Industrial Production and Capacity Utilization - G.17

Industrial Production and Capacity Utilization: The 2017 Annual Revision PDF ASCII RSS DDP

Release Date: March 31, 2017

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 were small, and the contour of total IP is little changed. Total IP is still reported to have moved up about 22 percent from the end of the recession in mid-2009 through late 2014, to have declined in 2015, and to have moved sideways in 2016. The most notable difference between the current and the previous estimates is that total IP is now reported to have decreased about 2 3/4 percent in 2015, whereas it previously showed a decline of about 1 3/4 percent.[2] The incorporation of detailed data for manufacturing from the U.S. Census Bureau's 2015 Annual Survey of Manufactures (ASM) accounts for the majority of the differences between the current and the previously published estimates.

Capacity for total industry is now reported to have expanded about 1 percent in 2015, a lower rate of increase than was reported earlier. Capacity was little changed in 2016 and is expected to increase 1 percent in 2017. Compared with prior reports, the rates of change in 2016 and 2017 are now a little smaller.

In the fourth quarter of 2016, capacity utilization for total industry stood at 75.8 percent, a rate 0.4 percentage point higher than previously published but still 4.1 percentage points below its long-run (1972–2016) average. Relative to earlier estimates, the utilization rates in recent years are now a little higher.

This revision incorporated newly available annual data on output and prices. In addition to the 2015 ASM (which also includes revised data for 2014), the IP indexes for publishing reflect new data for 2015 and revised data for 2014 from the Census Bureau's Service Annual Survey. For logging, the IP indexes were updated with 2015 data from the U.S. Forest Service. In addition, the indexes for metallic and nonmetallic minerals were updated with revised annual data for 2015 from the Department of the Interior's U.S. Geological Survey (USGS). For mining, data on value added from the 2012 Census of Mineral Industries became available and were incorporated into the weights for the production and capacity indexes. 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 quarterly or monthly indicator data, including information from the BLS's benchmark revisions to the Current Employment Statistics. 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 2016, along with new data on capacity from the USGS, the U.S. Department of Energy, and other organizations. The revised estimates also included new data on capital spending from the 2014 and 2015 ASMs (the 2014 data were not available at the time the 2016 annual revision was published).

RESULTS OF THE REVISION

Industrial Production

The revision resulted in rates of change for manufacturing in 2014 and 2015 that were each about 1/2 percentage point lower than their previously published values, but the estimates for other recent years were little revised.[3] Manufacturing output is now estimated to have advanced 1 1/2 percent in 2014 but to have then fallen back about 1/2 percent in 2015 and only recovered slightly in 2016. The cumulative effects of these revisions leave manufacturing IP in February 2017 more than 5 1/2 percent below its pre-recession peak and about 1 percent below its pre-revision value.

The index for mining is now estimated to have risen somewhat more slowly in 2012, 2013, and 2014 and to have declined more steeply in 2015 than was reported earlier. Prior to this revision, mining output was estimated to have declined about 8 1/4 percent in 2015, but it is now reported to have fallen nearly 11 percent. The revisions to mining output resulted primarily from the incorporation of new data on value added that increased the weight accorded to oil and gas extraction and to oil and gas well drilling and servicing relative to the previous estimates. For utilities, the rates of change are generally similar to the previously published values.

Production by Industry Group

The output of durable goods manufacturers is now reported to have fallen 2 percent in 2015; previously, it was estimated to have declined only 3/4 percent. Within durables, the revisions in 2015 were widespread across industries. The largest downward revision was for the output of machinery, which is now estimated to have fallen 9 percent. The output of nondurables moved up in 2014 and 2015 and was flat in 2016; prior to the revision, the index showed a small decline for 2016.

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 in every year from 2012 to 2016. The declines in 2014 and 2015 are now estimated to be less steep than stated earlier.

Production by Market Group

The index for consumer goods has increased in each of the past few years, and the gains in 2014 and 2015 are now estimated to be a little stronger than reported earlier. In contrast, the rates of change for business equipment are notably lower in the period since 2014. The current estimates for the production of construction supplies and business supplies are lower than previously reported for 2014 and 2015. In addition, the index for materials is now estimated to have fallen more rapidly in 2015, about 4 1/4 percent, with the declines for both energy and non-energy materials steeper than published earlier.

Capacity

Total industrial capacity expanded 1.7 percent in 2014 and 1.1 percent in 2015. The increase in 2014 was virtually the same as reported earlier, but the gain in 2015 is now estimated to have been smaller. Most of the increase for 2014 resulted from a rapid expansion in mining, although that expansion is now less rapid than reported earlier. Capacity at mines declined in 2016 but is expected to increase in 2017. Manufacturing capacity was essentially flat for 2014 and 2015; it increased modestly in 2016 and is expected to do the same in 2017. Capacity at utilities increased more than 2 percent in 2016, a notably stronger gain than reported earlier.

