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G.17 (419) 2002 Historical and Annual Revision
For release at 2:00 p.m. (EST) December 5, 2002
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. The primary feature of the historical revision is the reclassification of production and capacity indexes for individual industries from the Standard Industrial Classification, or SIC, to the North American Industry Classification System, or NAICS, back to 1972. In addition, the annual revision, as usual, updates all industrial production and capacity utilization measures to incorporate newly available and more comprehensive source data for recent years. The 2002 revision also introduces improved methods for measuring the annual real output of communications equipment manufacturing.
Along with the updating and the restatement of the data using NAICS, all production and capacity indexes are now expressed as percentages of output in 1997; previously, the comparison base was 1992. The rebasing affects all series from their start dates, which are 1919 for total IP and manufacturing IP, 1948 for manufacturing capacity, and 1967 for total industrial capacity. The Federal Reserve's accompanying indexes of industrial electric power use, which begin in 1972, have also been restated to accord with NAICS, rebased to use 1997 as a comparison year, and revised to incorporate previously unavailable data.
Reflecting the new information, industrial production and capacity are now reported to have increased at a faster rate from 1997 to 2000 (chart 1 and tables 1A, 1B, 5, and 8). Improved estimates for the production of communications equipment and semiconductor manufacturing account for most of the upward revision; revised estimates of the output of newspapers and related publishers also contributed. The upward revision to the increase in production was greater than the upward revision to the pace of capacity expansion. As a result, between 1997 and 2000, the average rate of industrial capacity utilization-the ratio of production to capacity-is 0.7 percentage point higher than previously reported. The higher utilization rates are concentrated in the selected high-technology group of industries (semiconductors, computers, and communications equipment); the motor vehicle, fabricated metal product, and machinery manufacturing industries; and in utilities.
On balance, the picture of the industrial sector in recent years is little changed by the revision. The most recent business cycle peak in monthly IP is still June 2000, at 116.2 percent of 1997 output, and the drop in the index from then until December 2001 is 6-3/4 percent, about the same as the previously reported decline. Accordingly, the second quarter of 2000 remains the peak in the rate of industrial capacity utilization, and the low is the fourth quarter of 2001. The revised utilization rate reaches 83.5 percent in the second quarter of 2000-0.9 percentage point higher than previously reported-before falling 2 percentage points by the end of 2000 and 6-1/2 percentage points further by the fourth quarter of 2001; the cumulative drop in the rate of capacity utilization is 0.6 percentage point steeper than previously reported.
In January 2002, industrial production rose; as in the earlier data, the January increase was the first monthly increase since September 2000. Monthly gains in industrial production then averaged 0.4 percent per month through July 2002, but from August to October 2002, industrial production retreated, on balance. In the third quarter of 2002, the revised and rebased production and capacity indexes stood at 111.4 and 146.2 percent of 1997 output, respectively. The rate of industrial capacity utilization in the third quarter of 2002, at 76.2 percent, is essentially unchanged from previously reported data (table 7). The rate was more than 5 percentage points below its 1972-2001 average and about 3 percentage points below the low in the 1990-91 recession, but 5 percentage points above the trough in the 1982 recession.
The updated measures continue to show that, after having increased rapidly in 1999 and the first half of 2000, manufacturing IP fell sharply in 2001 and rose at a tepid rate, on balance, in the first three quarters of 2002 (chart 2 and table 2A). On the basis of the revised production indexes and results of the 2001 Survey of Plant Capacity, issued by the Census Bureau, capacity utilization in manufacturing continues to show a sharp drop in 2001 (table 2B) and the expansion of manufacturing capacity a noticeable slowing from the rapid pace posted in the last half of the 1990s. The factory operating rate has moved up since its business cycle low in the fourth quarter of 2001, but as of the third quarter of 2002, its level of 74.3 percent was more than 6 percentage points below its long-term average.
The output of the selected high-technology industries-computers, semiconductors, and communications equipment-increased at an average rate of more than 40 percent per year from 1994 to 2000, but dropped off sharply in 2001, as in the earlier data. Their production still increases in 2002, but at a more modest rate than previously reported (chart 3). The rate of capacity utilization in these industries has hovered at or below 63 percent for nearly one year, a level more than 17 percentage points below its 1972-2001 average of about 80 percent. Within this group of industries, the output index for computers was revised down in 1999 and 2000, a move reflecting updated results from the Census Bureau on the value of production in those years. In addition, the indexes for semiconductors and communications equipment were revised up, primarily in 1999 and 2000, a move reflecting new and refined estimates of prices.
The revisions to the IP index for recent years were principally derived from the inclusion of information contained in annual reports issued by the Bureau of the Census: the 2000 Annual Survey of Manufactures (ASM) and selected 2001 Current Industrial Reports. Revised annual data from the U.S. Geological Survey (USGS) on minerals (except fuels) for 2000 and some new data for 2001 have also been introduced. In addition, the new monthly production estimates for 2001 and 2002 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 incorporate the revised production indexes, results from the Census Bureau's 2001 Survey of Plant Capacity for the fourth quarter of that year, and newly available 2001 data on industrial capacity from the USGS, the Energy Information Agency, and other organizations. In addition, the relationships used to estimate the current change in manufacturing capacity reflect the inclusion of ASM data on capital spending by industry for 2000 and updated indicators of capital spending by manufacturers in 2001 and 2002.
Summary of the Historical Revision
The Federal Reserve has adopted NAICS for its statistics on the industrial sector, but to facilitate business cycle analysis, research, and forecasting, it has done so without changing the scope or continuity of the industrial production and capacity utilization measures. Specifically, the basic industry coverage of the total and manufacturing IP, capacity, and capacity utilization measures was not affected by the introduction of the new classification system, and the NAICS component industry statistics are available on a consistent basis at least back to 1972.
The consistency of the production and capacity indexes was further improved by recompiling the indexes using current methods, when possible, back to 1972. (These changes are detailed below in the section on "Current Methods Applied to Earlier Data.") Table A summarizes the revised rates of change in the basic measures from 1972 to 1997. The application of current methods for benchmarking IP to annual real output measures, estimating changes in capacity, and aggregating individual series resulted in a small downward revision to the average rate of change in industrial production and capacity from 1972 to 1987. All told, however, the average utilization rate, at 81.5 percent of total industrial capacity from 1972 to 1997, was little changed by the revision.
