U.S. Department of Labor Bureau of Labor Statistics Frequently Asked Questions Unemployment Data Why does the Government collect statistics on the unemployed? To know about the extent and nature of unemployment. How many people are unemployed? How did they become unemployed? How long have they been unemployed? Are their numbers growing or declining? Are they men or women? Are they young or old? Are they white or black or of Hispanic origin? Are they skilled or unskilled? Are they the sole support of their families, or do other family members have jobs? Are they more concentrated in one area of the country than another? After these statistics are obtained, they have to be interpreted properly so they can be used--together with other economic data--by policymakers in making decisions as to whether measures should be taken to influence the future course of the economy or to aid those affected by joblessness. Where do the statistics come from? Because unemployment insurance records, which many people think are the source of total unemployment data, relate only to persons who have applied for such benefits, and since it is impractical to actually count every unemployed person each month, the Government conducts a monthly sample survey called the Current Population Survey (CPS) to measure the extent of unemployment in the country. The CPS has been conducted in the United States every month since 1940 when it began as a Work Projects Administration project. It has been expanded and modified several times since then. As explained later, the CPS estimates, beginning in 1994, reflect the results of a major redesign of the survey. What are the basic concepts of employment and unemployment? The basic concepts involved in identifying the employed and unemployed are quite simple: People with jobs are employed. People who are jobless, looking for jobs, and available for work are unemployed. People who are neither employed nor unemployed are not in the labor force. Who is counted as employed? Not all of the wide range of job situations in the American economy fit neatly into a given category. For example, people are considered employed if they did any work at all for pay or profit during the survey week. This includes all part-time and temporary work, as well as regular full-time year-round employment. Persons also are counted as employed if they have a job at which they did not work during the survey week because they were: On vacation; Ill; Experiencing child-care problems; Taking care of some other family or personal obligation; On maternity or paternity leave; Involved in an industrial dispute; or Prevented from working by bad weather. Who is counted as unemployed? Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Who is not in the labor force? All members of the civilian noninstitutional population are eligible for inclusion in the labor force, and those 16 and over who have a job or are actively looking for one are so classified. All others--those who have no job and are not looking for one--are counted as "not in the labor force." Many who do not participate in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force. Still others have a physical or mental disability which prevents them from participating in labor force activities. What about cases of overlap? When the population is classified according to who is employed, unemployed, and not in the labor force on the basis of their activities during a given calendar week, situations are often encountered where individuals have engaged in more than one activity. Since persons are counted only once, it must be decided which activity will determine their status. Therefore, a system of priorities is used: Labor force activities take precedence over non-labor force activities. Working or having a job takes precedence over looking for work. Employed persons consist of: All persons who did any work for pay or profit during the survey reference week. All persons who did at least 15 hours of unpaid work in a family-operated enterprise. All persons who were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute, or various personal reasons. Unemployed persons are: All persons who were not classified as employed during the survey reference week, made specific active efforts to find a job during the prior 4 weeks, and were available for work. All persons who were not working and were waiting to be called back to a job from which they had been temporarily laid off. Persons not in the labor force are those who not classified as employed or unemployed during the survey reference week. How large is the labor force? The labor force, then, is not a fixed number of people. It increases with the long- term growth of the population, it responds to economic forces and social trends, and its size changes with the seasons. On average in 2000, there were roughly 135 million employed and 6 million unemployed making up a labor force of 141 million persons. There were about 69 million persons not in the labor force. How are seasonal fluctuations taken into account? As suggested in the previous section, the number of employed and unemployed persons fluctuates during the year in a pattern that tends to repeat itself year after year and which reflects holidays, vacations, harvest time, seasonal shifts in industry production schedules, and similar occurrences. Because of such patterns, it is often difficult to tell whether developments between any 2 months reflect changing economic conditions or merely normal seasonal fluctuations. To deal with such problems, a statistical technique called seasonal adjustment is used. What do the unemployment insurance figures measure? Statistics on insured unemployment in the United States are collected as a byproduct of unemployment insurance (UI) programs. Workers who lose their jobs and are covered by these programs typically file claims which serve as notice that they are beginning a period of unemployment. Claimants who qualify for benefits are counted in the insured unemployment figures. Is there a measure of underemployment? Because of the difficulty of developing an objective set of criteria which could be readily used in a monthly household survey, no official government statistics are available on the total number of persons who might be viewed as underemployed. Even if many or most could be identified, it would still be difficult to quantify the loss to the economy of such underemployment. Have there been any changes in the definition of unemployment? The concepts and definitions underlying the labor force data have been modified, but not substantially altered, even though they have been under almost continuous review by interagency governmental groups, congressional committees, and private groups since the inception of the Current Population Survey. In January 1994, a major redesign of the Current Population Survey was introduced which included a complete revamping of the questionnaire, the