The Case of the Missing Planes
Inside the downward revision to U.S. manufacturing production.
Last week, I learned that the Federal Reserve’s latest annual revision to industrial production featured large writedowns to estimates of “defense and space equipment” manufacturing.1
This seemed unusual, especially since the broader indices were barely revised at all. Frustratingly, the official notice of the revisions did not explain the change, only that there had been a change:
The index for consumer goods now shows slightly less output in the 2020–22 period than previously reported. The rate of change for business equipment revised down in 2020 and 2021, but revised up strongly in 2022. Relative to earlier reports, the index for defense and space equipment now records noticeably slower growth over the 2020–22 period.
Revisions to the index for construction supplies were very small. The index for business supplies revised up incrementally for 2020, 2021, and 2022 relative to earlier reports. The output of materials was little changed cumulatively from previously reported values.
The publicly-available data were not much help either, since the underlying series used to construct the “defense and space equipment” aggregate are not published on the Fed’s website.
Fortunately, the Fed’s economists—particularly Norman Morin and Aaron Flaaen—were very generous in answering my questions and providing me with unpublished data. Not only do I now know what happened, but I have more of an appreciation for how the data sausages are made.