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Industrial Production and Capacity Utilization: The 2016 Annual Revision (426 KB PDF) (ASCII)
The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization.[1] Total IP is now reported to have increased about 2 1/2 percent per year, on average, from 2011 through 2014 before falling 1 1/2 percent in 2015.[2] Relative to earlier reports, the current rates of change are lower, especially for 2014 and 2015. Total IP is now estimated to have returned to its pre-recession peak in November 2014, six months later than previously estimated. Capacity for total industry is now reported to have increased about 2 percent in 2014 and 2015 after having increased only 1 percent in 2013. Compared with the previously reported estimates, the gain in 2015 is 1/2 percentage point higher, and the gain in 2013 is 1/2 percentage point lower. Industrial capacity is expected to increase 1/2 percent in 2016.
This revision incorporates newly available annual data on output and prices. The updated IP indexes include new detailed data for manufacturing from the U.S. Census Bureau's 2014 Annual Survey of Manufactures (ASM) as well as revised data from the 2013 ASM. In addition, as a result of the new data on output for 2014, the productivity assumptions that feed into industrial production for subsequent years have been revised downward. The weaker productivity assumptions reflected the expectation that the slower pace of productivity growth for 2011 through 2014, compared with previous years, persisted in 2015 and after.
Other new annual data have been incorporated in addition to the data from the ASM. The IP indexes for publishing reflect new data for 2014 and revised data for 2013 from the Census Bureau's Service Annual Survey. The Census Bureau recently benchmarked the Service Annual Survey to the 2012 Economic Census, which resulted in updated estimates for 2008 through 2012. For logging, the IP indexes were updated with 2014 data from the U.S. Forest Service. In addition, the indexes for metallic and nonmetallic minerals were updated with revised annual data for 2014 from the Department of the Interior's U.S. Geological Survey (USGS). Data on prices from the Bureau of Labor Statistics (BLS) were also incorporated into most of the manufacturing indexes.
The monthly estimates of production have been updated to include late-arriving or revised monthly or quarterly indicator data (either outputs from or inputs to production), and they also now reflect recalculations of seasonal factors. In addition, the method used to calculate the high-frequency indicator for one production index was updated.
In the fourth quarter of 2015, capacity utilization stood at 75.8 percent, a rate nearly 1 1/4 percentage points lower than previously published and more than 4 percentage points below its long-run (1972--2015) average. The downward revision to the overall operating rate resulted from slower growth for IP. Relative to earlier estimates, the utilization rates for total industry from 2012 to 2014 are little changed, as the revision to the rates of change for capacity roughly matched those for IP.
The revised estimates of capacity and capacity utilization incorporated data for the manufacturing sector from the Census Bureau's Quarterly Survey of Plant Capacity Utilization (QSPC) for the fourth quarter of 2015, along with new data on capacity primarily for the energy and mining sectors from the USGS, the U.S. Department of Energy, and other organizations. The revised estimates also include new data on capital spending from the 2013 ASM. Capital expenditures data from the 2014 ASM are not yet available.
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 capacity utilization, along with the percent changes in total IP, for January 1986 through February 2016. Tables 2 and 3 show the revised rates of change in IP from 2011 through 2015 for market groups, industry groups, special aggregates, and selected detail. Table 4 shows the annual rates of change for total IP and for major market and industry groups for 2011 through 2015. Table 5 presents the revised rates of change in capacity by industry groups for 2012 through 2016. 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 fourth quarters of 2012 through 2015; it also shows the differences between the revised and previous estimates. Table 7 reports revised semiannual rates of change for IP for 2011 through 2015. Table 8 contains revised capacity utilization rates for the second and fourth quarters from the second quarter of 2011 through the fourth quarter of 2015. Tables 9A, 9B, 10A,10B,11A, and 11B report the revised production, capacity, and utilization measures for 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 2008 through 2015. Table 13 reports revised monthly IP indexes for the major market and industry groups for September 2015 through February 2016, and it also reports revised capacity utilization rates for the same period.