Table A. Revised rates of change of industrial production and capacity, and revised average rates of capacity utlization, 1972-1997 ------------------------------------------------------------------------------------- Revised rates of change Difference between revised (percent) and earlier rates of change (percentage points) ------------------------------------------------------------------------------------- 1972-77 1977-87 1987-97 1972-77 1977-87 1987-97 ------------------------------------------------------------------------------------- PRODUCTION 1. Total IP 2.7 2.0 3.2 -.2 -.2 .0 2. Manufacturing 3.0 2.4 3.5 -.1 -.3 .0 3. Excl. high-tech 2.5 1.5 1.9 -.2 -.1 -.1 Memo: 4. Manufacturing (NAICS) 3.0 2.4 3.7 -- -- -- CAPACITY 5. Total industrial 2.8 2.1 3.1 -.2 -.3 -.1 6. Manufacturing 3.0 2.4 3.5 -.1 -.4 -.0 7. Excl. high-tech 2.5 1.5 2.0 -.2 -.2 -.1 Memo: 8. Manufacturing (NAICS) 3.0 2.5 3.6 -- -- -- ------------------------------------------------------------------------------------- Difference between | Memo: Average rate revised and earlier | Average rate January 1972 to average rate | January 1972 to December 1997 (percentage points) | December 2001 ------------------------------------------------------------------------------------- CAPACITY UTILIZATION (percent) 9. Total industrial 81.5 -.15 81.5 10. Manufacturing 80.4 -.22 80.4 11. Excl. high-tech 80.5 -.24 80.4 Memo: 12. Manufacturing (NAICS) 80.3 -- 80.3 ------------------------------------------------------------------------------------- Note. The rates of change are the average percentage change in the seasonally adjusted index from the fourth quarter of the first year specified to the fourth quarter of the last year specified. For 1972 the calculations begin in the third quarter. Estimates not available are denoted by "--".The 2002 revision also introduces refined methods for grouping individual industry IP series into major market groups for analysis of industrial production and for grouping industrial capacity and capacity utilization rates by stage of process. These changes, which are explained below in the section on "New Market and Stage-of-Process Aggregates," begin with data for 1967; the revised rates of change in IP by major market groups from 1967 on are shown in table B. The revisions shown reflect not only the refined industry composition of the groups but also, as mentioned above, the application of current methods and available source data to estimates for earlier periods.
Table B. Revised rates of change of selected IP market groups, 1967 to 2002 ------------------------------------------------------------------------------------- Revised rates of change Difference between revised (percent) and earlier rates of change (percentage points) ------------------------------------------------------------------------------------- 1967 to 1987 to 2000 to 1967 to 1987 to 2000 to 1987 2000 2002 1987 2000 2002 ------------------------------------------------------------------------------------- 1. Total IP 2.6 3.5 -1.7 -.2 .1 .1 2. Final products 2.9 3.1 -2.0 .1 .2 .0 3. Consumer goods 2.5 2.5 -.2 -.2 .5 -.1 4. Business equipment 4.6 6.0 -7.1 .8 -.3 -.8 5. Nonindustrial supplies 2.9 3.9 -1.4 -.3 2.2 .3 6. Construction 2.0 2.3 -2.4 -.2 .0 -1.6 7. Other business 3.5 4.9 -.8 -.4 3.7 1.7 8. Industrial materials 2.3 3.8 -1.5 -.3 -1.0 -.1 9. Nonenergy 2.8 4.8 -2.1 -.5 -1.1 -.3 10. Energy 1.1 .6 .4 .3 .0 .5 ------------------------------------------------------------------------------------ Note. The rates of change are the average percentage change in the seasonally adjusted index from the fourth quarter of the first year specified to the fourth quarter of the last year specified. For 1967, the calculation begins in the third quarter. For 2000, the calculations end and begin in the second quarter.The changes in monthly IP reflect the updating of seasonal factors for all years using current methods and the inclusion, when possible, of current monthly and quarterly source data. All told, the revised rates of change in monthly IP from 1972 on are highly correlated with the previously reported rates; the simple correlation coefficient between them is 0.91, and the correlation between the revised and earlier quarterly rates of change is 0.97. In addition to revised changes in production, the monthly changes in capacity utilization reflect the application of current methods for interpolating annual changes in capacity.
The monthly peaks and troughs in industrial production since 1972 are shown in the table below. The peaks and troughs associated with the recessions that began in 1973, 1981, and 2000 are unchanged. The peaks in IP before the onset of 1980-81 and 1990-91 episodes were changed with this revision. As in the earlier data, however, industrial production remained within a narrow range for more than a year before both downturns, and the changes did not alter the picture of cyclical activity in either period. The profile of the industrial expansion in the 1990s-rapid increases in IP punctuated by a slowdown in 1995 and again in 1998 in the aftermath of the Asian crisis-also is unchanged.
Table C Business cycle peaks and troughs in monthly IP since 1972 ------------------------------------------------------- Peak Trough ------------------------------------------------------- November 1973 May 1975 March 1979 (May 1979) July 1980 July 1981 November 1982 September 1990 (April 1989) March 1991 June 2000 December 2001 ------------------------------------------------------- Note. The dates shown in parentheses are as reported in earlier data.Although the timing of the business cycle episodes in industrial production is essentially unchanged by the revision, the 1973-74 recession is now reported to be somewhat shallower. As a result, the drop in capacity utilization-about 14-1/2 percentage points from November 1973 to May 1975-is about 1-1/4 percentage points less than in the earlier data. Also, the recovery from 1975 to 1979 is now a bit less strong, and the peak reached by capacity utilization is not as high as previously reported. Finally, as discussed above, the revised rate of capacity utilization for total industry averages at a high rate from 1997 to 2000, but then it drops a bit more steeply in 2001 than previously reported.
