Federal Reserve and Total U.S. Industrial Production

Congress founded the U.S. Federal Reserve System in 1913 to provide the nation with a safer and more flexible and stable money and financial system. Today, the Fed's duties are to:

1.   Use its ability to influence monetary policy (that is, short-term interest rates), as best it can, to keep the economy stable and strong, and to keep unemployment, inflation, and long-term interest rates low.

2.   Maintain the financial system's stability and integrity.

3.   Provide financial services to banks, credit unions, the U.S. government, and foreign institutions.

4.   Supervise and regulate banking institutions to ensure the safety and soundness of the nation's banking and financial system, and to protect the credit rights of consumers.
To fulfill these duties, the Fed must know what's happening with the economy. It constantly monitors unemployment rates, interest rates, financial systems, banking systems, and other indicators. The goal is to obtain information that will help decide if and when intervention (primarily through its ability to influence short-term interest rates) might be beneficial.

One example of data collected and made public by the Federal Reserve is "Total U.S. Industrial Production." Published monthly in the form of an index (see example below), this shows total output generated by manufacturing, mining, and electric and gas utilities, and it accounts for a large portion of the economy.

The production index measures real output, which means inflation is removed from the numbers. As you can see, total industrial production is cyclical. The vertical blue bars are recessions.

How can a business owner use this information? One way is to keep in mind the cyclical nature of the economy, and never be positioned such that a recession could cause you financial ruin. Remember that recessions tend to last just a year or two, so instead of worrying that "good times" are gone forever, add capacity or other provisions for the coming expansion.