BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

DIVISION OF RESEARCH AND STATISTICS

For release at 4:00pm EST

December 18, 2015

Industrial Production and Capacity Utilization:

Addendum to the 2015 Annual Revision

December 2015
Industrial Production and Capacity Utilization:

Addendum to the 2015 Annual Revision

Kim Bayard, David Byrne, Charles Gilbert, and Justin Pierce, of the Board’s Division of

Research and Statistics, prepared this article.

On July 21, 2015, the Federal Reserve published revisions to its index of industrial

production (IP) and the related measures of capacity utilization. The press release that

accompanied the revised estimates described both the results and the technical aspects of the

revision.1 This addendum provides (1) additional information on the revised capacity utilization

estimates for the printing and support industry, (2) an overview of the methodological changes to

the IP estimates for selected high-technology industries, (3) a description of the change in source

data for capacity for the fertilizer industry, (4) an elaboration on the conversion of the IP indexes

to the 2012 North American Industry Classification System (NAICS) and the effects of that

conversion on the benchmarking process for some industries, and (5) a table of mappings between

the pre-revision and post-revision IP and capacity indexes for those industries affected by the

incorporation of the 2012 NAICS.

Revision to Capacity Utilization Rates for Printing and Support

The incorporation of newly available and revised source data into the IP and capacity

indexes for the printing and support industry led to sizable downward revisions to utilization rates

for recent years. For IP, the new information included measures of gross output from the Census

Bureau’s 2012 Census of Manufactures (COM) and its 2013 Annual Survey of Manufactures

(ASM). The production index also incorporated revised data on production worker hours from the

Bureau of Labor Statistics (BLS). For capacity, the Federal Reserve incorporated data on capacity

utilization rates through the end of 2014 from the Census Bureau’s Quarterly Survey of Plant

Capacity (QSPC).

After incorporating the most recent data from these sources, the revisions to the IP index

for printing and support were fairly small, but the revisions to capacity were much larger. With

the most recent revision, capacity was estimated to have increased about 1/2 percent per year, on

average, from 2011 through 2014; previously, capacity had been estimated to have fallen

23/4 percent per year, on average, over that period. As a result, the downward revisions to the rates

of capacity utilization over that period cumulate to nearly 10 percentage points by the fourth

quarter of 2014.2 The revised utilization rates for the printing and support industry for the period

from 2011 to 2014 are now closer to the levels published by the Census Bureau, which had been

lower than those published by the Federal Reserve prior to the annual revision.3

1 See Board of Governors of the Federal Reserve System (2015), “Annual Revision,” press release, July 21,

www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm.

2 See table 6 of the annual revision press release, which is available on the Board’s website at

www.federalreserve.gov/releases/g17/revisions/Current/table6_rev.htm.

3 The QSPC utilization rate data are publicly available on the Census Bureau’s website: at

www.census.gov/manufacturing/capacity/historical_data/index.html.

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Changes to IP Estimates for Selected High-Technology Industries

For the past several years, the price deflators used in the benchmark IP indexes for

selected high-technology industries, including semiconductors and communications equipment,

have been based on research by the staff of the Federal Reserve Board; these price deflators were

updated in the most recent annual revision. In addition, the most recent revision incorporated a

new price index for computer storage devices.

Update to annual benchmark index for microprocessor units

The 2013 annual revision to IP introduced an annual price index for microprocessor units

(MPUs), which covered the period from 2007 through 2011 and was based on a hedonic

regression of model-level list prices for MPUs on measures of their performance on benchmark

tasks.4 The price index was updated based on further research and was extended through 2013.5

Update to annual benchmarks and quarterly frequency price indexes for communications

equipment

Annual benchmark price indexes for the communications equipment industry are based

on data from an array of sources, including private consultancies, trade groups, and the BLS

producer prices program. These sources and the methods used to construct product-level price

indexes and to aggregate them to industry-level benchmarks are discussed in a recent research

paper co-authored by Federal Reserve staff.6 Quarterly frequency price indexes for four

components of the communications equipment industry—wireless (cellular) networking

equipment; data networking equipment; transmission, local loop, and legacy central office

equipment; and enterprise and home voice equipment—have been updated and posted to the

Federal Reserve Board’s website.7

Changes to annual benchmark index for computer storage devices

For the 2002 through 2014 period, the annual benchmark price index for computer

storage equipment is now based on quarterly data from IDC, a company specializing in

information technology industries, for factory unit shipments and revenues for individual models.

Shipments were further distinguished by customization to suit particular installation

characteristics, such as whether the device is used for network-attached storage or for a storage

area network. Prices per unit of capacity for each model-installation item were constructed by

dividing total revenue by total terabytes shipped. Price changes were chain-weighted to create a

quarterly frequency matched-model aggregate price index, the annual average of which was used

4 More information on the price index is available on the Board’s website at

www.federalreserve.gov/releases/g17/MpuPriceIndex.htm.