New NAICS Industry Structure
The Federal Reserve still defines the industrial sector as manufacturing, mining, and electric and gas utilities. The changes from the SIC system to NAICS, however, altered the industry composition of manufacturing. Specifically, NAICS moved the logging and the newspaper, periodical, book, and directory publishing industries from manufacturing to other sectors; the former was placed in agriculture, and the latter was placed in the new information sector. For the statistics reported in the Federal Reserve's monthly G.17 statistical release, the manufacturing measures will continue to be composed of those industries included in the NAICS definition of manufacturing plus those industries-logging and newspaper, periodical, book, and directory publishing-that have traditionally been considered to be manufacturing.
Table D illustrates the new industry structure (in abbreviated form). The G.17 release will publish the aggregate of industries representing the NAICS definition of manufacturing, along with the aggregate of industries representing the traditional definition of manufacturing. For the most part, the two series are similar, in terms of their long-term trends (see memo item on table A), and their basic cyclical profile. The average annual proportion of the traditional manufacturing measure in total industrial production is about 85 percent, however, whereas the proportion of manufacturing (NAICS) is about 80 percent (see table 10).
Table D. Revised industrial production, capacity, and capacity utilization industry structure (abbreviated) --------------------------------------------------------------------------- | Correspondence to New with the 2002 Revision | Previous Structure --------------------------------------------------------------------------- | Total industry | Total industry | Major industry groups: | Major industry groups: --------------------- | --------------------- Manufacturing (see note below) | Manufacturing (SIC) | Manufacturing (NAICS) | ---- Durable | Durable (SIC) less logging Nondurable | Nondurable (SIC) less newspaper, | periodical, book, and directory | publishing Other mfg. (non-NAICS) | ---- Mining | Mining Utilities | Utilities --------------------------------------------------------------------------- Notes. The industrial sector is defined as manufacturing, mining, and electric and gas utilities. Manufacturing consists of those industries included in the North American Industry Classification System (NAICS) definition of manufacturing plus those industries-logging and newspaper, periodical, book, and directory publishing-that traditionally have been considered to be manufacturing and included in the industrial sector. The correspondences shown in the table are illustrative.Conversion of the data to NAICS
The historical source data needed to compile IP and capacity utilization are not publicly available on a NAICS basis before 1997; hence, the issuance of thirty years of NAICS industry statistics represents a major effort by the Federal Reserve to preserve the historical continuity of the basic measures presented in its G.17 release. As a result, many frequently used industry series whose definition and coverage were altered by NAICS-communications equipment, construction equipment, and chemicals, to name a few-are still available with substantial history.
The restatement of the industrial production and capacity utilization data from 1972 to present on a NAICS basis relies on results of a research project conducted by the Federal Reserve Board and the Center for Economic Studies of the Bureau of the Census. The project developed NAICS codes for each establishment in the files of seven Censuses of Manufactures (COM)-1963, 1967, 1972, 1977, 1982, 1987, and 1992. (The Census Bureau issued data for its 1997 COM on both a SIC and NAICS basis, which was the starting point of the analysis.) The information needed to derive NAICS-based source data for industrial production and capacity utilization was obtained by tabulating the historical COM establishment-level data using the NAICS codes developed by the research project.
The derivation of NAICS-based source data was an extensive effort involving the reconstruction of many of the working data sets that underlie the estimation of IP and capacity, including the annual comprehensive estimates of industry value added and value of production and the annual (fourth quarter) survey data for industry utilization rates. All in all, annual figures for most variables reported in the Censuses and Annual Surveys of Manufactures (shipments, value added, cost of materials, inventories, capital spending, production worker hours, and the like) were derived at the 6-digit NAICS level from 1972 on. Utilization rates from the Survey of Plant Capacity were reconstructed beginning in the fourth quarter of 1974, the start date of the survey. The Federal Reserve's data on monthly electric power use were derived at the 4-digit NAICS industry level from data in the Annual Survey of Manufactures that were also restated to accord with NAICS. The 2002 NAICS was used for all restatements and conversions.
Restructuring of industry subsectors
NAICS substantially restructured many industries within manufacturing. One significant change was the reorganization of high-technology industries. NAICS created a new subsector for high-technology manufacturing, computer and electronic product manufacturing (NAICS 334), which combined into a sensible aggregate industries that had been scattered across various 2-digit SIC industry groups. For some time, the G.17 has reported output, capacity, and capacity utilization for selected high-technology industries consisting of semiconductors, computers, and communications equipment manufacturing. These industries account for most of the new NAICS 334 subsector; the new subsector also contains audio and video equipment and navigational, measuring, electromedical, and control instruments. The output, capacity, and capacity utilization measures for selected high-technology industries will continue to be reported in the monthly G.17 release along with data for the new NAICS subsector.
Within the transportation equipment manufacturing subsector, NAICS introduced a new industry group for motor vehicle parts manufacturing (NAICS 3363). The group contains eleven new 6-digit motor vehicles parts industries, many of which-metal stamping, vehicular lighting and electronic equipment, motor vehicle seating and interior trim, and motor vehicle air-conditioning manufacturing-were previously pieces of a wide range of 2-digit SIC major groups, including fabricated metals, furniture, apparel, and electrical and nonelectrical machinery. Reflecting these changes, the monthly IP index for motor vehicle manufacturing is now composed of nine NAICS-based industry series; some of these series, such as metal stamping and motor vehicle air-conditioning manufacturing, were separate series in the structure of the previous IP index, and the change simply entailed a rearrangement of the data. However, as in the previous structure, but with the exception of metal stamping, each industry series in motor vehicle parts is further disaggregated into two sub-industry indexes, one for the production of original equipment and the other for the production of replacement parts. All told, the motor vehicle parts industry group is now represented by seventeen individual IP series, and the proportion of the industry group in the overall index now is 3.4 percent, about 1-1/4 percentage points larger than it was in the SIC-based IP data.
