Industrial Production and Capacity Utilization - G.17

Industrial Production and Capacity Utilization: The 2023 Annual Revision PDF  ASCII RSS DDP

Release Date: March 28, 2023

The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization.[1] On net, revisions to total IP pushed its growth rates slightly lower in recent years; the rates of change for total IP have revised no more than 0.6 percentage point in any year.[2] Similarly, the utilization rates for total industry are little changed from previous estimates.

This revision incorporated detailed data for manufacturing from the U.S. Census Bureau's 2021 Annual Survey of Manufactures (ASM). The aggregate effect of those data was slightly slower growth in overall IP in 2021. The overall picture of the last three years of performance in the industrial sector, however, is unchanged. After contracting sharply in the first half of 2020 because of the pandemic, the industrial sector rebounded later in the year and in 2021, and then exhibited more modest growth in 2022.

In the fourth quarter of 2022, capacity utilization for total industry stood at 79.9 percent, about 1 percentage point above its previous estimate and 0.2 percentage point above its long-run (1972–2022) average. Most of the upward revision to utilization reflects modest downward revisions to estimates of capacity. The utilization rates for 2019 to 2021 are close to previous estimates—within 1/2 percentage point—and revisions to earlier years are very small.

Annual capacity growth for the industrial sector is revised down by about 3/4 percentage point per year, on average, in 2021 and 2022; earlier-year revisions are very small. Capacity for total industry at the end of 2022 is now estimated to be nearly 1 percent lower than at the end of 2018, as opposed to about 1 percent higher prior to the revision.

This revision incorporated newly available annual data on both output and prices. As noted earlier, the updated IP indexes incorporated new data for manufacturing from the U.S. Census Bureau's 2021 ASM. For publishing, the IP indexes folded in data for 2021 from the Census Bureau's Service Annual Survey. In addition, the indexes for metallic and nonmetallic minerals were updated with revised annual data for 2020 and with new data for 2021 from the 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 quarterly or monthly indicator data, including information from the BLS's benchmark revisions to the Current Employment Statistics. The IP estimates also reflect updated seasonal factors.

The revised estimates of capacity and capacity utilization incorporated data from the Census Bureau's Quarterly Survey of Plant Capacity Utilization for the fourth quarters of 2021 and 2022 along with new data on capacity from the USGS, the Energy Information Administration, and other organizations. The revised capacity estimates also included new data on capital spending from the 2021 ASM.

RESULTS OF THE REVISION

Industrial Production

Manufacturing output is now estimated to have been about 3 percent lower in the fourth quarter of 2020 than it was a year earlier; it moved up about 3-1/2 percent in 2021 and another 3/4 percent in 2022. The rates of change for 2020 and 2021 are respectively about 1/2 percentage point and 3/4 percentage point weaker than the estimates published previously, whereas the rate of change for 2022 is about 1/4 percentage point stronger. Manufacturing output is now estimated to have dropped more than 19 percent between February 2020 and April 2020 because of the pandemic, about the same as was previously reported. Factory output has recovered since then, and the index for February 2023 is currently reported to be about 3/4 percent above its pre-pandemic level, about 1/2 percentage point less of a gain than the pre-revision estimate.

The revised contour for mining output shows a sharp drop in the first half of 2020 and a substantial rebound later in 2020 and in 2021, followed by continued but more moderate growth in 2022. The rates of change are broadly similar to those published previously, although the gains in 2021 and 2022 are now each about 3/4 percentage point weaker, and the drop between the fourth quarters of 2019 and 2020 is about 1/3 percentage point smaller. The index for mining currently stands about 3-1/4 percent below its pre-pandemic level; before the revision, the index was 2-1/3 percent below its pre-pandemic level. The rates of change for utilities output are little changed from their previously reported values.

Production by Industry Group

The output of durables decreased sharply in the first half of 2020 before increasing later in the year and in 2021 and 2022. Relative to the previous estimates, the net decline over 2020 is modestly steeper, the gain in 2021 is more moderate, and the increase in 2022 is stronger. The cumulative downward revision to output growth for durables from 2020 through 2022 was about 1-2/3 percentage points.

The index for nondurables was little changed after the revision. Among nondurable manufacturing industries, the revisions to the rates of change were mixed, with the indexes for textiles and product mills and paper revising downward for 2021 and the indexes for plastics and rubber products revising upward for the same period.

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—has been recording declines for several years, and it continued to fall each year in the 2020–22 period. However, the declines in 2020 and 2021 are now reported to have been noticeably smaller than previously published, while the decrease in 2022 is somewhat larger.

