Release Date: November 7, 2005
Release dates | Historical data | Documentation
INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION:
The Federal Reserve has revised the index of industrial production (IP) and the related measures of capacity and capacity utilization for the period from January 1972 through September 2005. Overall, the revisions to the rates of change for total industrial production are small. Measured from fourth quarter to fourth quarter, industrial output is now reported to have contracted a bit more in 2001 and to have increased slightly faster in 2002, 2003, and 2005 than previously reported.  The upward revisions to 2003 and 2005 were relatively small; the gain in 2004 is the same as stated earlier.
In addition to the revisions to the monthly data for IP and capacity utilization starting in 1972, all production and capacity indexes are now expressed as percentages of output in 2002; previously, the comparison base year was 1997. The rebasing affects all series from their start dates: 1919 for total IP and manufacturing IP, 1948 for manufacturing capacity, and 1967 for total industrial capacity.
As of the third quarter of 2005, the rate of industrial capacity utilization--the ratio of production to capacity--was a little higher than previously stated; at 79.8 percent, the rate was 1.2 percentage points below the 1972-2004 average. For the fourth quarter of 2004, capacity utilization was revised up 0.6 percentage point, to 79.4 percent. Upward revisions to the operating rates for manufacturing and mining more than offset a downward revision to the operating rate for utilities.
The revision indicates that industrial capacity increased at a faster rate in 2001, 2002, and 2005 than reported earlier. The rate of change for 2003 was unrevised, and the current estimates for 2004 point to a slower expansion than reported earlier.
The updated measures of production and capacity reflect the incorporation of newly available, more-comprehensive source data and improved methods for compiling a few series. The new annual source data are generally for 2003 and 2004, and the modified methods affect indexes largely from 1997 forward.
The revision introduces a change in the underlying source data for series that had been based primarily on electric power usage. The monthly indicators for these series have been changed to production-worker hours for the period from 1997 forward.
The statistical revisions to the IP index were principally derived from the inclusion of information contained in annual reports issued by the Bureau of the Census--namely, the 2003 Annual Survey of Manufactures, the revised 2002 Census of Manufactures, and selected 2004 Current Industrial Reports. New government source data include annual data on minerals for 2003 and 2004 from the U.S. Geological Survey (USGS) and updated deflators from the Bureau of Economic Analysis. In addition, the new monthly production estimates reflect updated seasonal factors and monthly source data that became available (or were revised) after the closing of the regular four-month reporting window.
The capacity indexes and capacity utilization rates incorporate the revised production indexes, results from the Census Bureau�s 2004 Survey of Plant Capacity for the fourth quarter of the year, and newly available data on industrial capacity from the USGS, the Energy Information Agency of the U.S. Department of Energy, and other organizations.
RESULTS OF THE REVISION
The tables show the summary statistics for the annual revision. Tables 1.A and 1.B show the monthly, quarterly, and annual average levels and rates of change for industrial production and for capacity for 1975 through 2005. Tables 2 and 3 show the revised rates of change of industrial production for market groups, industry groups, special aggregates, and selected detail for 2001 through 2005. Table 4 shows the annual average rates of change for selected detail in industrial production. Table 5 shows the revised figures for capacity. Tables 2, 3, 4, and 5 also show the difference between the revised and earlier rates of change. Table 6 shows revised utilization rates for the final quarters of recent years (the third quarter was used for 2005) and the difference between revised and previous rates. Tables 7.A, 7.B, 8.A, 8.B, 9.A, and 9.B report the revised production, capacity, and utilization series for manufacturing, for total industry excluding selected high-technology industries, and for manufacturing excluding selected high-technology industries.
The revision indicates that the overall path of industrial production is much the same as stated earlier. Relative to previous reports, the current estimates for manufacturing IP indicate a marginally steeper decline in 2001 (measured from the fourth quarter of the preceding year to the fourth quarter of the year indicated) and a faster increase in 2002. The increases in 2003, 2004, and 2005 were little changed from earlier estimates.