5 The updated price index and additional detail on the data sources and estimation methods are available on

the Board’s website at www.federalreserve.gov/releases/g17/download.htm#related_data.

6 See David M. Byrne and Carol A. Corrado (2015), “Prices for Communications Equipment: Rewriting the

Record,” Finance and Economics Discussion Series 2015–069 (Washington: Board of Governors of the Federal

Reserve System, September), http://dx.doi.org/10.17016/FEDS.2015.069.

7 The price indexes are available on the Board’s website at

www.federalreserve.gov/releases/g17/commequip_price_indexes.htm.

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for benchmarking. Data on small-scale systems (devices with fewer than three disks) were

excluded to better match the composition of domestic production.8 Additional detail is available

in an article by Federal Reserve staff, and the price indexes for computer storage equipment are

available on the Federal Reserve’s website.9

Change in Source Data for Fertilizer Capacity

With the most recent annual revision, the capacity index for fertilizer (NAICS 32531)

beginning in 1997 is derived from semiannual data on production (in short tons) and capacity

utilization from The Fertilizer Institute (TFI). TFI publishes product-level data for anhydrous

ammonia, ammonium nitrate, ammonium sulfate, nitrogen solutions, phosphoric acid, and urea.

Calculation of an end-of-year capacity measure for fertilizer proceeds in three steps.

First, semiannual capacity for each of the products listed above is calculated as the ratio of

production to capacity utilization. Second, end-of-year capacity for each product for a particular

year is calculated as the average of second-half capacity for that year and first-half capacity for

the following year. Third, total capacity for the industry is calculated as a weighted sum of the

product-level end-of-year capacity figures, for which the weights for each product are the same as

those used for aggregating the products in the monthly production index.

For the period prior to 1997, the capacity index is still based on fourth-quarter utilization

rates from the Census Bureau’s annual Survey of Plant Capacity, which was conducted for the

fourth quarters of each year through 2006.

Conversion of the IP Indexes to the 2012 NAICS

Since 2002, the IP indexes have been structured to follow the NAICS for the period from

1972 forward. Previously, the indexes had been structured to follow the Standard Industrial

Classification system for their entire history, and they still do for the period prior to 1972.

The first issuance of the IP indexes based on NAICS reflected the 1997 version of the

codes, and as NAICS was updated in 2002, 2007, and 2012, the IP structure was updated to reflect

the changes inherent in each new NAICS release. For the industrial sector, the changes in the

2002 and 2007 versions of NAICS only affected a few industries, whereas the changes to the

2012 NAICS were more extensive. In particular, within manufacturing, the 2007 NAICS

delineated 472 six-digit industries, but the 2012 version reduced that count to only 364 by

creating 66 new six-digit industries that combined anywhere from 2 to 8 six-digit industries as

defined by the 2007 NAICS.

Because the most detailed IP indexes often group multiple six-digit industries, the effects

on the IP structure were smaller than the changes to the NAICS structure (before the annual

8 For further details, see David Byrne (2015), “Prices for Data Storage Equipment and the State of IT

Innovation,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, July 1),

www.federalreserve.gov/econresdata/notes/feds-notes/default.html; the data are available for download on the

Board’s website at www.federalreserve.gov/releases/g17/ComputerStoragePriceIndex.htm.

9 For the article, see Byrne, “Prices for Data Storage Equipment,” in note 8; for the price indexes, see the

previously cited information about their availability, also in note 8.

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revision, the IP system was based on 312 individual indexes; the number is now 299). A

significant number of the new 2012 NAICS industries resulted from merging multiple

2007 NAICS industries that were already entirely within a single IP index. The following table

shows the detailed IP indexes that were modified with the revision. Many indexes have the same

coverage as the previous versions, but the NAICS industry that contained them disappeared as a

result of the conversion to the 2012 NAICS. The new indexes formed from multiple indexes

typically used the same high-frequency indicator for each of the previously separate indexes, at

least for recent years, so little high-frequency information was lost as a result of the revision.

The redefinition of the IP indexes to the 2012 NAICS did have one material effect on the

index values. The production indexes are constructed so that their annual levels are equal to

benchmark production indexes, which are defined for each six-digit NAICS industry as the

deflated gross output of the industry. These six-digit benchmark production indexes are then

aggregated to a higher level using value-added weights. The benchmark production index for a

single 2012 NAICS industry that corresponds to multiple 2007 NAICS industries will not

necessarily be identical to the value-added weighted aggregate of the indexes for the component

2007 NAICS industries. One instance where the benchmark for an industry revised notably was

primary smelting and refining of nonferrous metals (NAICS 33141). Under the 2012 NAICS, a

single six-digit industry (NAICS 331410) covers all nonferrous smelting and refining. Under the

2007 NAICS, however, copper smelting and refining was a separate six-digit industry (NAICS

331411) from other nonferrous smelting and refining (NAICS 331419). Using the gross output

measure instead of aggregating the component gross-value-based indexes with value-added

weights resulted in the new benchmark index for NAICS 33141 increasing more slowly, on

balance, than the previous index over the period from the mid-1990s forward.