Production by Market Group

The index for consumer goods now shows slightly less output in the 2020–22 period than previously reported. The rate of change for business equipment revised down in 2020 and 2021, but revised up strongly in 2022. Relative to earlier reports, the index for defense and space equipment now records noticeably slower growth over the 2020–22 period.

Revisions to the index for construction supplies were very small. The index for business supplies revised up incrementally for 2020, 2021, and 2022 relative to earlier reports. The output of materials was little changed cumulatively from previously reported values.

Capacity Utilization

Capacity utilization for total industry decreased in 2019 and 2020 before moving up in 2021 and 2022; the reading in February 2023 was 79.1 percent, about 3/4 percentage point below its 1972–2022 average. Previous estimates displayed a similar contour, with the main difference being that now utilization moves up modestly in 2022 rather than remaining essentially flat. The upward revision to utilization for total industry in 2022 is due primarily to higher operating rates at mines than in previous estimates.

Utilization at manufacturers moved down about 3-1/4 percentage points from 2018 to 2020 before increasing in 2021 back to its 2018 level. The factory operating rate in February 2023 was 78.3 percent, essentially matching its long-run average. Relative to the previous estimates, the current readings for manufacturing utilization are slightly higher over recent history. Revisions to utilization rates for 2022 were mixed among manufacturing industries and largely offsetting. The largest upward revisions in operating rates for 2022 occurred in wood products, in nonmetallic mineral products, in printing and related support activities, and in petroleum and coal products; the largest downward revisions in operating rates for 2022 occurred in electrical equipment, appliances, and components; plastics and rubber products; and aerospace and miscellaneous transportation equipment.

The capacity utilization rate for mining dropped 19 percentage points from 2018 to 2020 before rebounding in 2021 to 87.6 percent, about 1 percentage point above its long-run average. Relative to its previously published rate, utilization at mines for the fourth quarter of 2022 is about 2-1/2 percentage points higher. The operating rate for utilities declined about 8 percentage points from 2018 to 2021 before rising modestly in 2022 to 73.9 percent, 10-3/4 percentage points below its long-run average.

Capacity

Total industrial capacity fell about 3/4 percent and 2 percent in 2020 and 2021, respectively, with decreases in manufacturing and mining partly offset by increases for utilities. In contrast, overall capacity rose 1 percentage point in 2022 and is expected to rise 1-1/2 percentage points in 2023. Compared with previous estimates, overall capacity growth is now modestly weaker; in particular, the decline in 2021 is somewhat larger, and the increase in 2022 is somewhat smaller.

Manufacturing capacity is now reported to have contracted about 3/4 percentage point per year, on average, from 2018 to 2021, just a touch more negative than was reported earlier. The downward revisions to manufacturing capacity growth during this period were concentrated primarily in nondurable manufacturing industries. Manufacturing capacity expanded about 3/4 percent in 2022 and is expected to grow by 1-1/4 percent in 2023.

Mining capacity rose in 2018 and 2019 before falling back by an equivalent amount in 2020 and 2021; the level of capacity in 2021 was roughly back to its 2017 value. Capacity grew about 2 percent in 2022 but is expected to contract about 1/3 percentage point in 2023; these estimates are, on average, weaker than the previous estimates. Capacity for electric and gas utilities rose at a pace of 2-1/3 percent per year, on average, from 2019 to 2022 and is expected to grow somewhat faster in 2023. Revisions to the rates of utilities capacity growth were, on net, very small.

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 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 generally involve (1) incorporating new and 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; (4) updating the methods used to construct the indexes; and (5) introducing changes to the industry- or market-group structure of the indexes based on changes to underlying data sources.

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 (2017) 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 manufacturing for this revision incorporated information for 2021 from the ASM.

New annual data were also incorporated into many other indexes not in the scope of the ASM. The benchmark indexes for metallic and nonmetallic mineral mining were updated with any newly available data from 2020 through 2022 from the USGS, and the benchmark index for publishing was advanced through 2021 based on data from the U.S. Census Bureau.

Prices

Individual benchmarks of real gross output are obtained by deflating the measures of nominal gross output 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 2021 with the related producer price indexes (PPIs) from the BLS.[3] However, for a few selected industries, the annual price deflators are constructed by the Federal Reserve.[4]

Value-Added Proportions (Weights for Aggregation)

The IP system is organized as a hierarchical structure where individual production indexes are combined using a version of the Fisher-ideal index formula to construct aggregate indexes of production. Utilization rate aggregates are calculated on an annual basis through the most recent year as capacity-weighted aggregates of individual utilization rates.