Capacity Utilization

Capacity utilization for total industry moved somewhat higher in 2014, fell back in 2015, and was little changed in 2016.[4] The pullback in 2015 resulted from a large reduction in the rate for mining and from smaller reductions in the rates for both manufacturing and utilities. Compared with earlier estimates, capacity utilization for total industry is now reported to have been modestly higher in the 2013–16 period.

Utilization at manufacturers rose in 2014, fell back slightly in 2015, and edged down again in 2016. It has remained at least 2 1/2 percentage points below its long-run average over the period from 2013 through 2016. The current readings for factory utilization are very similar to the previous reports. Within manufacturing, sizable downward revisions to the utilization rate for durables in 2015 and 2016 were offset by sizable upward revisions to the rate for nondurables.

The utilization rate for durable manufacturing was above its long-run average in 2014, but it fell back in 2015 and slipped further in 2016. By the fourth quarter of 2016, the utilization rate for durables was about 2 percentage points below its long-run average; however slightly fewer than half of the major categories of durables recorded operating rates below their long-run averages.

The utilization rate for nondurable manufacturing has been below its long-run average for several years. As of the fourth quarter of 2016, the operating rates for all nondurable manufacturing industry groups except paper were below their industry-specific long-run averages.

Capacity utilization rates for mining declined sharply in 2015, largely because of decreased output in the oil and gas drilling and servicing sector. The utilization rate for mining was above its long-run average in 2014 but below it in 2015 and 2016. The operating rates for utilities have been well below their long-run average of 85.6 percent for the past several years; the current estimate for 2016 is 1 percentage point lower than previously reported.

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.

Annual revisions to the IP 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.

The current revision also introduces a new published aggregate for chemicals excluding pharmaceuticals and medicine. In addition, new measures of reliability for the major industry aggregates will be published in subsequent monthly G.17 releases.

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 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 2014 and new information for 2015 from the ASM.

New annual data were also incorporated into several other indexes. The benchmark indexes for metallic and nonmetallic mineral mining were updated with revised 2015 data from the USGS, and the benchmark indexes for logging and publishing were advanced through 2015 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 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 2015 with the related producer prices indexes (PPIs) from the BLS.[5] For a few selected industries, updated price indexes constructed by the Federal Reserve were incorporated.[6]

Value-Added Proportions (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; data for 2012 were incorporated in this revision. Figures for value added for mining industries in the years between the quinquennial Economic Census 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 2015.

Revised Quarterly and Monthly Data

This revision incorporated source data on production, shipments, and inventories 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 2016 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 2017. The updated factors for the physical product series, which include adjustments for holiday and workday patterns, used data through December 2016 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 January 2017 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.

Methodological Changes to Individual Production Indexes

There were no methodological changes to individual production indexes in this revision.

Introduction of New Aggregate

This revision introduces a new industry aggregate: chemicals excluding pharmaceuticals and medicines. Within the NAICS structure, the aggregate is constructed as all of NAICS 325 except for NAICS 3254. This aggregate will be publicly available in the G.17 supplementary tables and on the Board's website at www.federalreserve.gov/datadownload/Choose.aspx?rel=G17 through the Data Download Project.

Introduction of New Reliability Estimates for Major Industry Aggregates

With the G.17 release to be issued on April 18, 2017, the Federal Reserve will publish new estimates of the reliability of the reported production indexes and rates of change for total industry, manufacturing, mining, and utilities. The reliability measures will be published for those months that are still subject to revision in a subsequent monthly release.

The reliability estimates for any index level or rate of change report the typical range for that figure after all five monthly revisions are complete. The bottom of the range is computed as the current estimate plus the 15th percentile revision to the real-time estimates dating back to 2008; the top of the range is the current estimate plus the 85th percentile revision. To compute the bottom of the range for the first (or second or any subsequent) estimate of the rate of change for IP, the history (from 2008 forward) of revisions between the rate of change for that estimate and the rate of change for the sixth estimate are sorted, and the value chosen is the one that is above only 15 percent of the observations. This 15th percentile value is then added to the current estimate to determine the bottom of the range. The top of the range is computed in the same way, based on a revision level that is higher than 85 percent of the observations. As monthly information accrues from the first estimate to the second, from the second to the third, and so on, there is less scope for revisions, and the computed range consequently narrows.

A more detailed explanation of the reliability estimates will be available with the publication of the monthly G.17 release on April 18, 2017, on the Board's website at www.federalreserve.gov/releases/g17/g17_technical_qa.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 IP, 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] 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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[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 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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G.17 Revision Release Tables:

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Last Update: March 31, 2017