Although some aggregate benchmark indexes were changed as a result of the redefinition

of NAICS industries, the annual benchmark information for the 2007 NAICS industries was not

entirely discarded for those IP indexes that now cover only a portion of a 2012 NAICS industry.

In these cases, the benchmark indexes under the 2007 NAICS were calculated through 2011, and,

where possible, were extended through 2013 based on product shipments from the ASM. These

“sub-benchmark” indexes were then adjusted so that they aggregated to the higher-level

benchmark indexes based on the 2012 NAICS. Each of the component indexes was then

constructed so that its annual levels were equal to the sub-benchmark index over the history of the

index. Consequently, the detailed indexes that are just portions of a 2012 NAICS industry better

reflect the comprehensive annual data compiled using earlier versions of NAICS.

One example of an industry for which sub-benchmarks were used is tobacco products

(NAICS 3122). Under the 2012 NAICS, all tobacco products are covered by a single NAICS

six-digit industry (NAICS 312230). Thus, its benchmark index is computed as gross output for

tobacco products divided by a deflator for industry shipments. Under the 2007 NAICS, separate

six-digit industries existed for tobacco stemming and drying (NAICS 312210), cigarettes (NAICS

312221), and other tobacco products (NAICS 312229). Using data from the ASM and the COM,

benchmark output indexes had been constructed through 2011 for each of the three six-digit

industries under the 2007 NAICS. Data on product shipments for these three categories, which

continued to be compiled by the ASM and COM even after they adopted the 2012 NAICS in

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2012, were used to extend these sub-benchmark indexes (under the 2012 NAICS) through 2013.10

An aggregate index for tobacco products was then computed from the sub-benchmark indexes for

its components, and if the aggregate did not equal the benchmark index for overall tobacco

products, the sub-benchmark indexes were adjusted so that it would. The component IP indexes

were then constructed so that their annual averages equaled these sub-benchmark indexes.

10 Similarly, the value-added estimates for the three categories were extended through 2013 using the product

shipments.

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2015 Annual Revision Industry Code Changes

Revised (2012 NAICS) Revised (2007 NAICS)

Publication code Index description Publication code Index description

N221112A4T8 Fossil fuel and other electric power

generation NAICS=221112,4-8

N221112A9 Fossil fuel and other electric power

generation NAICS=221112,9

Unpublished Soybean and other oilseed

processing NAICS=311224

Unpublished Soybean and other oilseed

processing NAICS=311222,3

Unpublished Chocolate and confectionery

NAICS=31134,5

Unpublished Chocolate and confectionery

NAICS=31132-4

Unpubished Cigarette NAICS=3122pt. Unpublished Cigarette NAICS=312221

Unpublished Cigars NAICS=3122pt. Unpublished Cigars NAICS=312229pt.

Unpublished Snuff and chewing tobacco

NAICS=312230pt.

Unpublished Snuff and chewing tobacco

NAICS=312229pt

Unpublished Tobacco stemming and redrying

NAICS=3122pt.

Unpublished Tobacco stemming and redrying

NAICS=31221

G3149 Other textile product mills

NAICS=3149

Unpublished Tire cord and tire fabric mills

NAICS=314992

Unpublished Other textile products except tire

cord and fabrics

NAICS=31491,314991,9

Unpublished Women’s, girls’, infants’, and other

cut and sew apparel

NAICS=31524,8

Unpublished Women’s and girls’ cut and sew

apparel NAICS=31523

Unpublished Other cut and sew apparel

NAICS=31529

Unpublished Coated and laminated paper and

plastics film NAICS=32222pt.

Unpublished Coated and laminated paper and

plastics film NAICS=322221,2

Unpublished Paper bag and coated and treated

paper NAICS=32222pt.

Unpublished Plastics, foil, and paper bag,

laminated aluminum foil,

surface-coated paperboard

NAICS=322223-6

N32518C Alkalies and chlorine

NAICS=32518pt.

N325181 Alkalies and chlorine

NAICS=325181

Unpublished Nuclear materials

NAICS=32518pt.

Unpublished Nuclear materials

NAICS=325188pt.

Unpublished Misc. other basic inorganic

chemicals NAICS=32518pt.

G325188A Acids, phosphates, and sulfates

NAICS=325188pt.

G325188Z Other inorganic chemicals

NAICS=325188pt.