Industrial Production
Revisions to the changes in total IP show lower rates of change in recent years than were previously estimated (figure 1 and tables 2 and 7).[3] Total IP is still reported to have increased in each year from 2011 to 2014 before falling back in 2015. The gains in 2011 through 2013 are similar to those reported earlier, but the rates of change for 2014 and 2015 are noticeably lower. As currently reported, total IP did not return to its pre-recession peak until November 2014; previously, it was reported to have reached that level in May 2014.
On net, the revision resulted in lower estimates for manufacturing in recent years than stated earlier; the estimates for mining and utilities were little revised. In particular, manufacturing output is currently reported to have increased 2 percent in 2014 and to have been unchanged in 2015, whereas it was previously stated to have advanced about 3 1/2 percent in 2014 and 1 percent in 2015.[4] The cumulative effects of these revisions leave manufacturing IP in February 2016 more than 6 percent below its pre-recession peak.
Production by Industry Group
The revised, smaller increases for manufacturing for 2014 and 2015 resulted from rates of change for many durable and nondurable goods industries that are lower than reported earlier.
The production of durables is currently estimated to have declined 3/4 percent in 2015 after posting average gains of 3 3/4 percent for 2011 through 2014. Previously, it was reported to have advanced 1/2 percent in 2015 and at an average rate of about 3 1/2 percent for 2011 through 2014. As currently estimated, the production of durables in February 2016 is about 1 percent above its pre-recession peak.
Within durables, most industry groups posted gains in output for most years from 2011 through 2014. However, declines in 2015 were widespread, with especially large losses in the output of primary metals and machinery. Relative to earlier estimates, the net gains over the period from 2011 to 2015 are now reported to be lower for every durable goods industry other than nonmetallic mineral products, computer and electronic products, and aerospace and miscellaneous transportation equipment. In particular, the contours for machinery; electrical equipment, appliances, and components; furniture and related products; and miscellaneous manufacturing show much lower growth than previously reported.
The output of selected high-technology industries increased quickly over the period from 2011 to 2014 but barely edged up in 2015 (table 3). The current estimates for growth in 2013 and 2014 are appreciably stronger than the earlier estimates, primarily as a result of higher estimates for communications equipment and semiconductors.
The output of nondurable manufacturing industries declined sharply during the recession and has increased only modestly, on net, since then. The index moved up less than 1/2 percent per year, on average, for the period from 2011 to 2015. With this revision, the growth of output over recent years is now lower than reported earlier; the slower path for output is most notable in 2013 and 2014, when the rates of change for each year have been revised down more than 1 percentage point. The indexes for most major nondurables industries, with the exceptions of food and of petroleum and coal products, remain well below their pre-recession peaks.
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 or was little changed in every year from 2011 to 2015. The revisions took the cumulative decrease over that period from about 17 1/2 percent to about 20 percent, with rates of change lower for 2011, 2012, and 2015 and higher for 2013 and 2014.
The production index for mining fell 8 1/4 percent in 2015 because of declines for oil and natural gas well drilling and servicing over this period. Rates of change for mining output are very similar to previous reports. The output index for electric and natural gas utilities is now reported to have declined slightly more in 2015 than estimated earlier.
Production by Market Group
The production index for final products and nonindustrial supplies grew more than 1 1/4 percent per year, on average, between 2011 and 2014 before falling 1 percent in 2015 (table 2). Relative to previous reports, the rates of change in the index for 2013 through 2015 are now stated to have been lower. In February 2016, the index was more than 8 percent below its pre-recession peak.
The index for consumer goods now shows a weaker post-recession recovery than was previously estimated, with lower rates of change widespread across both the durables and nondurables categories. As currently stated, the output of consumer goods moved up at an average annual pace of 1 percent from 2013 through 2015 after declining 1 1/2 percent in 2012.
Following a sharp decline during the recession, the index for business equipment rose substantially through 2012 and then declined in 2013, moved up in 2014, and came back down somewhat in 2015. Relative to earlier reports, the output gain in 2014 is considerably weaker as a result of lower production across all major components of business equipment: transit equipment, information processing equipment, and industrial and other equipment. The output of business equipment surpassed its early 2008 peak in late 2014 but was nearly 2 percent below its peak as of February 2016.