Another change was the splitting of the SIC 2-digit textiles and products major group (SIC 22) into two NAICS subsectors, textile mills (NAICS 313) and textile product mills (NAICS 314). Within these subsectors, a few industries that were in SIC 22 were moved to apparel manufacturing (NAICS 315), and a few others, previously not in the SIC textile group, were newly included (mainly from the SIC 2-digit group, apparel). The implementation of the NAICS structure for textiles in the IP index was accompanied by an extensive review of available source data, resulting in the introduction of several product series new to the IP system. In particular, the IP physical product measures for NAICS 3131 (fiber, yarn, and thread mills) were broadened relative to the corresponding SIC series to include wool fibers. In addition, IP measures for NAICS 3132 (fabric mills) now use a quarterly production series for cotton and synthetic fabrics. Finally, tire cord production (part of NAICS 3149) is now being compiled as a separate IP series derived from physical product data.
The industrial production index now contains monthly output indexes for 227 NAICS 6-digit (or combination of 6-digit) industries; previously, the index represented 207 SIC-based industries. Of course, the industrial production index contains many sub-industry indexes, developed from product data, that are used to compile market groups and, ultimately, the total index. The introduction of NAICS does not change the way in which product data are used to compile monthly IP; taking these product-based sub-industry indexes into account, the revised IP index is now built from 295 individual component series. The detailed new NAICS structure and monthly data sources for all NAICS subsector, industry, and sub-industry IP indexes are in the updated "Source and Description" table at www.federalreserve.gov/releases/g17/sdtab1.pdf.
The implementation of NAICS for capacity and capacity utilization resulted in the introduction of, on net, nine new series in the system. The new industry series are mainly in the chemical and machinery manufacturing subsectors (NAICS 325 and 333, respectively); a new capacity series for lime and gypsum product manufacturing (NAICS 3274) was derived using capacity data issued by the Gypsum Association and introduced from 1972 on. All told, the capacity measures now are built from eighty-five industry series, most of which are NAICS 4-digit industries (or combinations of them). The detailed new structure for capacity and capacity utilization is shown in the updated table at www.federalreserve.gov/releases/g17/captab1.pdf.
The NAICS subsectors that will be published in the regular monthly release are shown in the bottom half of table 5 (which reports changes in IP), and on table 7 (which shows capacity utilization rates); additional industry detail will be published in tables available from the Board's web page for the G.17. The annual proportions of the new industry subsectors in total IP from 1994 on are shown on the bottom portion of table 10.
New Methods in the Revision
In this revision, new or refined methods for three series were introduced as follows: (1) a new benchmark index for the real output of communications equipment manufacturing, (2) a refined structure of the monthly IP index for semiconductors, and (3) improved methods for estimating light vehicle capacity.
IP series for communications equipment manufacturing
The Federal Reserve Board staff improved the methods it uses for compiling the production series for communications equipment manufacturing (NAICS 3342) from 1987 on. In recent years, the Federal Reserve has made numerous improvements in its measures of real output for the high-tech sector. Two years ago, it introduced a new production index for one component of communications equipment, local area network (LAN) equipment. With this revision, new results for other types of communications equipment, namely fiber optic equipment, cable modems, public branch exchanges, and cellular communication equipment have been introduced. Overall, value added in communications equipment manufacturing was 2.0 percent of total IP from 1994 to 2000.
The new results are annual measures that more accurately reflect the technical advances and quality change in the equipment produced by this industry. The measures affect the annual change in the IP index for communications equipment manufacturing from 1988 on, with the changes from 1999 to 2001 about 8 percentage points per year higher than those in the earlier data. By itself, the new IP index for communications equipment boosts the 1999 to 2001 change in the total index by 0.2 percentage point per year.
The IP series for the manufacture of semiconductors and related devices (NAICS 334413) is now built from five sub-industry indexes-microprocessor units (MPUs), metal oxide semiconductor (MOS) logic devices excluding MPUs, MOS memory, other integrated circuits (linear and analog), and optoelectronics and other discrete devices-from 1992 on. The new series are not published separately, but their inclusion in the IP structure improves the accuracy and compilation of the published monthly index for semiconductor and related electronic components (NAICS 334412-9). Value added for this series averaged 3.4 percent of total IP from 1994 to 2000.
The data on the value of production for the new subcategories of semiconductors, which are not available in reports from the Census Bureau, were developed from information issued by trade associations, private research companies, and company reports. The basic data, which are monthly and quarterly and largely based on reports issued by the Semiconductor Industries Association and Dataquest, have been controlled to comprehensive annual measures for NAICS 334413 issued by the Census Bureau. The price measures for each component, which are updated annually and thus subject to revision each year, are developed from (1) revised data from the same sources, (2) quarterly data on microprocessor prices available annually from Micro Design Resources, and (3) producer price indexes issued by the Bureau of Labor Statistics.
Light vehicle capacity
The capacity of light motor vehicle manufacturing (NAICS 33611) is estimated from plant-level data; in the most recent model year, sixty-six light vehicle assembly plants were operating in the United States. For each of these facilities, capacity in units was developed from data on the actual number of shifts, the length of the shifts, and the speed of the assembly line (linespeed). The plant capacities were aggregated using model-specific prices from 1987 on, which yielded a capacity index consistent with the production index.
The methods for determining plant capacity from shift and linespeed data were refined to better reflect current operating practices and technology. The revision introduces a nonstandard shift configuration, with plants able to rotate three crews over two ten-hour shifts, six days per week; previously, plants were assumed to operate two or three standard-length shifts. In recent years, two to four plants have used the nonstandard configuration, about the same number that have used the standard three-shift configuration. Also with this revision, a plant's linespeed at capacity was determined by the peak within the past ten years; previously, the peak linespeed was obtained from all available data, which may have covered more than ten years.
The improved use of data by shift and the greater discounting of past peaks in linespeeds lowered the estimates of unit capacity for light vehicles. As a result, the average utilization rate for light vehicles in the revised data was about 0.8 percentage point higher than in the earlier data. Also, consistent with the revised production index, as noted below, the new capacity series for light vehicles begins in 1972, five years earlier than the previous measure.
