U.S. October Industrial Production and Capacity Report (Text)

Following is the text of the U.S. industrial production and capacity utilization report.

Industrial production declined 0.4 percent in October after having increased 0.2 percent in September. Hurricane Sandy, which held down production in the Northeast region at the end of October, is estimated to have reduced the rate of change in total output by nearly 1 percentage point. The largest estimated storm-related effects included reductions in the output of utilities, of chemicals, of food, of transportation equipment, and of computers and electronic products. In October, the index for manufacturing decreased 0.9 percent; excluding storm-related effects, factory output was roughly unchanged from September. The output of utilities edged down 0.1 percent in October, and production at mines advanced 1.5 percent. At 96.6 percent of its 2007 average, total industrial production in October was 1.7 percent above its year-earlier level. Capacity utilization for total industry decreased 0.4 percentage point to 77.8 percent, a rate 2.5 percentage points below its long-run (1972-2011) average.

Market Groups

The production of consumer goods declined 0.9 percent in October. The output of durable goods advanced 0.2 percent, but the output of nondurables fell 1.2 percent. Among durable consumer goods categories, the index for automotive products rose after having declined in each of the previous three months; the production of home electronics moved up; the output of appliances, furniture, and carpeting was unchanged; and the index for miscellaneous goods decreased. Among non-energy nondurables, there were losses in the indexes for foods and tobacco, for clothing, and for paper products. Despite storm- related outages, the index for chemical products edged up. The output of consumer energy products stepped down 0.7 percent, partly reflecting a decline in residential utilities.

The output of business equipment moved down 1.2 percent in October, and all three of its major components registered similarly sized losses. The production of transit equipment decreased 1.2 percent, nearly offsetting its gain in September. The indexes for information processing equipment and for industrial and other equipment each fell slightly more than 1 percent in October, but both indexes were about 5 percent above their year-earlier levels.

The output of defense and space equipment declined 0.8 percent in October after a solid advance in September.

Among nonindustrial supplies, the output of construction supplies decreased 0.5 percent in October after having moved up in September, and the production of business supplies declined 0.7 percent in October and was 0.4 percent above its year- earlier level.

The output of materials to be processed further in the industrial sector rose 0.1 percent in October. A large gain in the index for energy materials more than offset declines in the non-energy categories. The output of durable materials decreased 0.5 percent, its third straight monthly decline. The index for consumer parts was unchanged in October and stood 15.1 percent above its year-earlier level. The output of equipment parts decreased 0.3 percent in October. The index for nondurable materials dropped 1.1 percent, reversing the gain of the previous month; each of its major components moved down. The output of energy materials rose 1.6 percent.

Industry Groups

Manufacturing output declined 0.9 percent in October. Excluding the estimated effects of Hurricane Sandy, manufacturing output was little changed from its September level. Declines were widespread across both durable and nondurable goods industries. The factory operating rate slipped to 75.9 percent in October, a rate 2.9 percentage points below its long-run average.

The production of durable goods decreased 0.6 percent in October. Losses of more than 1 percent were recorded in the indexes for machinery and for electrical equipment, appliances, and components. The output of wood products edged up, but production declined in all other major categories of durables. Capacity utilization for durable goods manufacturing was 75.8 percent, a rate 1.3 percentage points below its long-run average.

The index for nondurables dropped 1.0 percent in October and stood 0.5 percent below its year-earlier level. Sizable declines were recorded in October in the production of food, beverage, and tobacco products; apparel and leather products; paper; printing and support activities; and petroleum and coal products. Capacity utilization for nondurable manufacturing was 77.5 percent, a rate 3.4 percentage points below its long-run average.

Production in the non-NAICS manufacturing industries (logging and publishing) fell 3.4 percent in October. The output of publishers was held down by the effects of Hurricane Sandy.

Mining output advanced 1.5 percent in October after having gained 0.9 percent in September; the extraction of crude oil rose significantly in both months. Capacity utilization for mining moved up 1.1 percentage points in October to 90.4 percent, a rate 3.1 percentage points above its long-run average. The output of utilities edged down 0.1 percent in October; it was unchanged in September. The operating rate for utilities fell 0.2 percentage point in October to 75.2 percent, a rate 11.1 percentage points below its long-run average.

