Industrial production and capacity utilization: the 2003 annual revision

Federal Reserve Bulletin, Winter, 2004 by Kimberly Bayard, Norman Morin, Vanessa Haleco

On November 10, 2003, the Board of Governors of the Federal Reserve issued revisions to its 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 them appear after 2000 (chart 1). (1) The levels, but not the rates of change, for years before 1972 were also revised.

[GRAPHIC OMITTED]

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 (table 1). The changes to total industrial production in other years are slight. The revision still places the most recent peak in total IP in June 2000 and the corresponding trough in December 2001; the 6 1/4 percent peak-to-trough decline is about 1/2 percentage point less than the previous estimate. After the trough, the total index showed gains in the first half of 2002, only to trend down again until mid-2003 and then to head up.

The revised measures of overall capacity are only minimally different from earlier estimates. The rate of increase of industrial capacity was revised up, on average, 0.1 percentage point per year over 1999-2002. The general contour of the series shows a rapid acceleration during the second half of the 1990s and a slowing since then. The rate of industrial capacity utilization remained at a low level in the third quarter of 2003--the last full quarter of data--and was unchanged by the revision; at 74.6 percent, the rate is 4 percentage points below the trough of the 1990-91 recession and 6.7 percentage points below its 1972-2002 average. (2) The operating rates in manufacturing during 2002 and 2003 were also close to previous estimates. Capacity utilization at mines was slightly lower in 2002 and a bit higher by the third quarter of 2003 than previously reported. The revision found that the utilization rates at utilities during 2001 and 2002 were higher than those reported earlier but that the rates in the third quarter of 2003 were a bit lower than those reported previously.

The statistical revisions to the IP index were derived principally from information in recent annual releases from the U.S. Census Bureau: the revision to the 2000 Annual Survey of Manufactures (ASM), the 2001 ASM, the 2001 Services Annual Survey (for publishing), and selected 2002 Current Industrial Reports. Revised annual data from the U.S. Geological Survey (USGS) on minerals (except fuels) for 2001 and some new data for 2002 were also introduced. Annual data from the U.S. Forest Service were used to generate estimates for logging. Also, the revised 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.

Revisions to the capacity indexes and capacity utilization rates were derived principally from the revised production indexes, from the Census Bureau's Survey of Plant Capacity for the fourth quarter of 2002, and from newly available data for 2002 on industrial capacity from the USGS, the Energy Information Agency of the Department of Energy, and other organizations. Also, the relationships used to estimate the current changes in manufacturing capacity were updated from Census data on capital spending by industry for 2001 and from indicators of the rates of change in manufacturers' capital spending in 2002 and 2003.

The revision included a rearrangement of the market groups based on the 1997 input-output tables recently issued by the Bureau of Economic Analysis (BEA). Finally, the revision included updates to the value-added weights used in aggregating 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 111.1 percent of output in 1997 and the capacity index at 148.8 percent of output in 1997; both indexes are slightly higher than reported previously (chart 1). As noted earlier, the utilization rate for total industry--the ratio of IP to capacity--was unchanged for the third quarter of 2003.

Appendix tables A.1 and A.2 report the revised production, capacity, and utilization series for total industry. Appendix table A.3 shows the revised rates of change of industrial production for market and industry groups for the years 1999 through the third quarter of 2003. Appendix table A.4 shows the revised rates of change of industrial production for special aggregates and selected detail for the same time period. Appendix tables A.5, A.6, and A.7 show the revised figures for capacity utilization, capacity, and electric power use. Appendix tables A.3, A.4, A.6, and A.7 also show the difference between the revised and earlier rates of change. Appendix table A.5 also shows the difference between the revised and previous rates of capacity utilization for the final quarter of the year (the third quarter was used for 2003). Appendix table A.8 shows the annual proportions in total IP by market groups and industry groups.