Current Methods Applied to Earlier Data
The consistency of the production and capacity indexes was further improved by recompiling the new NAICS indexes using current methods-in so far as possible-back to 1972. Many changes and refinements to methods were introduced in the historical and annual revisions issued in the 1990s and in 2000 and 2001; the historical revisions affected IP beginning in 1977 and capacity beginning in 1967, but the regular annual revisions were implemented only from 1987 or 1992 on. The revision to the 1972 to 1977 segment of the IP index is the first since the issuance of the 1985 historical revision.
The revised IP index was compiled as a chain-type index with monthly weights beginning with data for 1972. Previously, a linked-Laspeyres formulation was used to aggregate data from 1972 to 1977 and a chain-type formulation (with annual weights) was used for data from 1977 to 1992. In addition, the annual real industry output benchmark indexes from 1972 to 1987 were newly compiled using current methods, as well as NAICS-based source data. With the exception of computers and semiconductors, annual output benchmarks for those years were not previously compiled as chain-type indexes. Moreover, annual revision and benchmark methods established in the mid-1990s, previously applied to data from 1987 on, were newly applied to data for all years in so far as possible.
The monthly changes in IP beginning in 1972 also now reflect the improved seasonal adjustment techniques introduced in the 1993 and 1995 annual revisions; previously these techniques, which include adjustments for holiday and other calendar effects derived using a regression approach, were applied to data starting in 1987. Seasonal factors for all years continue to be derived using the "intervention approach" introduced in the 1985 revision; this approach shields the estimates from extreme business cycle movements.
The monthly IP indexes that use the Federal Reserve's electric power data as a production indicator were further refined by (1) excluding the systematic influence of the weather on seasonally adjusted electricity use (this modification, introduced in the fall 1998 annual revision, previously applied to data from 1992 on) and (2) including data that were issued in a major revision of the electric power data in early 1997. While these data were previously included in the IP index from 1987 on, the 1997 revision modified the electric power data from their start date of 1972.
The annual changes in capacity are estimated from improved models that were initially introduced in the 1999 annual revision and used to develop capacity indexes beginning 1992. The capacity estimates prior to 1992 are also affected by the application of an interpolation procedure that allows the rate of change in monthly capacity to evolve slowly over time; the procedure was introduced in March 1999 and applied to data from 1992 on in that year's fall revision. Previously, monthly capacity figures were computed on the assumption of a constant rate of change in capacity through a year, with potentially abrupt changes between the last months of one year and the first months of the next. Of course, the rates of change in the monthly capacity indexes are, all else equal, revised in line with industrial production. The application of the current aggregation formula to earlier periods of production and capacity data, however, does not materially affect the monthly utilization rates.
Other changes in basic methods include the extension back to 1967 of various refinements to the structure of market groups, including the changes within business equipment introduced in the 1990 historical revision and implemented from 1977 forward, and the new structure of groups within consumer durables introduced with the new release format in February 2001 and implemented from 1982 forward. The new materials subgroup, semiconductors, printed circuit boards, and other electronic components, which was introduced in the 1998 revision and implemented from 1992 forward, was extended back to 1972. Finally, the improvements to the methods and data used to estimate value added in the electric utility industry, which were introduced last year and implemented on a best-change basis from 1992 forward, were fully implemented and linked back to 1972 in this revision; and the refined methods and source data used to determine the consumer and business shares of motor vehicle production were newly included in the market group indexes for the years preceding 1992.
Since the 1990 historical revision, new or refined procedures for measuring nearly sixty individual production and capacity series from product data were introduced. Most of the improvements were implemented beginning in, or near, the start year of the source data for the series. For about a dozen series, however, the revision incorporated new source data and methods for earlier years (see box).
Individual series for which the 2002 revision applied current source data and methods to earlier years
For the production index, the affected series include: * Coal mining (NAICS 2121). The current coal production measures were taken back to 1972; the measures weight the tonnage produced in a region by the energy content typical of a ton of coal mined in that region and were introduced in the 1998 revision from 1992 forward. * Stone mining and quarrying (NAICS 21231) and sand and gravel mining (NAICS 21232,1). A single series, based on quarterly product data from the USGS and interpolated monthly using railroad car loadings, was introduced in the January 1997 revision from 1992 on; two series using the same data now begin in 1987. From 1982 to 1987, for each series, monthly railroad car loadings are used as the production indicator; from 1972 to 1981, production worker-hour data are used. * Support activities for oil and gas operations (NAICS 213112). The activity was newly represented in the fall 1997 revision from 1987 on; monthly product data from the same source are now used as the indicator from 1972 on. * Gypsum product (NAICS 32742). The gypsum series newly introduced in the 1993 revision from 1987 on was taken back to 1972; monthly product data from the same source are used as the indicator from 1977 on; production worker hours are the monthly indicator from 1972 to 1977. * Room air-conditioners (NAICS 33341pt). Seasonal adjustment factors derived using an additive approach, which were previously applied to the data from 1992 on, are now used from 1972 on. * Completed aircraft, civilian (NAICS 336411pt). The methods used to compile the current measure of civilian aircraft, which approximately equals a forward-looking ten-month moving average of actual or future planned completions (deliveries plus the change in stock) of commercial aircraft by Boeing Corporation from 1992 on, were extended back to 1972. * Automobiles and light duty trucks (NAICS 33611). The monthly series for the production of automobiles (NAICS 336111) and the production of light duty trucks (NAICS 33612) are now compiled as annually weighted chain-type indexes from 1987 on; the refined within-year estimates of light vehicle production were introduced in the 1999 revision and previously applied to data from 1992 on. In addition, the series for light trucks now begins in 1972, whereas it previously began with data for 1977. * Motor vehicle parts, original equipment (NAICS 3363pt). The series are now constructed in two segments: From 1972 to 1992, the monthly changes are proportional to changes in production worker hours and motor vehicle assemblies; from 1992 on, the series also reflect product data when available. (Product data were newly introduced in the revision issued in January 1997.) * Motor vehicle parts, repair (NAICS 3363pt). The Federal Reserve's annual estimates of motor vehicle repair parts were reestimated from 1972 on using a procedure introduced in the 2001 revision; the procedure sets the indexes proportional to an estimate of the outstanding stock of vehicles (in units) times the average age of the fleet, modified by (1) a cyclical pattern identified using data on consumer replacement tires and (2) a trend adjustment to control the combination of repair and original equipment parts production to the output of the industry. For the capacity system, the affected series include * Natural gas extraction (NAICS 211111pt). The new annual source data from Energy Information Agency introduced in the 2001 annual revision from 1992 were taken back to 1983. * Automobile and light duty trucks (NAICS 33611). As with the production index, the annual weighting of the unit data by model-year prices was extended back to 1987; also see the new methods discussion above. * Heavy duty trucks (NAICS 33612). The series, which previously began in 1987, was extended back to 1972 using current methods.New Market and Stage-of-Process Aggregates
To complement the industry measures, the monthly G.17 statistical release presents IP indexes for market groups (such as consumer goods, business equipment, and the like) as well as stage-of-process groups for utilization rates in manufacturing (advanced and primary processing). The 2002 revision introduces (1) new allocations of individual industry production indexes into market groups and (2) the assignment of utilization rates for total industry to more refined stage-of-process groups.