On an annual average basis (table 4), manufacturing production was unrevised in 2001 and 2004. Manufacturing output in 2002 and 2003 was revised upward about 1/2 percentage point per year; these increases reflect revisions to the 2002 Census of Manufactures and the incorporation of the 2003 Annual Survey of Manufactures.
Across industry groups (table 2), the revision indicates that the output of durable goods declined more in 2001 than stated earlier, but since then it has risen at a faster pace. The overall contour of this index shows solid gains for the past few years--on average more than 5 percent per year from 2002 forward. All major durable goods industries posted gains in 2004, and many showed continued strength in 2005. Primary metals was the only industry with a notable decrease in production so far this year.
Overall, the index for nondurable manufacturing is little changed from earlier estimates. The output of nondurables declined notably in 2001 and advanced strongly in 2004; the swings in other recent years were less pronounced. On balance, the output indexes for textile and product mills and for apparel and leather have registered sharp declines in recent years, whereas the indexes for food, beverage, and tobacco products; petroleum and coal products; chemicals; and plastics and rubber products all posted gains.
Regarding a few special aggregates (table 3), the revision shows little change to the aggregate for selected high-technology industries--computers and peripheral equipment, communications equipment, and semiconductors and related electronic components. However, the small revisions to the aggregate mask somewhat larger revisions to each of the components. The production of computers is now estimated to have declined in 2002 and to have risen less in 2003 and 2004 than was reported earlier; the output gain in 2005 is nearly the same as earlier estimates. For communications equipment, the revision shows a steeper drop in production in 2002 and a more moderate recovery in 2003 than previously stated; output is now estimated to have risen more rapidly in 2004 and 2005. The index for semiconductors has risen rapidly since a small decline in 2001; the revision shows a slower increase in 2004 than reported earlier but a more rapid increase in other recent years, particularly in 2003.
Production by Market Group
Among major market groups, the revision shows little change in the production index for final products and nonindustrial supplies for recent years; this index declined in 2001, posted moderate gains in 2002 and 2003, and increased more rapidly in 2004 and 2005. Overall, the revisions to consumer goods were small for recent years, and the index still shows a general climb since dropping back in 2001. Most of the revisions within consumer goods were small; however, new data yielded a notable downward revision to home electronics for 2003, which resulted in less of an increase than stated earlier.
The production of business equipment is now reported to have been somewhat weaker, on balance, in the 2001-05 period than in earlier estimates; a downward revision to information processing equipment is largely responsible for the lower 2003 estimate. The index declined in 2001 and 2002 but has risen since then. Production of defense and space equipment has increased in recent years, particularly in 2004 and 2005; however, the revision indicates smaller gains in 2002 and 2005 than stated previously and a larger gain in 2004. The indexes for construction and business supplies were revised little for recent years; output in these two market groups dropped in 2001 but has risen in each year since. From 2002 through 2004, the gains in the output of materials were revised up about 0.7 percentage point per year; 2005 showed a smaller upward revision, and 2001 showed a downward revision of 1/2 percentage point. Production of materials has advanced in every year since the end of 2001; the largest increases were in 2002 and 2004. The production of non-energy materials was revised up, overall, in the 2001-05 period; within this group, the index for durable materials was revised a bit more than the index for nondurable materials. The output of energy materials was nearly unchanged for 2001-03; the index was revised up a bit in 2004 and down a similar amount in 2005.
The revision did not change the overall contour of manufacturing capacity. Capacity still shows a rapid acceleration in the second half of the 1990s, followed by a deceleration through 2004 (including a small decline in 2003) and a moderate pickup in 2005. The expansion in 2004 is now reported to have been less than estimated earlier, and the increase in 2005 is somewhat stronger. Among selected high-technology industries, the revision suggests a slower expansion of capacity in 2003 and 2004 than reported earlier; however, for 2005, high-technology capacity expanded more rapidly than stated previously--20.8 percent.