Capacity utilization rates in October for industries grouped by stage of process were as follows: At the crude stage, utilization increased 0.5 percentage point to 87.8 percent, a rate 1.5 percentage points above its long-run average; at the primary and semifinished stages, utilization dropped 0.4 percentage point to 75.0 percent, a rate 6.1 percentage points below its long-run average; and at the finished stage, utilization fell 1.0 percentage point to 76.4 percent, a rate 0.8 percentage point lower than its long-run average.

Notice Calculating Disaster Effects on Industrial Production

The effect of Hurricane Sandy on industrial output was estimated using the same procedures employed to assess the effects of previous natural disasters. For some industries, timely high-frequency physical product data that reflect the imprint of natural disasters on industrial output exist. For other industries, estimates of natural-disaster effects are constructed using the following methodology. First, information from the Federal Emergency Management Agency (FEMA) is used to determine which counties were affected by the disaster; FEMA issues Major Disaster Declarations and Emergency Declarations based on the needs of the counties. Second, the U.S. Census Bureau’s County Business Patterns data are used to measure each industry’s share of employment located in the affected counties. Third, the duration that facilities in the affected areas were idled is estimated based on the declaration type assigned to each county by FEMA. Fourth, given this information, an estimate of the magnitude of the disruption is constructed for each industry, and the industry-specific effects are aggregated using industrial production weights to obtain an overall estimate of the effect on top-line industrial production and on the major industry aggregates. In subsequent months, as physical product data and other information become available, the disaster effects are further updated and refined.

Notice Revision of Industrial Production and Capacity Utilization

The Federal Reserve Board plans to issue its annual revision to the index of industrial production (IP) and the related measures of capacity utilization at the end of March 2013. The revised IP indexes will incorporate detailed data from the 2011 Annual Survey of Manufactures, conducted by the U.S. Census Bureau. Annual data from the U.S. Geological Survey regarding metallic and nonmetallic minerals (except fuels) for 2011 will also be incorporated. The update will include revisions to the monthly indicator (either product data or input data) and to seasonal factors for each industry. In addition, the estimation methods for some series may be changed. Any modifications to the methods for estimating the output of an industry will affect the index from 1972 to the present.

Capacity and capacity utilization will be revised to incorporate data through the fourth quarter of 2012 from the Census Bureau’s Quarterly Survey of Plant Capacity, which covers manufacturing, along with new data on capacity from the U.S. Geological Survey, the U.S. Department of Energy, and other organizations.

Once the revision is published, it will be available on the Board’s website at www.federalreserve.gov/releases/G17. The 2013 release schedule is also available on the website.

References and Release Dates References.

The release for the annual revision that was published on March 30, 2012 is available on the Board’s website (www.federal reserve.gov/releases/g17/revisions/Current/DefaultRev.htm). A summary of the annual revision that incorporated back to 1972 production and capacity indexes reclassified according to the North American Industry Classification System is available in an article in the Federal Reserve Bulletin, vol. 89 (April 2003), pp. 151-176. A description of the aggregation methods for industrial production and capacity utilization is included in an article in the Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. The Federal Reserve methodology for constructing industry-level measures of capital is detailed in “Capital Stock Estimates for Manufacturing Industries: Methods and Data” by Mike Mohr and Charles Gilbert (1996), which can be obtained at: www.federalreserve.gov/releases/g17/CapitalStockDocLatest.pdf.

Industrial Production-1986 Edition contains a more detailed description of the other methods used to compile the industrial production index, plus a history of its development, a glossary of terms, and a bibliography. The major revisions to the IP indexes and capacity utilization since 1990 have been described in the Federal Reserve Bulletin (April 1990, June 1990, June 1993, March 1994, January 1995, January 1996, February 1997, February 1998, January 1999, March 2000, March 2001, March 2002, April 2003, Winter 2004, Winter 2005, March 2006, May 2007, August 2008, August 2009) or in an on-line staff study (www.federalreserve.gov/releases/g17/articles/rev2010/industrial 10.pdf).

Release Schedule At 9:15 a.m. on

2012: January 18, February 15, March 16, April 17, May 16, June 15, July 17, August 15, September 14, October 16, November 16, and December 14.

2013: January 16, February 15, March 15, April 16, May 15, June 14, July 16, August 15, September 16, October 17, November 15, and December 16.

SOURCE: Federal Reserve http://www.federalreserve.gov/releases/g17

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