The new groups for capacity and capacity utilization are developed from a stage-of-process classification of the 227 industries in the IP industry structure; the classification is also used to develop new supplementary output indexes on industrial output by stage of process. The supplementary statistics on the gross value of products now provided in the G.17 release have been updated and revised to reflect the new allocation of industry series to the IP market groups.
The IP market groups depict industrial output as flowing from the production of industrial materials and nonindustrial supplies to the production of final products. Because a market group index represents the input to a defined economic activity (such as the production of goods for household consumption), an industry's output cannot generally be assigned to only one market group. (For example, the outputs of petroleum refineries and motor vehicle producers are inputs to multiple markets.) As a result, twenty-six industry series in the industrial production index are further disaggregated, based on detailed product and end-use statistics (for example, gasoline and jet fuel, autos and heavy trucks), so that their output can be assigned to multiple market groups.
With this revision, when appropriate, all industries in the IP index have their output allocated to multiple market groups. Market group shares for the 181 industries represented by individual series in the industrial production index were derived using relationships in the 1992 input-output (I-O) tables issued by the Bureau of Economic Analysis. The resulting changes in industry composition of the market group indexes led to a renaming of two major aggregates. The new names are highlighted in table E, which shows the new IP market structure (in abbreviated form). The index representing the input for nonindustrial use is named "nonindustrial supplies" (rather than "intermediate products"), and the index that combines inputs to final demand and nonindustrial use is named "final products and nonindustrial supplies" (rather than "total products").
The more noticeable revisions to the industry composition of the IP market groups were in the indexes for (1) business equipment, (2) other business supplies, a subgroup of the broader grouping of inputs for nonindustrial use; and (3) materials. Table F shows the revised and previous proportion of the major groups in the total index (in value-added terms) at five-year intervals starting in 1972 and for recent years. The revision lowered somewhat the estimate of the proportion of final products in total industrial output, primarily because the proportion for business equipment has been reduced. Many industries whose entire output was previously included in business equipment also produce equipment parts, and that portion is now included in materials. The composition of the consumer goods group was, on balance, little changed.
Table E. Revised industrial production market structure (abbreviated) ----------------------------------------------------------------------- | Correspondence to New with the 2002 Revision | Previous Structure ----------------------------------------------------------------------- | Total index | Total index | Major market groups: | Major market groups: ------------------- | ------------------- Final products and | nonindustrial supplies | Total products Final products | Final products Consumer goods | Consumer goods Equipment, total | Equipment, total Nonindustrial supplies | Intermediate products Construction | Construction supplies Other business (or Business) | Business supplies Materials (or industrial materials)| Materials Non-energy | --- Durable | Durable Nondurable | Nondurable Energy | Energy -----------------------------------------------------------------------
Table F. Revised annual proportions of major market groups in industrial production, selected years Item 1972 1977 1982 1987 1992 1997 2000 2001 --Billions of dollars-- Total Index 414.6 711.3 1,118.5 1,429.6 1,718.4 2,252.5 2,489.3 -- (previous) 413.2 697.2 1,090.9 1,387.7 1,668.4 2,193.5 -- -- --Percentage distribution-- Total Index 100 100 100 100 100 100 100 100 Final products and nonindustrial supplies 55.6 52.3 51.7 55.6 57.2 57.5 58.1 59.5 (previous) 61.9 57.3 56.0 59.2 60.8 60.6 59.9 61.9 Final products 39.5 37.1 37.9 39.8 41.3 40.7 41.2 42.5 (previous) 47.7 44.1 43.9 44.4 46.3 45.8 44.8 46.4 Consumer goods 26.1 23.8 23.0 25.3 27.5 27.1 27.7 29.2 (previous) 27.9 25.8 24.3 27.1 29.0 28.3 28.4 30.5 Equipment, total 13.4 13.4 14.9 14.5 13.8 13.6 13.6 13.3 (previous) 19.8 18.3 19.5 17.3 17.3 17.4 16.4 16.0 Business 10.5 10.6 10.5 10.2 10.4 10.9 11.1 10.7 (previous) 14.1 14.5 13.8 12.3 13.2 14.3 13.7 13.1 Nonindustrial supplies 16.1 15.2 13.9 15.8 16.0 16.8 16.9 17.0 (previous) 14.2 13.2 12.2 14.8 14.5 14.8 15.1 15.5 Construction 7.5 7.0 5.6 6.4 6.0 6.5 6.7 6.8 (previous) 6.8 6.1 4.6 5.9 5.4 5.9 6.4 6.6 Other business 8.6 8.2 8.3 9.4 10.0 10.2 10.2 10.2 (previous) 7.4 7.1 7.5 8.9 9.1 9.0 8.7 8.9 Materials 44.4 47.7 48.3 44.4 42.8 42.5 41.9 40.5 (previous) 38.1 42.7 44.0 40.8 39.2 39.4 40.1 38.1 Nonenergy 34.8 34.2 27.9 32.0 31.6 33.3 32.0 30.8 (previous) 29.6 30.8 25.5 30.1 29.6 31.7 31.3 30.0 Energy 9.6 13.5 20.4 12.4 11.2 9.3 9.9 9.7 (previous) 8.5 11.9 18.5 10.7 9.6 7.7 8.8 8.1The input-output analysis resulted in a substantial refinement of the composition of the "other business" component of nonindustrial supplies. Outside of energy, newspaper advertising, job printing, and periodical publishing still are the predominant components in this grouping; but, with this revision, noticeable portions of the output of plastics products, microprocessor units (for computers assembled by nonindustrial business), and of numerous other smaller industries have been added. The resulting market group is now a noticeably larger proportion of the overall index. The detailed series that compose each market group are documented in the table at www.federalreserve.gov/releases/g17/sdtab2.pdf.