The production of defense and space equipment fell about 4 percent per year, on average, from 2013 to 2015. As currently published, the decline for 2013 is not as steep as in the earlier estimates, but the drops for 2014 and 2015 are each revised down more than 2 1/2 percent.
After falling sharply during the recession, the output of construction supplies has advanced in every year since. Even with these gains, however, the index in February 2016 was about 18 percent below its pre-recession peak. The index rose about 3 3/4 percent per year in the period from 2012 to 2014, on average, but it moved up only about 1 percent in 2015. The increases in 2014 and 2015 are now reported to be smaller than previously published. Compared with the index for construction supplies, the index for business supplies declined less steeply during the recession and rebounded less sharply during the recovery, and its most recent reading was about 8 percent below its pre-recession peak. Relative to the previously published estimates, gains in the output of business supplies are now more modest in 2014 and 2015.
The output of materials recovered strongly after the recession before falling 2 1/4 percent in 2015. As currently estimated, the gain in 2014 is not as robust as previously estimated and the decline in 2015 is steeper. Still, in February 2016, the index stood 6 1/4 percent above its pre-recession peak.
Within materials, the recovery from the recession has been uneven. The output of durable goods materials grew quickly through 2011, then grew more slowly from 2012 to 2014 before declining in 2015. The output of nondurable goods materials has been more or less flat since 2011. By contrast, the output of energy materials grew rapidly through 2014 before falling about 5 percent in 2015. Relative to earlier estimates, on net, the indexes for durable materials, nondurable materials, and energy materials have all been lower in recent years.
Capacity
After increasing 1 percent in 2013 and 2 percent in both 2014 and 2015, capacity is projected to increase about 1/2 percent in 2016 (table 5).[5] The gain in total industrial capacity in recent years is, on net, close to the previously reported increase, though the advance in 2013 is now about 1/2 percentage point weaker than previously estimated, while the gain for 2015 is stronger by a similar amount.
With this revision, manufacturing capacity now shows a slower post-recession recovery than reported earlier. Most notably, capacity is now estimated to have increased about 1/2 percent over 2013 and 2014 combined, whereas the previous measure showed an expansion of nearly 2 percent. Relative to earlier estimates, the gains in other recent years are now more modest; the increase in the manufacturing capacity index over 2012 through 2015 is about 2 percentage points below the previously reported value.
Capacity in durable manufacturing industries advanced in each year from 2012 to 2015, with average increases of about 2 percent for 2012 and 2013 and slower gains of about 1/2 percent, on average, for 2014 and 2015. Relative to the previous estimates, the additions to durable manufacturing capacity are now reported to be more than 1 percentage point weaker for 2014 and 2015.
For nondurable manufacturing, capacity growth has averaged about 3/4 percent from 2012 through 2015, about the same rate as in the previous estimates as revisions to the individual years roughly offset. Capacity is now shown to have contracted 3/4 percent in 2013; previously, it was reported to have expanded by a similar amount. These lower estimates were primarily due to downward revisions for petroleum and coal products, chemicals, and plastics and rubber products. In other recent years, nondurable manufacturing capacity expanded, and the rates of increase are now reported to have been stronger in 2014 and 2015.
The capacity index for non-NAICS manufacturing fell about 5 percent per year in 2013, 2014, and 2015, primarily because of declines in capacity for newspaper, periodicals, and book publishing. The declines in each of these years are between 2 1/2 and 4 percentage points weaker than those reported earlier.
Capacity at mines increased around 6 1/2 percent, on average, from 2012 through 2015, but it is projected to fall 3 1/2 percent in 2016. Relative to previous estimates, the rate of change for 2014 is now about 1 percentage point less, and the rate in 2015 is about 1 1/2 percentage points more. Capacity at utilities increased about 3/4 percent, on average, from 2012 to 2015. The revised gains are little changed from the earlier estimates.
