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G.17 (419) 2003 Historical and Annual Revision
For release at 3:00 p.m. (EST) November 10, 2003
Industrial Production and Capacity Utilization
The Federal Reserve revised the index of industrial production (IP) and the related measures of capacity and capacity utilization for the period from January 1972 to September 2003. Overall, the changes are small, and most of the revisions appear in the period beginning with 2000.
Measured from fourth quarter to fourth quarter, industrial output is now reported to have increased at a slower rate in 2000, and to have contracted a bit more slowly in 2001, than reported earlier. The changes to total industrial production in other years are slight. The revision still places the most recent peak in IP in June 2000 and the corresponding trough in December 2001. After reaching the trough, the total index recorded gains in the first half of 2002, only to trend downward again until mid-2003 and then head up.
The rate of industrial capacity utilization--the ratio of production to capacity--in the third quarter of 2003 was little changed by the revision; at 74.6 percent, the rate is 4 percentage points below the low of the 1990-91 recession and 6.7 percentage points below its 1972-2002 average. 1 The operating rates in manufacturing in the fourth quarter of 2002 and the third quarter of 2003 were also close to previous estimates. Capacity utilization at mines was slightly lower in the fourth quarter of 2002, and a bit higher in the third quarter of 2003, than previously reported. The current revision found that the utilization rates at utilities in the fourth quarters of 2001 and 2002 were higher than reported earlier but that the rates in the third quarter of 2003 were little changed from those reported previously.
The new overall measures of capacity are also only minimally different from those estimated earlier. The current figures suggest that industrial capacity expanded slightly faster in 1999 and 2002, and slightly slower in 2000 and 2001, than reported earlier.
The updated measures introduce improved methods for compiling a few series and incorporate newly available and more comprehensive source data. The new source data generally cover the years from 2000 on, and the modified methods affect indexes from 1992 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: the 2001 Annual Survey of Manufactures (ASM), the 2001 Services Annual Survey (for publishing), and selected 2002 Current Industrial Reports. In addition, revised annual data from the U.S. Geological Survey (USGS) on minerals (except fuels) for 2001 and some new data for 2002 were introduced. Annual data from the U.S. Forest Service were used to generate estimates for logging. In addition, the new monthly production estimates for 2002 and 2003 reflect updated seasonal factors and the inclusion of 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 were calculated using the revised production indexes, results from the Census Bureau's 2002 Survey of Plant Capacity for the fourth quarter of the year, and newly available 2002 data on industrial capacity from the USGS, the Energy Information Agency of the Department of Energy, and other organizations. In addition, the relationships used to estimate the current changes in manufacturing capacity were derived from Census data on capital spending by industry for 2001 and indicators of the rates of change in manufacturers' capital spending in 2002 and 2003.
Finally, the revision included updates to the value-added weights used to aggregate individual indexes to the major industry and the market group subtotals and to the index for total industry.
Results of the Revision
For the third quarter of 2003, the revision places the production index at 111.0 percent of output in 1997 (table 1A) and the capacity index at 148.8 percent of output in 1997 (table 1B); both indexes are slightly higher than reported previously (chart 1). As noted earlier, the utilization rate for total industry was little changed for the third quarter of 2003.
Tables 2 and 3 show the revised rates of change of industrial production for market groups, industry groups, special aggregates, and selected detail for the years 1999 through 2003:Q3. Tables 4, 5, and 6 show the revised figures for capacity utilization, capacity, and electric power use. The tables also show the difference between the revised and earlier rates of change. For capacity utilization, the tables show the difference between revised and previous rates for the final quarter of the year (the third quarter was used for 2003). Tables 7, 8, and 9 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 to industrial output reduced the gain in 2000 as well as the decline in 2001 (table 2). The cumulative recovery in total IP since the end of 2001 was, on balance, unchanged. The somewhat slower increase in IP now shown for 2000 largely reflects the incorporation of recently issued annual Census data. Among major manufacturing groups, the new data indicated weaker increases in production of a few industries, such as machinery, computer and electronic products, and nonmetallic mineral products. In 2001, the slightly slower decline in total IP partly reflects an upward revision in the output of aerospace and miscellaneous transportation equipment.
