Board of Governors of the Federal Reserve System

Performance Evaluation of the Federal Reserve G.17 (419) Statistical Release — June 2017

III. Analysis of Revisions

III.A. Industrial Production

The monthly indexes of industrial production are first estimated based on only a portion of their ultimate full set of monthly data; they are revised to incorporate more complete monthly data that become available over the six-month window and then again to incorporate more comprehensive information and annual data in an annual revision that may affect data for several years. Information about revisions to the index of industrial production is presented in three ways.

First, as noted in section II.B, with the G.17 released on April 18, 2017, the Federal Reserve began monthly publication of reliability estimates of the recent levels and rates of change for the total index and for major industry aggregates. These new estimates are published in table 15 of the G.17 release, and real-time estimates for these reliability measures are included in the file that contains the history of the real-time estimates for the aggregate IP indexes.

Second, the discussion of the reliability of the total IP index in the Explanatory Note section of the G.17 highlights the revisions over the four-month reporting window that was used prior to the introduction of a six-month reporting window in April 2008; with the upcoming 2018 annual revision, the Explanatory Note will be expanded to include revisions over the six-month reporting window, as ten years of data will then be available on the longer basis. The average revision to the level of the total IP index, without regard to sign, between the first and the fourth estimates was 0.27 percent during the 1987–2015 period. The average revision to the percent change in total IP, without regard to sign, from the first to the fourth estimates was 0.21 percentage point during the 1987–2015 period. In most cases (about 85 percent), the direction of change in output indicated by the first estimate for a given month is the same as that shown by the fourth estimate. As mentioned in section II.B, the monthly revision history for total IP back to 1972 (as well as shorter revision histories for manufacturing, mining, and utilities) is available on the Federal Reserve's public website.

Third, the press releases and subsequent addenda for the annual revisions discuss revisions associated with the incorporation of benchmark data into the industrial production indexes. The incorporation of benchmark data has the potential to noticeably change the interpretation of activity in the industrial sector in the years covered by these data. For the period from 1992 through 2015, the annual rate of change for total IP has ranged from a drop of 11.5 percent to a gain of 7.2 percent. Over that period, the index prior to the incorporation of manufacturing benchmark data has been essentially unbiased; the average revision to the rates of change upon inclusion of the benchmarks for those years is -0.2 percentage point. In 16 of those 24 years, the absolute value of the revision was less than 1 percentage point; the mean absolute revision for the entire period was 0.8 percentage point, with the maximum upward revision being 1.6 percentage points and the maximum downward revision being 1.9 percentage points.

III.B. Capacity Utilization

On a monthly basis, utilization rates are updated to reflect revisions to the underlying production series during the usual reporting window of the production index. From 1983 to 2016, the average revision between the first and second estimates of total industry capacity utilization (except where the second estimate is the publication of an annual revision) was 0.02 percentage point, and the average revision without regard to sign was 0.15 percentage point. Between the second and third estimates, the average revisions with and without regard to sign were 0.02 and 0.11 percentage point, respectively. And between the third and fourth estimates, the average revisions with and without regard to sign were 0.01 and 0.07 percentage point, respectively. The average cumulative revision over a four-month reporting window, if no annual revision occurred during the window, was 0.05 percentage point, and without regard to sign, the average cumulative revision was 0.21 percentage point.

On a longer-term basis, the revisions to the measures of capacity utilization were examined by comparing the capacity utilization rates published in the last 19 annual revisions of industrial production and capacity utilization with their pre-revision levels. For each of the 19 annual revisions, the revisions to the operating rates for total industry were calculated for the final quarters of the three most recent years: For example, in the annual revision published in March 2017, the total industry capacity utilization rate revised up 0.3 percentage point in the fourth quarter of 2014, 0.2 percentage point in the fourth quarter of 2015, and 0.3 percentage point in the fourth quarter of 2016. Over the last 19 years, the average revision to the most recent three years of total industry capacity utilization has been -0.1 percentage point; the average revision without regard to sign has been about 0.45 percentage point.