 through 2008 and did so again in 2010, but it was little changed in 2009.

The production of business equipment increased strongly in 2006, rose modestly in 2007, fell sharply in 2008 and again in 2009, and then moved up significantly in 2010. Relative to previous estimates, the declines in the index were steeper in 2008 and 2009; on net, the revisions to other recent years were small. Among its components, the output index for transit equipment rose solidly in 2006 and 2007 before plummeting in 2008; the drop in 2008 was due partly to weakness in the motor vehicle industry and partly to a strike at a major aircraft producer in the second half of that year. Production advanced markedly in 2009 and 2010, and both estimates--especially the one for 2010--are stronger than reported earlier. The production of information processing equipment expanded in each year from 2006 through 2010, except in 2008, when it posted a modest decline; on net, the rates of change for this market group were revised down. The production of defense and space equipment is now estimated to have risen every year in the 2006-10 period. The rates of change are now noticeably stronger in 2007, 2008, and 2010, and they are moderately weaker in 2006 and 2009.

The output of construction supplies fell modestly in 2006 and 2007 and declined very steeply in 2008 and 2009; in 2010, the index recovered some of the heavy losses from earlier years. Relative to previous estimates, the decreases in 2008 and 2009 are now even greater than reported earlier, and the gain in 2010 is stronger. The production of business supplies rose modestly in 2006 and 2007, tumbled in 2008 and 2009, and then moved up somewhat in 2010. The revisions in this category were relatively small in most years.

The index for materials posted gains in 2006 and 2007 before falling over the next two years and then turning back up again last year. The revisions to the change in output of materials show larger drops in 2008 and 2009, and larger gains in 2007 and 2010, than were reported earlier. Up through 2008, the indexes for durable and nondurable materials show similar patterns: Moderate gains in 2006 and 2007 were followed by steep declines in 2008. In 2009, the output of durable materials continued to contract sharply, but then it rebounded strongly in 2010. The production of nondurable materials was unchanged in 2009 and rose moderately in 2010. Revisions to the indexes for durable and nondurable materials show similar patterns in recent years; most notably, the rates of change for both indexes are lower in 2008, and especially in 2009, than reported earlier. The index for energy materials moved up in 2006 and 2007, declined modestly in 2008 and 2009, and increased sharply in 2010. On net, revisions over the 2006-10 period were negative.

Capacity

Total industrial capacity edged up in 2008 and then declined noticeably in 2009 and 2010 (table 5); capacity was previously estimated to have increased moderately through 2009 and to have edged down in 2010. For 2011, capacity is still expected to increase 1.1 percent. Manufacturing capacity contracted in 2008, 2009, and 2010, and the rates of change for all three years were revised down between 1 and 2 percentage points. From the fourth quarter of 2007 to the fourth quarter of 2010, manufacturing capacity shrank 5.4 percent; previously, capacity was reported to have decreased 0.8 percent, on net, over this period. In 2011, capacity in the manufacturing sector is expected to expand 0.9 percent, slightly stronger than the earlier estimate.

Capacity for the selected high-technology industries expanded somewhat more slowly than previously reported, on net, through 2010, but an upward revision to the rate of change of this measure for 2011 leaves the level of capacity in the fourth quarter of this year little different from the earlier estimate. In the motor vehicle and parts sector, revisions generally left the level of capacity a little higher in recent years than previously reported, though the revised contour of capacity is broadly similar; in particular, after declining nearly 12 percent from 2006 through 2010, capacity is expected to turn up and increase 2.4 percent in 2011. Excluding the selected high-technology industries and motor vehicles and parts, durable manufacturing capacity fell in each year from 2008 through 2011; the revised contour is noticeably weaker than the earlier estimates, in which capacity expanded slightly in 2008, fell less rapidly in 2009 and 2010, and was roughly flat in 2011. Nondurable manufacturing capacity is now estimated to have edged down, rather than to have increased, in 2008 and to have contracted more rapidly in 2009 and 2010; in 2011, capacity is now expected to edge up 0.3 percent rather than advance 1.1 percent.

Capacity at mines expanded from 2007 through 2009 and decreased in 2010; in 2011, the expected increase in capacity more than reverses the decline from the previous year. The gains in 2008 and 2009 are stronger than previously published, while the estimates for 2010 now show a decline rather than no change. Oil and gas extraction capacity steadily increased from 2008 through 2011, while mining capacity elsewhere decreased in every year except 2011, when a small gain is expected. Capacity at electric and natural gas utilities is still estimated to have increased steadily over the 2008-10 period; a downward revision to the rate of change in 2009 is offset by an upward revision in 2010 that leaves the level of capacity in the fourth quarter of 2010 essentially unrevised. In 2011, capacity rises less rapidly than previously projected.