Charts 4-7 show the cyclical profile of each major group and their components. Despite the changed composition of most of these series, their cyclical patterns are not materially changed by the revision. (The revisions to the indexes for consumer durables and business equipment during the 1980s reflect, in large part, a reallocation of the consumer-as opposed to business-share of total light vehicle production on the basis of the data that have been introduced for those years; see the previous section).
Production in the economy can be subdivided into distinct segments so that, when arranged sequentially, the outputs of earlier segments become inputs to subsequent ones; the sequence ends with final demand. This structure of the production process allows industry data to be grouped into stages of processing. In this revision, input-output methods were used to classify the industries in the IP index into four stages of processing-crude, primary, semifinished, and finished. For example, the organic chemical industry sells to makers of plastic materials, who sell to makers of plastic bottles, who sell to soft drink bottlers, who sell soda to consumers; these industries would be placed in sequential stages, reflecting the way the transactions flow, ending with final demand.
These stage-of-process (SOP) groupings, which assign each IP industry series to a single processing stage, may be used in two ways: (1) to construct indexes for the input to each stage of process and (2) to construct indexes for the output of each stage of process. The existing IP market groups are akin to SOP input indexes; for example, the IP index for final products is the industrial input to final demand (less exports), and the IP index for nonindustrial supplies is the input to nonindustrial finished processors. From a stage-of-process perspective, however, the IP materials index, which combines the production for all earlier stages of process in one group, is broader than desirable for analysis of industrial production.
In this revision the SOP groups are applied to the industrial production and capacity utilization data in three ways:
1. The IP index for materials represents all domestically produced inputs for intermediate industrial use, that is, for finished, semifinished, and primary industrial processors. With this revision, the SOP classification of IP industries was used to develop two new components for the IP materials index: (1) non-energy inputs to finished processors and (2) non-energy inputs to primary and semifinished processors. The new indexes are shown as memo items on table 5. The two SOP-based materials subaggregates are new combinations of the individual series in non-energy materials. The index for inputs to finished processors is mainly composed of consumer durable parts, equipment parts, textile product materials, and paper product materials. The index for inputs to primary and semifinished processors combines basic metals, miscellaneous durable materials, chemical materials, and other nondurable materials. 2. The SOP classification of IP industries was used to develop three aggregates of industries within total industrial capacity and capacity utilization: (1) crude processing, (2) primary and semifinished processing, and (3) finished processing. These aggregates have been compiled from 1972 on. The results are linked to sparser data for earlier years to form continuous times series from 1967 on. The relationship between the new stage-of-process groups for capacity and capacity utilization and the previous published aggregates is summarized in table G. The first new aggregate, crude processing, covers a relatively small portion of total industrial capacity and consists of logging (NAICS 1133), much of mining (excluding stone, sand, and gravel mining and oil and gas drilling, which are NAICS 21231, 21221-2, and 213111) and some basic manufacturing industries, including basic chemicals (NAICS 3251); fertilizers, pesticides, and other agricultural chemicals (NAICS 32531,2); pulp, paper, and paperboard mills (NAICS 3221); and alumina, aluminum, and other nonferrous production and processing mills (NAICS 3313,4). Table G. Revised industrial capacity stage-of-process structure ----------------------------------------------------------------------- | Correspondence to New with the 2002 Revision | Previous Structure ----------------------------------------------------------------------- | Total industry | Total industry | Stage-of-process groups: | Stage-of-process groups: ----------------------- | ----------------------- Crude processing | Most of mining and some basic | manufacturing industries Primary and semi-finished | Primary processing and processing | utilities Finished processing | Advanced processing and | oil and gas well drilling ----------------------------------------------------------------------- NOTE. The correspondences shown in the table are illustrative. See text for a fuller discussion. ----------------------------------------------------------------------- Primary and semifinished processing, which is the second new aggregate for capacity, combines the two middle SOP groups to obtain an aggregate that loosely corresponds to the previously published aggregate, primary processing. The new aggregate excludes the basic manufacturing industries involved in crude processing, as well as part of textile mill products (carpet and rug mills and curtain and linen mills), which is now included in the third SOP capacity aggregate. Primary and semifinished processing also includes utilities and portions of several 2-digit SIC industries included in the former advanced processing group. The third SOP capacity aggregate is finished processing, which generally corresponds to the previously published aggregate, advanced processing. In addition to the industries previously classified as advanced processing, this new group includes oil and gas well drilling (a mining industry, previously not included in the capacity SOP aggregates) and carpet and rug mills (previously included in primary processing). Finished processing excludes, however, those portions of 2-digit SIC industries included in the former advanced processing group but which have been moved to primary and semifinished processing. Despite the many differences from the previously published manufacturing aggregates, the new aggregates are quite similar in cyclical profile. Chart 8 plots the rates of capacity utilization for these three stages of processing. 3. Lastly, given the availability of SOP classifications for all detailed industries in the IP index, new supplementary output indexes measuring industrial output by stage-of-process-formed by using gross value weights to combine the IP indexes in each stage-of-process group-are introduced for publication in the regular monthly release.
