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 also measures capacity an estimate of the production levels that could be sustainably maintained and capacity utilization the ratio of actual output to capacity industrial production and capacity levels are expressed as an index level relative to a base year currently 2012 in other words they do not express absolute production volumes or values but the percentage change in production relative to 2012 the source data is varied including physical inputs and outputs such as tons of steel inflation adjusted sales figures and in some cases hours logged by production workers the frb obtains this data from industry associations and government agencies and aggregates them into an index using the fisher ideal formula the indices are available in seasonally adjusted and unadjusted formats within the overall ipi there are a number of sub indices providing a detailed look at the output of highly specific industries examples of a few of the dozens of industries for which monthly production data is available include residential gas sales ice cream and frozen dessert carpet and rug mills spring and wire products pig iron audio and video equipment and paper benefits of the industrial production index ipi industry level data are useful for managers and investors within specific lines of business while the composite index is an important macroeconomic indicator for economists and investors fluctuations within the industrial sector account for most of the variation in overall economic growth at the same time ipi differs from the most popular measure of economic output gross domestic product gdp gdp measures the price paid by the end user so it includes value added in the retail sector which ipi ignores it is also important to note that the industrial sector makes up a low and falling share of the u s economy less than 20 of gdp as of 2016 capacity utilization is a useful indicator of the strength of demand low capacity utilization or overcapacity signals weak demand policymakers could read this as a signal that fiscal or monetary stimulus is needed investors meanwhile could interpret it as a sign of a coming downturn or depending on the signals from washington as a sign of coming stimulus high capacity utilization on the other hand can act as a warning that the economy is overheating suggesting the risk of price rises and asset bubbles policymakers could react to those threats with interest rate rises or fiscal austerity alternatively they could let the business cycle take its course likely resulting in an eventual recession historical databelow is the seasonally adjusted ipi for the 50 years to october 2017 data is available going back to january 1919 