The revision now shows that the rise in the output of high-technology industries--computers and office equipment, communications equipment, and semiconductors and related electronic components--was about 15 percent in 2002 and 20 percent in 2003. In general, these industries recorded rapid gains in output in the late 1990s, only to fall back a bit in 2001. The production of computers and semiconductors picked up again in 2002 and 2003, but the production of communications equipment continued to fall in 2002 before posting a modest increase this year. Relative to earlier estimates, the output of all high-technology components increased at a faster rate in 2002. In 2003, although the gain in the output of computers now appears to have been weaker than previously reported, the output of other high-technology industries expanded more rapidly during the same period.
Among major market groups, the revised production index for consumer goods rose somewhat more slowly in 2002 and 2003 than earlier reports had suggested; the estimates for earlier years were little changed.2 The rise in the production of business equipment in 1999 and 2000 is now shown to have been, on balance, somewhat less than previously reported, and the subsequent contraction in 2001 and 2002 to have been less steep. On balance, the output of information processing equipment has been stronger over the 1999-2003 period than previously estimated, while the production of industrial equipment has been weaker. The production of defense and space equipment is now estimated to have declined more steeply in 1999 and 2000, and to have bounced back more rapidly in 2001 and 2002, than reported earlier. The output of materials is little changed from previous estimates.
The revised indexes of capacity utilization are generally close to the previous estimates. The current revision places the factory operating rate at 73.5 percent for the fourth quarter of 2002 and at 73.0 percent for the third quarter of 2003--nearly identical to earlier reports and among the lowest rates since the early 1980s. The revisions to the operating rate at mines were also small. The utilization rate at electric and gas utilities was 83.3 percent in the third quarter of 2003, 0.1 percentage point lower than the rate reported previously. New estimates of the utilization at utilities in 2001 and 2002 were somewhat higher than indicated in earlier reports.
Among high-technology industries, capacity utilization in the third quarter of 2003 remained at a low rate but was higher than the rate for the fourth quarters of 2001 and 2002. Relative to earlier estimates, the utilization rates for the third quarter of 2003 were lower for computers but a bit higher for communications equipment and semiconductors. For the fourth quarter of 2002, the current revision shows lower estimates for all three high-technology components than earlier estimates suggested.
The revisions to manufacturing capacity from 1999 to 2003 are small. The general contour of the series shows rapid acceleration during the second half of the 1990s and a slowing since then. Manufacturing capacity is now estimated to have decelerated somewhat more in 2000 and 2001 than previously indicated, but in 2002 and 2003 it is estimated to have risen about 1.0 percent per year, a touch more than earlier estimates suggested. Within the technology sector, the rapid expansion that characterized the late 1990s has trailed off somewhat since then, although the revised capacity estimates show less of a slowdown, particularly in 2002, than was previously estimated. Excluding high-technology industries, manufacturing capacity has contracted slightly since 2001.
Relative to the earlier reports, capacity in mines expanded at a slightly slower pace in 1999, 2000, and 2003 and at a slightly faster rate in 2001 and 2002. The new measures of capacity at electric and gas utilities show a lower rate of increase in the 2000-03 period than previously reported.
The revisions to the capacity estimates for stage-of-process groups was small. Compared with the earlier estimates, the current capacity measures for 2003 reflect weaker expansion among producers of crude goods and a bit of an increase for producers of primary, semifinished, and finished goods. For 2002, the rate of change for all categories is currently estimated to have been a bit stronger than previously reported.
Technical Aspects of the Revision
As noted earlier, the annual revision incorporated comprehensive annual data on industry output, utilization, value added, and capital spending for 2001 and 2002, along with an update of all seasonal factors and monthly data on production, production worker hours, and electric power use. Annual data on output and prices for previous years that were revised by the original source were also included.
As noted above, the current revision incorporated data from the 2001 ASM, along with revisions to the 2000 ASM. These new data, deflated by industry-specific price indexes, largely formed the basis for the annual estimates of manufacturing output for those years. After incorporating these data and other annual output measures into IP, the annual average change in total IP between 1999 and 2000 was revised down 0.3 percent, and the rate of change between 2000 and 2001 was revised up 0.1 percent.