By stage of processing, capacity in the crude stage rose in 2008 and 2009 despite a sharp downward revision in 2009; the decline in 2010 and subsequent reversal in 2011 are both only slightly weaker than in the earlier estimates. In contrast, capacity at the primary and semifinished stages shrunk more substantially in 2009 and 2010 than previously reported, and the small gains in 2008 and 2011 have been reduced somewhat. At the finished stage, capacity is now estimated to have declined in each year from 2008 through 2010; capacity at this stage was previously estimated to have increased in 2008 and 2010. In 2011, capacity at the finished stage is projected to post a solid increase.

Capacity Utilization

In 2007, the rate of capacity utilization for total industry, at 81.1 percent, was 0.7 percentage point above its long-run (1972 through 2010) average of 80.4 percent (table 6).[3] Utilization rates plunged in 2008 and in the first half of 2009, reaching a trough of 67.3 percent in June of that year, before increasing steadily through the end of 2010. Despite these gains, the level in the fourth quarter of 2010, at 76.2 percent, was still 4.2 percentage points below its long-run average. The rate of capacity utilization for total industry was revised down about 3/4 percentage point in 2008 and 2009 but was revised up 0.6 percentage point in 2010.

In manufacturing, the rate of utilization in 2007 was revised down 0.1 percentage point to 79.0 percent, a rate equal to its long-run average. The factory operating rate was revised down 0.8 percentage point in 2008 and 1.1 percentage points in 2009. In particular, the level of the factory operating rate at the June 2009 trough of the recent recession was revised down 1.0 percentage point to 64.4 percent, the lowest level in the history of the series, which begins in 1948. For 2010, the factory operating rate was revised up 0.4 percentage point to 73.4 percent. The rates of capacity utilization for durable manufacturing were revised down in each year from 2008 through 2010, while the rates for nondurable manufacturing were revised down in 2007 and 2008 but were revised up in 2009 and 2010.

As of the fourth quarter of 2010, most major manufacturing industry groups were operating at rates below--and in some cases, far below--their industry-specific long-run averages. In particular, the utilization rates for several industries--textile and product mills, wood products, printing and related support activities, and nonmetallic mineral products--were more than 15 percentage points below their long-run averages. The handful of industries that were operating at rates above their long-run averages included computers and peripheral equipment, communications equipment, and miscellaneous manufacturing.

Capacity utilization in mining was above its long-run average in 2006 through 2008, fell below its long-run average in 2009, and then moved up noticeably in 2010. Relative to the earlier estimates, the utilization rate for overall mining was revised up somewhat in 2007, down a little in 2008, and down more noticeably in 2009. In 2010, the utilization rate for mining stood at 89.1 percent, a rate 0.2 percentage point higher than previously reported and 1.7 percentage points above its long-run average. At electric and natural gas utilities, the rate of capacity utilization was revised up in 2009 and 2010 but down a little in 2008. The rate of utilization at electric and natural gas utilities stood at 81.3 percent in 2010, a rate 5.3 percent below its long-run average of 86.6 percent.

Technical Aspects of the Revision

This revision incorporated new comprehensive data from the 2009 ASM and revised data from the 2008 ASM for manufacturing production. Revised price indexes from the Bureau of Economic Analysis (BEA) and updated price indexes constructed by the Federal Reserve for a few selected industries were also incorporated.[4] In addition, the updated production indexes include revisions to the measures of employment and production-worker hours from the Current Employment Statistics monthly survey by the Bureau of Labor Statistics. The benchmark indexes for logging and publishing (included in the IP index for manufacturing but no longer included in manufacturing under NAICS) were updated through 2009 based on data from the U.S. Forest Service and the Census Bureau.

The revised IP indexes incorporated information from selected Current Industrial Reports for 2010, the Quarterly Survey of Plant Capacity for 2010, and other annual industry reports. The indexes also incorporated revised monthly and quarterly source data on production, shipments, and inventories.

Annual Benchmark Output Indexes

The annual benchmark indexes--defined for each six-digit NAICS industry as nominal gross output divided by a price index--were updated to include new as well as revised information from the 2008 and 2009 ASMs. Industrial production and capacity utilization are structured to follow a single industry classification system, currently 2002 NAICS, from 1972 forward. For the purposes of maintaining a consistent benchmark time series, data from the 2007 Economic Census and the 2008 and 2009 ASMs, originally classified based on the 2007 NAICS, were transformed to the 2002 NAICS system using data from tables on product shipments by industry from the 2002 Economic Census.[5] The Census Bureau plans to issue bridge tables providing a more precise allocation of the data from the 2007 Economic Census into the 2002 NAICS.

