Industrial Production Index (IPI)
What Is the Industrial Production Index (IPI)?
The industrial production index (IPI) is a month to month economic indicator measuring real output in the manufacturing, mining, electric, and gas industries, relative to a base year.
It is distributed in each month by the Federal Reserve Board (FRB) and reported on by the Conference Board, a part determined economic think tank. The FRB likewise releases amendments to previous estimates toward the finish of each and every March.
How Does the Industrial Production Index (IPI) Work?
The industrial production index (IPI) measures levels of production in the manufacturing, mining — including oil and gas field drilling services — and electrical and gas utilities sectors. It likewise measures capacity, an estimate of the production levels that could be economically kept up with; and capacity utilization, the ratio of actual output to capacity.
Working out the IPI
Industrial production and capacity levels are expressed as a index level relative to a base year — presently 2012. All in all, they don't express absolute production volumes or values, yet the percentage change in production relative to 2012.
The source data is shifted, including physical information sources and outputs like lots of steel; inflation- adjusted sales figures; and, now and again, hours logged by production workers. The FRB acquires this data from industry associations and government agencies and aggregates them into an index utilizing the Fisher-ideal formula.
The indices are accessible in [seasonally adjusted](/occasional change) and unadjusted configurations.
Inside the overall IPI, there are a number of sub-indices giving an itemized check out at the output of highly specific industries. Instances of a couple of the many industries for which month to month production data is accessible include: residential gas sales, ice cream and frozen sweet, floor covering and rug factories, spring and wire products, pig iron, sound and video equipment, and paper.
Benefits of the Industrial Production Index (IPI)
Industry-level data are helpful for managers and investors inside specific lines of business, while the composite index is an important macroeconomic indicator for [economists](/financial expert) and investors — vacillations inside the industrial sector account for the greater part of the variation in overall economic growth.
Simultaneously, IPI contrasts from the most famous measure of economic output, gross domestic product (GDP): GDP measures the price paid toward the end-client, so it incorporates value-added in the retail sector, which IPI overlooks. It is likewise important to note that the [industrial sector](/industrial-merchandise sector) makes up a low and falling share of the U.S. economy — under 20% of GDP starting around 2016.
Capacity utilization is a helpful indicator of the strength of demand. Low capacity utilization, or overcapacity, signals weak demand. Policymakers could peruse this as a signal that fiscal or monetary stimulus is required. Investors, in the interim, could decipher it as an indication of an approaching downturn, or — contingent upon the signals from Washington — as an indication of coming stimulus.
High capacity utilization, then again, can act as a warning that the economy is overheating, recommending the risk of price rises and asset bubbles. Policymakers could react to those dangers with interest rate increases or fiscal austerity. On the other hand, they could let the business cycle follow all the way through, possible bringing about an inevitable recession.
Historical Data
Below is the seasonally-adjusted IPI for the 50 years to October 2017. Data is accessible returning to January 1919.
Highlights
- The Federal Reserve Board (FRB) distributes the IPI in each month, and corrections to previous estimates toward the finish of each and every March.
- The industrial production index (IPI) measures levels of production and capacity in the manufacturing, mining, electric, and gas industries, relative to a base year.
- Industry-level data, in the mean time, is valuable for managers and investors inside specific lines of business.
- The composite index is an important macroeconomic indicator for financial specialists and investors.