Capacity in mining is now estimated to have decreased in each of the past four years and has declined, on balance, more than previously estimated. In contrast, capacity at electric and gas utilities accelerated sharply from 2001 to 2004 and flattened out in 2005; the current estimates for 2005 are lower than previously reported.
By stage of process, capacity in the crude stage, which has contracted since 2001, is now estimated to have been somewhat weaker, on balance, in the 2001-05 period than reported earlier. Relative to previous reports, the capacity index for the primary and semifinished stages increased more in 2001, 2002, and 2005, declined less in 2003, and increased less in 2004. Among finished goods producers, capacity expanded throughout the 2001-05 period. Relative to earlier reports, the current estimates suggest more acceleration in 2002, 2004, and 2005 and a little less in 2001; the estimates for 2003 were unrevised.
Capacity utilization for total industry revised up in recent years, although the revisions were relatively small; for the third quarter of 2005, utilization stood at 79.8 percent, a rate 0.4 percentage point higher than previous estimates suggested but 1.2 percentage points below its long-term (1972-2004) average.
The factory operating rate reached 78.6 percent in the third quarter of 2005 after an upwardly revised reading of 78.2 percent in the fourth quarter of 2004 and an unrevised 74.7 percent in the fourth quarter of 2003. Within manufacturing, the current revision places the overall utilization rates in recent years for durable goods manufacturers somewhat higher than previously stated, especially in the fourth quarter of 2004 and the third quarter of 2005. The utilization rates for manufacturers of nondurables were relatively unchanged from earlier estimates. Capacity utilization in the other (non-NAICS) manufacturing industries is now lower than previously reported, and the recent increases are smaller than those stated earlier.
Among selected high-technology industries, utilization is now reported to have been lower in the fourth quarter of 2003 but higher in the last available quarters of 2004 and 2005. The lower estimate for 2003 is largely attributable to a downward revision to utilization in the communications equipment industry. Higher utilization rates for producers of semiconductors and related electronic components account for much of the upward revision in 2004 and 2005. Excluding these high-technology industries, capacity utilization for manufacturing is little changed.
Capacity utilization in mining was revised upward, to 88.3 in the fourth quarter of 2004 and to 86.1 in the third quarter of 2005; these estimates are, respectively, about 1 percentage point above and below the index's long-term average. Improved capacity estimates of support activities for mining accounted for much of the recent revisions. The utilization rate for electric and gas utilities in the third quarter of 2005 was little changed by the revision and stood at 87.3 percent, a rate that is 1/2 percentage point above its long-term average.
TECHNICAL ASPECTS OF THE REVISION
The revision incorporates updated comprehensive annual data and revised monthly source data used in the estimation of production, capacity, and utilization. As noted earlier, this revision includes information drawn from the 2003 Annual Survey of Manufactures. This revision also incorporates the 2004 Survey of Plant Capacity, other annual industry reports on output and capacity, recent information on prices, and revised monthly source data on physical products and on labor and electricity inputs. Along with the individual production series and seasonal factors, the annual value-added weights used in aggregating the indexes to market and industry groups were also updated.
Changes to Benchmark Indexes
The benchmark indexes for manufacturing--defined for each six-digit NAICS industry as nominal gross output divided by a price index--were updated to include new information from the 2003 Annual Survey of Manufactures (ASM) and revisions to the estimates from the 2002 Census of Manufactures.
The benchmark indexes for most industries incorporated updated price indexes from the industry output program of the Bureau of Economic Analysis (BEA). One exception is the benchmark index for semiconductor manufacturing. For this industry, the Federal Reserve constructs a price index from alternate sources. This price index falls faster than the BEA index, so the Federal Reserve's measure of real output in this industry rises faster than the comparable BEA measure. If the BEA price index were used in place of the Federal Reserve's index, the output of semiconductors would have risen 33 percent less, on average, per year from 1997 to 2003.