The weights that are used to combine individual IP indexes into more aggregate indexes are based on the value added from the industry, calculated as gross output less cost of materials. For individual IP indexes 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 ASM. For IP indexes that cover only part of a six-digit NAICS industry, the aggregation weights were 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.

The allocation of value added across each component was determined by that component's share of the industry's overall product shipments. As in the 2022 annual revision, this annual revision used data on product shipments based on the new 2017 North American Product Classification System (NAPCS). In earlier revisions, product shipments were classified based on NAICS and were included as part of the Census of Manufactures or the ASM. NAPCS is coded independently of NAICS, and a concordance was required to align the recent data with the historical data for the period before 2017. Missing values for specific NAPCS-based products were imputed where necessary.

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. Figures for value added for mining industries in the years between the quinquennial Economic Censuses are estimated based on industry-specific nominal output measures (the product of real output indexes and price indexes).

The weights for aggregation, expressed as value added per unit output, were estimated with data on producer prices for the period after 2021.

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.

Revised Seasonal Factors

IP indexes are adjusted to remove from the underlying data the predictable movements related to timing, holiday, workday, and monthly or quarterly seasonal patterns. Individual indexes are adjusted using the Census X-13ARIMA-SEATS seasonal adjustment program. The seasonal factors are based on the full history of data back to 1972, where available.

Seasonal factors for indexes based on production-worker hours were updated with data through January 2023. The updated factors for the physical-product-based indexes used data through December 2022 where available. Extreme movements in indexes are often explicitly treated as additive outliers in the seasonal adjustment procedure and thus excluded from the calculation of seasonal factors. Hurricanes that produce extreme drops for industries based in the Gulf Coast region are often specified to be outlier events. In recent years, the pandemic-related swings in most of the indexes were deemed outliers; in addition, February 2021 was deemed an outlier for many industries because of the extreme cold weather that caused widespread outages.

Seasonal factors for unit motor vehicle assemblies have been updated, and projections through June 2024 are available on the Board's website at https://www.federalreserve.gov/releases/g17/mvsf.htm. These factors are based on production data through January 2023 and were revised back to January 2018. 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 and Capacity Indexes

Change in Source Data for Three Production Indexes

With this revision, the source data for three indexes for original equipment motor vehicle parts were modified. Previously, the indexes reflected data on production of major vehicle components (engines, brakes, axles, and transmissions) from Stark's News Service, as well as data for production-worker hours by industry and for light vehicle production. The data on the direct production of components, however, were discontinued so beginning in 2022 these three series are based just on production-worker hours for the industry and on light vehicle production.

Change to Price Indexes for Semiconductors

With this revision, the price indexes used to deflate the nominal output of two semiconductor (chip) categories have been modified. For microprocessor units (MPUs), a price index based on "hedonic" analysis of the relationship between model prices and characteristics is used through 2015. Previously, this index was extended using the producer price index published by the BLS adjusted by the average historical relationship between the BLS index and the hedonic index. In light of analysis indicating that MPU performance on benchmark tests designed to mimic representative MPU uses is highly correlated with the number of transistors found on MPUs, the hedonic index is now extended using an implicit price index calculated as the nominal global output of MPUs published by the Semiconductor Industry Association (SIA) divided by a staff estimate of the number of transistors used in MPUs based on data from Semiconductor Equipment and Materials International.

Similarly, staff analysis found that the performance of graphics processing units (GPUs) on benchmark tests is highly correlated with the number of transistors on GPU models. GPUs are an example of processors designed for narrow purposes—in contrast to MPUs, which are general-purpose processors—that make up the majority of the chips found in a sub-industry IP index for metal-oxide semiconductor (MOS) logic devices excluding MPUs and MOS memory chips. Previously, nominal output for this category of chips was deflated by a geometric mean of the price indexes for MPUs, MOS memory chips, and an index based on average prices for other MOS logic types provided by the SIA. With this revision, the SIA-based component of the index has been replaced beginning in 2008 with an implicit price index based on global nominal output of other MOS logic devices divided by a staff estimate of transistors.

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 https://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 https://www.federalreserve.gov/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 were unchanged before then.
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[2] Rates of change are calculated as the percentage 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] The BEA price deflators were discontinued at the six-digit NAICS level after 2011. 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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[4] 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).
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Last Update: March 28, 2023