Since 2003, the ASM has not included separate data for every six-digit manufacturing industry; data for some industries were included only as part of a larger group of industries. For 2003 through 2006, the IP benchmark indexes were calculated by allocating the data from these combined industries to their six-digit components based on each component's share of the total in both the 2002 and 2007 Economic Censuses. Data from the 2008 and 2009 ASMs were allocated to the component six-digit industries based on shares solely from the 2007 Economic Census.

The deflators for the IP benchmarks primarily reflect industry shipments deflators issued by the BEA in December 2010.

Changes to Individual Production and Capacity Series

Very few production indicators were affected by methodological changes in this revision.

Computers

This revision updates the methods used to calculate four IP series for computers (business desktop computers, consumer desktop computers, business mobile computers, and consumer mobile computers). These four IP series are all components of NAICS 334111. The source data for computers come from IDC and measure quarterly domestic absorption of computers. Up through the third quarter of 2009, the Federal Reserve received detailed information on the absorption of desktop and mobile computers by businesses and by consumers. Beginning with the fourth quarter of 2009, the Federal Reserve acquired information on absorption of only total desktops and total mobiles but did not acquire detailed information on the business and consumer components for these platforms.

This revision adopted a new method of calculating the share of total desktops (or mobiles) that should be attributed to business absorption and the share that should be attributed to consumer absorption. Data from the BEA's national income and product accounts for consumer and business spending on computers are used to extend the business and consumer shares of computer output beyond the end of the IDC data. A strong historical relationship exists between the business and consumer splits in the IDC data and the ratio of personal consumption expenditures on computers to business expenditures on computers.

Series Switched from Using Product Data to Using Production-Worker Hours

Product data used as an indicator for the output of aluminum foundries (NAICS 331521,4) have been discontinued. This revision replaces the discontinued data with production-worker hours from 2007 to the present.

Weights for Aggregation

The IP index is a Fisher index. The weights for manufacturing industries are derived from value-added measures from the Census of Manufactures and the ASM. 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. The weights for aggregation, expressed as value added per unit, were estimated with the latest data on producer prices for the period after 2009. Table 12 shows the annual value-added proportions in the IP index from 2003 through 2010.

Revised Quarterly and Monthly Data

This revision incorporates product data 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 a lag to be included with monthly IP estimates but were available for inclusion in the annual revision.

Revised Seasonal Factors

Seasonal factors for all series were reestimated using data that extend into 2011. Factors for production-worker hours--which adjust for timing, holiday, and monthly seasonal patterns--were updated with data through January 2011. The updated factors for the physical product series, which include adjustments for holiday and workday patterns, used data through December 2010 where available. Seasonal factors for unit motor vehicle assemblies have been updated, and projections through June 2011 are on the Board's website at www.federalreserve.gov/releases/g17/mvsf.htm.

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 www.federalreserve.gov/releases/g17, as are updated data for the annual revision and for all of the regularly issued series on industrial production, capacity, and capacity utilization. Further information on these revisions is available from the Board's Industrial Output Section (telephone 202-452-3197).

A document with printed tables of the revised estimates of series shown in the G.17 release is available upon request to the Industrial Output Section, Mail Stop 82, Division of Research and Statistics, Board of Governors of the Federal Reserve System, Washington, DC 20551.

An expanded version of this release will be published in a forthcoming report that will be available on the Board's website.

[1] In this section, all the rates of change for a full year are calculated from the fourth quarter of the previous year to the fourth quarter of the reference year. Rates of change on a half-year basis are shown in table 7.
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[2] Manufacturing consists of those industries in the North American Industry Classification System definition of manufacturing, plus those industries--logging and newspaper, periodical, book, and directory publishing--that were in the manufacturing sector under the Standard Industrial Classification system.
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[3] Unless otherwise noted, rates of capacity utilization are reported for the fourth quarter of the reference year.
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[4] Price indexes for pharmaceuticals (NAICS 325412), for semiconductors (NAICS 334413), and for most components of communications equipment (NAICS 3342) are constructed by the Federal Reserve from alternative sources. A table that lists annual and quarterly price indexes for the networking equipment component of communications equipment follows the text.
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[5] The 2007 NAICS included about a dozen six-digit manufacturing industries that had different coverage than they did in the 2002 NAICS. One industry included in the 2002 NAICS, Laboratory apparatus and furniture manufacturing (NAICS 339111), was eliminated; its various componenets were distributed among seven different six-digit industries in the 2007 NAICS.
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G.17 Revision Release Tables:

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