 These comparisons are based on quarterly averages of utilization rates.  For comparison with rates for industry subsectors, the period 1972-2001 will be used to represent the long-term average for capacity utilization rates.  See www.census.gov/epcd/www/naics.html for further information on NAICS.  Kimberly Bayard and Shawn Klimek, "Reclassifying the Census of Manufactures from the Standard Industrial Classification System to the North American Industry Classification System, 1963 to 1992" (forthcoming working paper).  A prototype of the tables that will be used in the monthly G.17 statistical release beginning in December 2002 is available at www.federalreserve.gov/releases/g17/g17_rev_2002_11.txt The format of the release is little changed from the format that was introduced in February 2001. At that time, the monthly G.17 release was redesigned to include, for IP, major market and 2-digit SIC industry groups; for capacity utilization, major 2-digit SIC groups; and for capacity and electric power, major aggregates. The more detailed market and industry data that were previously provided in the G.17 continued to be published in tables available from the Board's web site.  See Mark Doms, "Prices for Communications Equipment," in Carol Corrado, John Haltiwanger, and Daniel Sichel, eds., Measuring Capital in a New Economy. (Chicago: University of Chicago Press) (forthcoming).  The basic method used to estimate light vehicle capacity was reviewed on pp. 442-3 of Richard Raddock, "Recent Developments in Industrial Capacity and Utilization," Federal Reserve Bulletin, vol. 76 (June 1990), pp. 411-435.  An annually weighted version of the Fisher-ideal index formula was introduced as the aggregation method for the IP index in a historical revision issued in January 1997; the formulation was refined to use monthly weights in the fall 2000 annual revision. The refined version affected data from February 1992 on, whereas the original formulation was applied beginning July 1977. See pp. 72-76 in Carol Corrado, Charles Gilbert, and Richard Raddock, "Industrial Production and Capacity Utilization: Historical Revision and Recent Developments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92, and page 137 in Carol Corrado, "Industrial Production and Capacity Utilization: the 2000 Annual Revision," vol. 87 (March 2001), pp.132-148 for further information on this formulation for aggregation. The derivation of the weights used in aggregation is also discussed in these articles.  In particular, the May 1993 revision introduced explicit adjustments for "drift" in the data from the Annual Survey of Manufacturers from 1987 to 1991; the adjustments were refined with the availability of results from the 1992 Census and incorporated in the fall 1994 annual revision. For further discussion, see pp. 24-25 in Richard Raddock, "Industrial Production and Capacity Utilization: A Revision," vol. 81 (January 1995), Federal Reserve Bulletin, pp. 16-26. These adjustments are newly applied to data from 1982 to 1986. Other methods, such as the controlling of all industry output series in manufacturing to comprehensive real output indexes, were applied to data for all years.  See pp. 23-24 in Richard Raddock, "A Revision to Industrial Production and Capacity Utilization, 1991-95," vol. 82 (January 1996), Federal Reserve Bulletin, pp 16-25, for a description of seasonal factors in the production indexes.  See Industrial Production: 1986 Edition. (Washington D.C.: Board of Governors of the Federal Reserve System). 1986, pp. 77-86.  See p. 24 in Charles Gilbert and Richard Raddock, "Industrial Production and Capacity Utilization: the 1998 Annual Revision," vol. 85 (January 1999), Federal Reserve Bulletin, pp. 20-33 for a further elaboration of the adjustment.  This revision was reviewed in appendix B (pp. 89-92) of Carol Corrado, Charles Gilbert, and Richard Raddock, "Industrial Production and Capacity Utilization: Historical Revision and Recent Developments" (February 1997).  Models are used to develop most of the Federal Reserve's estimates of the annual change in industry capacity. The models related an implied capacity measure (calculated as the industrial production index for an industry divided by survey data on utilization rates for the industry) to an industry capital input measure and a variable that measures the average age of the industry's net capital stocks. See pp. 196-97 in Charles Gilbert, Norman Morin, and Richard Raddock, "Industrial Production and Capacity Utilization: The 1999 Annual Revision," vol. 86 (March 2000), pp.188-205 for a description of how capacity is modeled with utilization rates and information on industry capital stocks and capital input.  In the industrial production index, a consumer vehicle that is leased is included in consumer goods. Information on retail purchases and leases is used to determine the overall share.  The I-O make, use, and bridge tables can be used to express the total domestic production of a good as the sum of its use as an intermediate input and its absorption by final demand (consumption, investment, government, exports). The market group shares were derived from the allocation of the gross value of industrial output (in producer prices) to following major components: inputs for intermediate industrial use; inputs for intermediate nonindustrial use (construction and other business supplies); and inputs to final demand (consumer goods, producers' durable equipment, and government defense purchases). The IP market shares will be updated with the availability of I-O tables for 1997 in next year's fall revision of industrial production and capacity utilization.  Note that, as in the previously reported measures, the consumer goods group contains replacement car parts, canned and bottled beverages, and pharmaceutical preparations even though these products are distributed to consumers by nonindustrial businesses.  The analysis, which was conducted using 1992 input-output relationships, was similar to the analysis reported in Robert Gaddie and Maureen Zoller, "New Stage of Process Price System Developed for the Producer Price Index," Monthly Labor Review (April 1988), pp. 3-16.  The crude processing capacity aggregate excludes a few other manufacturing industries that are classified as crude processors in the IP industry structure, but, because they are not included as individual series in the capacity system, they could not be included in the capacity aggregate for crude processing. These include alumina refining (NAICS 331311), primary aluminum production (NAICS 331312), nonferrous metal (except aluminum) smelting and refining (NAICS 33141), wood container and pallet (NAICS 32192), support activities for printing (NAICS 32312), and lime (NAICS 32741).  These include printing and related support activities (NAICS 3231); paints and adhesives (NAICS 3255); and newspaper, periodical, book, and directory publishers (NAICS 5111). The primary and semifinished capacity aggregate includes turbine and turbine generator set units (NAICS 333611). This industry is included in finished processing in the SOP classification of IP industries, but the capacity system combines NAICS 333611 with other industries in NAICS 3336. The resulting aggregate consists mainly of industries classified as semifinished processors.
Data Availability and Publication Changes
A document with printed tables of the revised estimates of series shown in the G.17 release will be 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.
An expanded version of this release will be published in a forthcoming article in the Federal Reserve Bulletin.
G.17 Revision Release Tables:
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