Capacity at the crude stage of processing recorded gains of 4 percent or more in each year from 2012 through 2015, but it is expected to contract nearly 3 percent in 2016. Relative to previous estimates, the rates of change in capacity at the crude stage are now reported to be higher in 2015 and little revised in other years. Capacity at the primary and semifinished stages increased modestly each year from 2012 to 2015---little changed from previous estimates---and is expected to increase 1 percent in 2016. Capacity at the finished stage increased in 2012, fell back in 2013, and then moved up in each year since. The rates of change were revised down for each year from 2013 through 2015.
Capacity Utilization
Capacity utilization for total industry moved somewhat higher in 2013 and 2014 before falling in 2015.[6] The pullback in 2015 resulted from a large cutback for mining and smaller reductions for both manufacturing and utilities. In the fourth quarter of 2015, capacity utilization for total industry was 75.8 percent, a rate 4.2 percentage points below its long-run average of 80.0 percent and equal to its value in the second quarter of 2011 (table 6 and table 8). Compared with earlier estimates, capacity utilization for total industry is now reported to have been higher in 2012 and 2013 but lower in 2014 and especially in 2015.
The capacity utilization rate for manufacturing was relatively flat in 2012 and 2013; it moved up some in 2014 but fell back slightly in 2015. It has remained at least 2 1/2 percentage points below its long-run average over the entire period from 2012 through 2015. Relative to previous reports, the capacity utilization rates for manufacturing are now modestly higher in 2012 and 2013 and somewhat lower in 2014 and 2015. At 75.6 percent, the rate for February 2016 was 2.9 percentage points below its long-run average.
The utilization rate for durable manufacturing increased in 2013, moved up more solidly in 2014, and then fell back somewhat in 2015. Utilization for durables was about 1 percentage point below its long-run average in the fourth quarter of 2015, as slightly less than half of the major industry groups in table 6 recorded operating rates below their long-run averages.
The utilization rate for nondurable manufacturing has held steady at about 5 percentage points below its long-run average since 2012. The rates for nondurables in 2014 and 2015 were revised down 1 1/2 and 2 1/2 percentage points, respectively, but they were little revised for earlier years. As of the fourth quarter of 2015, the operating rates for all nondurable manufacturing industry groups were below their industry-specific long-run averages (tables 6 and 8), with the rates for apparel and leather and for printing and support more than 10 percentage points below their long-run averages.
Capacity utilization rates for mining trended up from 2010 through 2014, reaching nearly 91 percent, a rate that is 3 1/2 percentage points above its long-run average. Subsequently, the utilization rate fell almost 12 percentage points over the course of 2015, largely because of decreased output and increased capacity in the oil and gas drilling and servicing sector. Capacity utilization rates in mining for recent years were about 1 percentage point of the previous estimates.
The operating rates for utilities have been below their long-run average of 85.8 percent for the past several years; the current estimates are somewhat higher in 2014 and 2015 than previously reported.
TECHNICAL ASPECTS OF THE REVISION
The industrial production (IP) statistics are monthly production indexes that 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. Annual revisions to the industrial production and capacity measures involve (1) incorporating new 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 used to construct the indexes.
This revision includes new annual manufacturing data from the 2014 Annual Survey of Manufactures (ASM), as well as revised data from the 2013 ASM. For most industries, this revision updated the benchmark index deflators with producer price indexes (PPIs) from the Bureau of Labor Statistics (BLS). For a few selected industries, updated price indexes constructed by the Federal Reserve were incorporated.[7] New annual data were also incorporated into several other indexes. The benchmark indexes for metallic and nonmetallic mineral mining were updated with revised 2014 data from the U.S. Geological Survey, and the benchmark indexes for logging and publishing were advanced through 2014 based on data from the U.S. Forest Service and the U.S. Census Bureau.
The revised IP indexes include information from the Quarterly Survey of Plant Capacity Utilization (QSPC) for 2015 and from other industry reports. The indexes also incorporate revised monthly and quarterly source data on production, shipments, and inventories.
Annual Benchmark Real Output Indexes
The annual benchmark output indexes for IP are measures of real gross output at the six-digit North American Industry Classification System (NAICS) level. The Census Bureau provides annual figures for value added and the cost of materials for manufacturing industries, which can be summed to obtain nominal gross output. The benchmark indexes for this revision incorporated revised information for 2013 and new information for 2014 from the ASM.