Unpublished Carbon black NAICS=325182

G32551 Paint and coating NAICS=32551 Unpublished Construction paints

NAICS=32551pt.

Unpublished Industrial paints NAICS=32551pt.

Note: The following abbreviations are used: pt. = part; misc. = miscellaneous.

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2015 Annual Revision Industry Code Changes - Continued

Revised (2012 NAICS) Revised (2007 NAICS)

Publication code Index description Publication code Index description

G32711 Pottery, ceramics, and plumbing

fixture NAICS=32711

Unpublished Vitreous china plumbing fixture

and china and earthenware

bathroom accessories

NAICS=327111

Unpublished Vitreous china, fine earthenware,

and other pottery product

NAICS=327112

Unpublished Porcelain electrical supply

NAICS=327113

Unpublished Brick and structural clay tile

NAICS=32712pt.

Unpublished Brick and structural clay tile

NAICS=327121

Unpublished Ceramic tile and refractory

NAICS=327122,4,5 Unpublished Ceramic tile and refractory, and

other structural clay product

NAICS=32712pt. Unpublished Other structural clay product

NAICS=327123

N331313P Primary aluminum production

NAICS=331313pt.

N331312 Primary aluminum production

NAICS=331312

Unpublished Alumina refining

NAICS=331313pt.

Unpublished Alumina refining NAICS=331311

N331315A8M Misc. aluminum materials

NAICS=331315,8pt.

N331315A9 Misc. aluminum materials

NAICS=331315,9

N331318E Aluminum extruded product

NAICS=331318pt.

N331316 Aluminum extruded product

NAICS=331316

N33141N Primary smelting and refining of

nonferrous metal (except copper

and aluminum) NAICS=33141pt.

N331419 Primary smelting and refining of

nonferrous metal (except copper

and aluminum) NAICS=331419

Unpublished Copper refining NAICS=33141pt. Unpublished Copper refining NAICS=331411pt.

Unpublished Copper smelting NAICS=33141pt. Unpublished Copper smelting

NAICS=331411pt.

Unpublished Nonferrous metal foundries

NAICS=33152

Unpublished Aluminum foundries

NAICS=331521,4

Unpublished Nonferrous foundries except

aluminum NAICS=331522,5,8

Unpublished Ammunition, small arms,

ordnance, and ordnance

accessories NAICS=332992-4

Unpublished Ordnance NAICS=332992-5

Unpubished Semiconductor machinery

NAICS=333242

Unpublished Semiconductor machinery

NAICS=333295

Unpublished Industrial machinery ex.

semiconductor fabrication

NAICS=333241,3-9

Unpublished Industrial machinery ex.

semiconductor fabrication

NAICS=33321,2,91-4,8

Unpublished Air purification equip., fans, and

blowers NAICS=333413

Unpublished Air purification equip., fans, and

blowers NAICS=333411,2

Note: The following abbreviations are used: pt. = part; misc. = miscellaneous.

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2015 Annual Revision Industry Code Changes - Continued

Revised (2012 NAICS) Revised (2007 NAICS)

Publication code Index description Publication code Index description

Unpublished Other metalworking machinery

NAICS=333511-4,9

Unpublished Other metalworking machinery

NAICS=333511,4-8

Unpublished Machine tools NAICS=333517 Unpublished Machine tools NAICS=333512,3

Unpublished Computer storage devices, business

NAICS=334112pt.

Unpublished Computer storage and terminals,

business NAICS=334112,3pt.

Unpublished Computer storage devices,

consumer NAICS=334112pt.

Unpublished Computer storage and terminals,

consumer NAICS=334112,3pt.

Unpublished Computer terminals and other

peripheral equipment, business

NAICS=334118pt.

Unpublished Computer printers, business

NAICS=334119pt.

Unpublished Computer terminals and other

peripheral equipment, consumer

NAICS=334118pt.

Unpublished Computer printers, consumer

NAICS=334119pt.

Unpublished Other electronic components

NAICS=334416,7,9

Unpublished Electron tube NAICS=334411

Unpublished Other electronic components

NAICS=334414-7,9

G33521 Small electrical appliance

NAICS=33521

Unpublished Electric housewares and household

fan NAICS=335211

Unpublished Household vacuum cleaner

NAICS=335212

Unpublished Other motor vehicle parts, original

equip. NAICS=33639pt.

Unpublished Motor vehicle air-conditioning,

original equip. NAICS=336391pt.

Unpublished All other motor vehicle parts,

original equip. NAICS=336399pt.

Unpublished Other motor vehicle parts, repair

NAICS=33639pt.

Unpublished Motor vehicle air-conditioning,

repair NAICS=336391pt.

Unpublished All other motor vehicle parts,

repair NAICS=336399pt.

Note: The following abbreviations are used: pt. = part; misc. = miscellaneous.

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