The industrial production and capacity data are based on the new 2002 North American Industry Classification System (NAICS). Last year's historical revision reclassified production and capacity indexes back to 1972 for individual industries from the Standard Industrial Classification system to NAICS.3 The Federal Reserve's accompanying indexes of industrial electric power use are also based on the 2002 NAICS. As in the 2002 revision, all indexes are expressed as percentages of output in 1997.
Revised Monthly Data
This revision incorporates the product data that become available after the regular four-month reporting window for monthly IP has closed. For example, monthly data from the Gas Appliance Manufacturers Association on the production of water heaters and storage batteries are unavailable initially but become available for inclusion in the annual revision.
The measures of inputs used to estimate monthly production were also updated. These included revised data on monthly production worker hours (based on the BLS benchmark of employment to March 2002 comprehensive measures) and on monthly electric power use since 1997. In June 2003, the BLS issued on a NAICS basis national employment, hours, and earnings data from the Current Employment Statistics program, which includes data on monthly production worker hours. Most of the individual hours series were restated on a NAICS basis back to 1990. For years before 1990, the Federal Reserve derived NAICS-based production worker hours series from a historical SIC-NAICS concordance developed from plant-level data records maintained by the Census Bureau. This concordance was created first by converting to NAICS the industry assignment of each establishment in the Censuses of Manufactures from 1963 to 1992 and then by cross-tabulating production worker hours, on both an SIC and a NAICS basis.4
Seasonal factors for all series were reestimated using data that extend into 2003. Factors for production worker hours, which adjust for timing, holiday, and monthly seasonal patterns, were updated with data through September 2003. A new holiday factor was incorporated into seasonal adjustment of production worker hours. Specifically, measured production worker hours tend to be less in Julys when Independence Day falls on a Friday; an adjustment for this effect had been incorporated into the seasonal factors for recent monthly IP releases. Factors for the electric power series were reestimated using data through June 2003. The updated factors for the physical product series, which include adjustments for holiday and workday patterns, used data through at least June 2003. Seasonal factors for unit motor vehicle assemblies have been updated through June 2004 and are on the Board's web site.
Revisions by the Department of Energy (DOE) to the data for electric power producers resulted in new methods for constructing the output indexes for the related series. Previously, the DOE provided pooled monthly information for all nonutility power producers. In the past, the Federal Reserve estimated monthly power output for industrial and commercial power producers and then subtracted this amount from the combined DOE total. Recently, the DOE began providing explicit monthly production totals for independent power producers and for industrial and commercial power producers; thus, independent estimates are no longer necessary.
Weights for Aggregation
The IP index is an annually weighted Fisher index. This revision incorporates updated estimates of the industry value-added weights used in the aggregation of IP indexes and capacity utilization rates. The Census Bureau provides annual measures for manufacturers and quinquennial measures for mining, and 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. Annual data through 2001 were used in the estimation of industry value added. 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 1995 through 2002.
Changes to Market Groups
This revision adjusts the market group structure to incorporate the 1997 input-output (I-O) tables issued by the Bureau of Economic Analysis earlier this year.5 Beginning with the 2002 revision, the IP market groups were restructured to allow for the assignment of one industry to multiple market groups. The rationale is that a market group index reflects the input to a defined economic activity, and an industry's output is often related to more than a single market group. The share of each industry's output that contributes to a single market group was derived using the new interindustry relationships described by the new 1997 I-O tables.
Changes to Individual Series
Beginning with this revision, the capacity index includes new Department of Energy data for coal, which accounts for about 11-1/2 percent of mining capacity in 2002. The new data produced estimates that were little changed from those of the previous reports.
G.17 Revision Release Tables:
Release dates | Historical data | Documentation
Current Monthly Release Other formats: ASCII | PDF (144 KB)
Supplemental Monthly Release Other formats: ASCII | PDF (144 KB)
Annual Revision Release Other formats: ASCII | PDF (150 KB)