The price indexes used for most components of communications equipment are also constructed by the Federal Reserve and were updated in this revision. Quarterly price and production indexes for networking equipment (routers, switches, and hubs) are discussed below. Among non-networking equipment, industry and government sources on prices for central office equipment, fiber optic equipment, PBX equipment, consumer telecommunications equipment, and wireless infrastructure equipment were used to extend previous work through 2004.
Another change to the benchmark indexes for 2003 involved the recalculation of nominal gross output. Before the 2004 annual revision, nominal gross output for an industry was calculated as the cost of materials plus value added. In the 2004 revision, the benchmark index from 1997 to 2002 was instead calculated with gross output defined as the traditional figure less the cost of resold goods (those goods purchased by a manufacturer and then resold without any material transformation). The 2003 ASM, however, did not include detailed data for the cost of resold goods; in this revision, the nominal gross output used to compute the benchmark changes for 2003 was calculated with the traditional method.
The 2003 ASM also featured a reduction in its industry detail. Previous Annual Surveys of Manufactures reported results for every six-digit NAICS industry (473 in manufacturing under the 2002 NAICS). For 2003, however, the reports combined 239 of those six-digit industries into 88 higher-level industry aggregates. The benchmark indexes for manufacturing IP are calculated from gross output for six-digit industries and then aggregated to the IP industry level (210 industries, each one comprising one or more six-digit NAICS industries) using proportions based on value added. To maintain benchmark references that were consistent over time, the Federal Reserve imputed estimates of gross output and value added for those six-digit industries that were dropped from the ASM. For each unreported industry, the imputations were based on values for the aggregate industry that contained it and the shares of the unreported industry in the aggregate in 2002.
The loss of the detail in the ASM probably had only a small effect on the IP industry benchmarks. All but eight of the IP industries are entirely composed of industries or industry combinations that were reported in the ASM. The other eight industries, which constitute about 3 percent of total IP, are all six-digit NAICS industries, so any effects of the imputation of nominal gross output would mostly cancel out at the five-digit NAICS industry level.
Changes to Individual Production Series
With this revision, the monthly production indicators for some series have changed. The source data for production indexes for the following twenty industries, which constituted 10.9 percent of IP in 2004, have been changed from electric power use to production-worker hours for 1997 to the present:
The IP indexes based on product data usually reflect measures of production, but some have been based on manufacturers� shipments (the implicit assumption being that the factory inventories do not change). In this revision, the procedure that was introduced in the 2004 annual revision for estimating inventories of the machine tool industry was expanded to the following twenty-one industries (with a total weight in IP of 6.6 percent in 2004), for which shipments are the high-frequency indicator:
This revision also incorporates new indicators based on product shipments for four industries. Previously, these industries were estimated from production-worker hours. A model-based estimate of the change in inventories is added to the index derived from shipments to compute a production index for each of the following industries:
With this revision, the monthly indicator for semiconductor manufacturing equipment (NAICS 333295) from 1992 and forward is based on data on billings for front-end semiconductor equipment from Semiconductor Equipment and Materials International, an industry association; the billings data are deflated by the producer price index for the industry. The indicators for bare printed circuit boards (NAICS 334412) and for printed circuit assemblies (NAICS 334418) are now constructed from a weighted average of shipment indexes of flexible and rigid circuit boards (data from the IPC Association of Electronic Connecting Industries) that is deflated by a producer price index. The output indicator for boats (NAICS 336612) is derived from data from the National Marine Manufacturers Association for the period from 2002 forward; a Fisher quantity index is computed from unit shipments and values for the following types of watercraft:
The new product-based production indexes constituted 1.1 percent of IP in 2004. The table below
summarizes the type of data (measured as a percent of value added in 2004) available in each month of the
four-month IP publication window.
The revision incorporates refined methods for a few series. The production indicator for boilers, heaters, and furnaces (NAICS 333414 pt.) is now based on the quarterly output of boilers (data from the Gas Appliance Manufacturers Association). The data for heaters and furnaces that were previously used to construct the index are no longer available. The production indicator for machine tools (NAICS 333512, 3) now uses producer price indexes to deflate nominal shipments for a few of its component categories; formerly, these categories used implicit deflators that were computed as the ratio of shipment values to units from the Census Bureau's Current Industrial Report (MQ333W) on metalworking machinery.