To obtain individual benchmarks of real gross output, the measures of nominal gross output were 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 through 2014 with the related PPIs.[8]
Methodological Changes to Individual Production Indexes
One production indicator was affected by methodological changes in this revision.
Fertilizer
With this revision, the IP index for fertilizer (NAICS 32531) incorporates information only on the production of the two base fertilizer products---anhydrous ammonia and phosphate rock---and no longer adds to that the output of their downstream products. This change leaves the historical movements in the index largely unrevised.
Adjustments to Market Groups
The industrial production indexes are organized in two main ways: industry groups and market groups. Industry groups reflect a supply-oriented classification where output is grouped based on the NAICS industries of the producers. Market groups reflect a demand-oriented classification where output is grouped according to the purchaser and by how the output is used. An industry's output is often allocated across a variety of market groups. Whenever possible, an industry's market group allocation is determined through detailed product-level data. For example, the IP index for steel mill products (NAICS 3311 and NAICS 3312) uses data from the American Iron and Steel Institute that includes information on the end-market classifications for different types of steel (for example, automotive, construction, or oil patch). These classifications are used to allocate the production of steel mill products to different market groups. For industries where market-level detail is not available, an industry's market group allocation is determined based on information provided in the BEA's Input-Output (I-O) tables, which are issued every five years.
Non-energy Business Supplies
This revision changes the name of one market group: The name ``Non-energy business supplies'' replaces ``General business supplies.'' The components of this group are unchanged.
Weights for Aggregation
The IP system is organized as a hierarchical structure where the finest-level production indexes are aggregated using a version of the Fisher-ideal index formula to construct higher-level measures of production. The weights that are used to combine individual IP measures into more aggregate measures are based on the value added from the industry, calculated as gross output less cost of materials. For IP indexes that are defined at the six-digit (or more aggregate) NAICS level, the value-added weights are derived from the Economic Census or ASM. For IP indexes that cover only part of a six-digit NAICS industry, the aggregation weights were constructed by allocating value added for a six-digit industry across the various components of IP that compose that industry. Data from the Economic Census and ASM on shipments of different types of products within a six-digit NAICS industry were used to determine the share of an industry's value added that was 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.
The weights for aggregation expressed as value added per unit were estimated with data on producer prices for the period after 2014. Table 12 shows the annual value-added proportions in the IP index from 2008 through 2015.
Revised Quarterly and Monthly Data
This revision incorporated 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 of a lag to be included with monthly IP estimates but were available for inclusion in the annual revision.
Revised Seasonal Factors
Seasonal factors for production-worker hours---which adjust for timing, holiday, and monthly seasonal patterns---were updated with data through January 2016. The updated factors for the physical product series, which include adjustments for holiday and workday patterns, used data through December 2015 where available.
Seasonal factors for unit motor vehicle assemblies have been updated, and projections through December 2016 are available on the Board's website at www.federalreserve.gov/releases/g17/mvsf.htm. These factors are based on production data through March 2016 and were revised back to January 1996. The seasonal factors explicitly incorporate the holiday schedule for the vehicle assembly lines specified in the latest collective bargaining agreements with domestic manufacturers.
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. Other changes are listed on the Board's website at www.federalreserve.gov/releases/g17/g17_revision_series.htm.
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.
[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 the production and capacity indexes for the years before 1972 were multiplied by a constant. However, utilization rates and the rates of change in IP for the years before 1972 were not revised.
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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] In this section, all of 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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[4] 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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[5] In this section, all of 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.
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[6] Unless otherwise noted, rates of capacity utilization are reported for the fourth quarter of the reference year.
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[7] 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 data storage devices and for selected components of communications equipment and semiconductors are available on the Board's website at www.federalreserve.gov/releases/g17.
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[8] Overall, at the industry level, the BEA measures and PPI measures are quite similar, as the BEA used weighted product-level PPIs to derive their industry-level shipments deflator.
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