The procedure for estimating the index for civilian aircraft was changed to better capture the occasional severe disruption to production due to labor actions. Civilian aircraft production is estimated from data on deliveries of large commercial aircraft (which account for most of the total value of commercial aircraft produced in the United States) and data on production-worker hours for the aircraft assembly industry (NAICS 336411). Every large plane completed in a month is the result of productive activity in that month and in a number of earlier months. A preliminary estimate of production is made by assuming that the production embodied in a plane occurred in the month it was delivered and in the nine previous months, with the progress toward completion higher in the last few months before the plane is completed. With this revision, the preliminary estimate of output also assumes that the amount of progress that occurred in any one month is dependent on the relative production-worker hours in that month. The implicit productivity series from the preliminary estimates is smoothed and then applied to the production-worker hour series to determine the estimate of the production indicator for IP. A correction factor to align this indicator with the benchmark index is then applied.
The 2000 revision introduced a new IP series for the production of networking equipment (routers,
switches, and hubs).
The series is not published in the monthly statistical release, but it is included
in the broader IP aggregate for communications equipment and updated on an ongoing basis (see table "U.S.
Networking Equipment" below).
Discontinuance of the Survey of Electric Power Use
The Federal Reserve is discontinuing its use of survey data of industrial electric power use.  The survey was initiated in the 1960s to collect data on electricity use--which tends to be highly correlated with production in capital-intensive industries--as an alternative indicator of output. Survey data were used directly as the production indicators for industries (particularly those with highly automated assembly operations and a diverse product mix) for which product-based data were unavailable. However, by 2004, the electric power usage covered by the survey had dropped nearly 40 percent from its peak in 1993, and several regions and industries had significant gaps. As noted above, the twenty industry indexes that relied on electric power use will now use production-worker hours as the underlying source data for the period 1997 to the present.
In the future, the Federal Reserve hopes to incorporate information from the Survey of Plant Capacity (SPC) into its estimation of production indexes for capital-intensive industries. The SPC collects data on the factory workweek; like electric power use, the workweek is an indicator of the level of operations in capital-intensive industries. Currently, the SPC is collected only in the fourth quarter of the year, so there is not enough information to use it as a high-frequency indicator.
Beyond their use as a direct monthly indicator, electric power data were used in a model that extrapolates productivity in industries for which the monthly output index was based on production-worker hours. In the absence of electric power data, the model now relies on a proxy derived from survey measures of industry capacity utilization (taken from the SPC) and industry capital input measures constructed from data in the ASM.
Weights for Aggregation
The IP index is an annually weighted Fisher index. This revision uses information from the Census of Manufactures to obtain updated estimates of the industry value-added weights used in the aggregation of IP indexes and capacity utilization rates. 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 unit value added, were estimated using the latest data on producer prices. Table 10 shows the annual value-added proportions incorporated in the IP index from 1997 through 2004.
Revised Monthly Data
This revision incorporates product data that became available after the regular four-month reporting window for monthly IP has closed. One example is the data on tobacco issued by the Department of the Treasury's Alcohol and Tobacco Tax and Trade Bureau. These data are released with too great a lag to be included with monthly IP estimates; however, the data are available for inclusion in the annual revision.
Revised Seasonal Factors
Seasonal factors for all series were reestimated using data that extend into 2005. Factors for
production-worker hours--which adjust for timing, holiday, and monthly seasonal patterns--were updated with
data through September 2005 and were prorated to correspond with the seasonal factors for hours aggregated
to the three-digit NAICS level. The updated factors for the physical product series, which include
adjustments for holiday and workday patterns, used data through at least July 2005. Seasonal factors for
unit motor vehicle assemblies have been updated, and projections through June 2006 are on the Board's
G.17 Revision Release Tables:
Release dates | Historical data | Documentation