use of computer- assisted interviewing for the entire survey, and revisions to some of the labor force concepts. How are the unemployed counted in other countries? The sample survey system of counting the unemployed in the United States is also used by many foreign countries, including Canada, Mexico, Australia, Japan, and all of the countries in the European Economic Community. More recently, a number of Eastern European nations have instituted labor force surveys as well. However, some countries collect their official statistics on the unemployed from employment office registrations or unemployment insurance records. Many nations, including the United States, use both labor force survey data and administrative statistics to analyze unemployment. Consumer Price Index What is the CPI? The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Whose buying habits does the CPI reflect? The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers. The all urban consumers group represents about 87 percent of the total U.S. population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed and retired persons as well as urban wage earners and clerical workers. Not included in the CPI are the spending patterns of persons living in rural non-metropolitan areas, farm families, persons in the Armed Forces, and those in institutions, such as prisons and mental hospitals. Is the CPI a cost-of-living index? The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. BLS has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would constitute a complete cost-of- living framework. Does the CPI measure my experience with price change? Not necessarily. It is important to understand that BLS bases the market baskets and pricing procedures for the U and W populations on the experience of the relevant average household, not on any specific family or individual. It is unlikely that your experience will correspond precisely with either the national indexes or the indexes for specific cities or regions. How is the CPI market basket determined? The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. For the current CPI, this information was collected from the Consumer Expenditure Survey over the two years 2001 and 2002. In each of those years, about 10,000 families from around the country provided information on their spending habits in a series of quarterly interviews. To collect information on frequently purchased items such as food and personal care products, another 7,500 families in each of the 2 years kept diaries listing everything they bought during a 2-week period. Altogether, more than 30,000 individuals and families provided expenditure information for use in determining the importance, or weight, of the more than 200 categories in the CPI index structure. What goods and services does the CPI cover? The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows: FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, service meals and snacks) HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) APPAREL (men's shirts and sweaters, women's dresses, jewelry) TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) RECREATION (televisions, pets and pet products, sports equipment, admissions); EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses). Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. In addition, the CPI includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services. The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.) For each of the more than 200 item categories, using scientific statistical procedures, the Bureau has chosen samples of several hundred specific items within selected business establishments frequented by consumers to represent the thousands of varieties available in the marketplace. For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the Apples category. How are CPI prices collected and reviewed? Each month, BLS data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United States to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. These economic assistants record the prices of about 80,000 items each month representing a scientifically selected sample of the prices paid by consumers for the goods and services purchased. During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of 8 when they previously had been sold by the dozen) of the good or service since the last time prices had been collected, the economic assistant selects a new item or records the quality change in the current item. The recorded information is sent to the national office of BLS where commodity specialists who have detailed knowledge about the particular goods or services priced review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments which can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item's features or quality. Thus, the commodity specialists strive to prevent changes in the quality of items from affecting the CPI's measurement of price change. How is the CPI calculated? The CPI is a product of a series of interrelated samples. First, using data from the 1990 Census of Population, BLS selected the urban areas from which data on prices were collected and chose the housing units within each area that were eligible for use in the shelter component of the CPI. The Census of Population also provided data on the number of consumers represented by each area selected as a CPI price collection area. Next, another sample (of about 16,800 families each year) served as the basis for a Point-of-Purchase Survey that identified the places where households purchase various types of goods and services. How are taxes treated in the CPI? Certain taxes are included in the CPI, namely, taxes that are directly associated with the purchase of specific goods and services (such as sales and excise taxes). Government user fees are also included in the CPI. For example, toll charges and parking fees are included in the transportation category and an entry fee to a national park would be included as part of the admissions index. In addition, property taxes should be reflected indirectly in the BLS method of measuring the cost of the flow of services provided by housing shelter, which we called owners' equivalent rent, to the extent that these taxes influence rental values. Taxes not directly associated with specific purchases, such as income and Social Security taxes, are excluded, as are the government services paid for through those taxes. For certain purposes, one might want to define price indexes to include, rather than exclude, income taxes. Such indexes would provide an answer to a question different from the one to which the present CPI is relevant, and would be appropriate for different uses. How do I read or interpret an index? An index is a tool that simplifies the measurement of movements in a numerical series. Most of the specific CPI indexes have a 1982-84 reference base. That is, BLS sets the average index level (representing the average price level) for the 36-month period covering the years 1982, 1983, and 1984 equal to 100. BLS then measures changes in relation to that figure. An index of 110, for example, means there has been a 10-percent increase in price since the reference period; similarly an index of 90 means a 10-percent decrease. Movements of the index from one date to another can be expressed as changes in index points (simply, the difference between index levels), but it is more useful to express the movements as percent changes. This is because index points are affected by the level of the index in relation to its base period, while percent changes are not. In the table that follows, item A increased by half as many index points as item B between Year I and Year II. Yet, because of the different starting figures, both had the same percent change; that is, prices advanced at the same rate. By contrast, items B and C show the same change in index points, but the percent change is greater for item C because of its lower starting value. Item A Item B Item C Year I 112.5 225.0 110.0 Year II 121.5 243.0 128.0 Change in index 9.0 18.0 18.0 points 9.0/112.5 x 100 18.0/225.0 x 100 18.0/110.0 x 100 = Percent change = 8.0 = 8.0 16.4 Historically, BLS has updated its reference periods every 10 years or so. Is the CPI the best measure of inflation? Inflation has been defined as a process of continuously rising prices or equivalently, of a continuously falling value of money. Various indexes have been devised to measure different aspects of inflation. The CPI measures inflation as experienced by consumers in their day-to-day living expenses; the Producer Price Index (PPI) measures inflation at earlier stages of the production and marketing process; the Employment Cost Index (ECI) measures it in the labor market; the BLS International Price Program measures it for imports and exports; and the Gross Domestic Product Deflator (GDP Deflator) measures combine the experience with inflation of governments (Federal, State and local), businesses, and consumers. Finally, there are specialized measures, such as measures of interest rates and measures of consumers' and business executives' expectations of inflation. The "best" measure of inflation for a given application depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase, at today's prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period. The CPI also is the best measure to use to translate retail sales and hourly or weekly earnings into real or inflation-free dollars. Which index is the "Official CPI" reported in the media? Each month, BLS releases thousands of detailed CPI numbers to the media. However the media usually focus on the broadest, most comprehensive CPI: the Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items, 1982-84=100. These data are reported on either a seasonally adjusted or an unadjusted basis. Often, the media will report some, or all, of the following: 1. Index level, not seasonally adjusted. (for example, May 2001 = 177.7). 2. 12-month percent change, not seasonally adjusted. (for example, May 2000 to May 2001 = 0.5 percent). 3. 1-month percent change on a seasonally adjusted basis. (for example, from April 2001 to May 2001 = 0.5 percent). 4. Annual rate of percent change so far this year (for example, from December 2000 to May 2001 if the rate of increase over the first 5 months of the year continued for the full year, after the removal of seasonal influences, the rise would be 3.9 percent). 5. annual rate based on the latest seasonally adjusted 1-month change. For example, if the rate rom April 2001 to May 2001 continued for a full 12 months, then the rise, compounded, would be 6.3 percent. When should I use seasonally adjusted data? By using seasonally adjusted data, economic analysts and the media find it easier to see the underlying trend in short-term price changes. It is often difficult to tell from raw (unadjusted) statistics whether developments between any 2 months reflect changing economic conditions or only normal seasonal patterns. Therefore, many economic series, including the CPI, are adjusted to remove the effect of seasonal influences--those which occur at the same time and in about the same magnitude every year. Among these influences are price movements resulting from changing climatic conditions, production cycles, changeovers of models, and holidays. BLS annually reestimates the factors that are used to seasonally adjust CPI data, and seasonally adjusted indexes that have been published earlier are subject to revision for up to 5 years after their original release. Therefore, unadjusted data are more appropriate for escalation purposes. Annual average indexes and percent changes for these groupings are published at the national and local levels. Semiannual average indexes and percent changes for some of these groupings are also published. Each month, BLS publishes average price data for some food items (for the U.S. and four regions) and for some energy items (for the U.S., four regions, three sizeclasses, 10 cross-classifications of regions and size classes, and 14 metropolitan areas). What are some limitations of the CPI? The CPI is subject to both limitations in application and limitations in measurement. Limitations of application The CPI may not be applicable to all population groups. For example, the CPI-U is designed to measure the experience with price change of the U.S. urban population and thus may not accurately reflect the experience of people living in rural areas. Also, the CPI does not produce official estimates for the rate of inflation experienced by subgroups of the population, such as the elderly or the poor. (BLS does produce and release an experimental index for the elderly population; because of the significant limitations of this experimental index, it should be interpreted with caution.) As noted, CPI cannot be used to measure differences in price levels or living costs between one place and another; it measures only time-to-time changes in each place. A higher index for one area does not necessarily mean that prices are higher there than in another area with a lower index. It merely means that prices have risen faster since the two areas common reference period. The CPI cannot be used as a measure of total change in living costs because changes in these costs are affected by (such as social and environmental changes and changes in income taxes) that are beyond the definitional scope of the index and so are excluded. Limitations in measurement Limitations in measurement can be grouped into two basic types, sampling errors and non-sampling errors. Sampling errors. Because the CPI measures price change based on a sample of items, the published indexes differ somewhat from what the results would be if actual records of all retail purchases by everyone in the index population could be used to compile the index. These estimating or sampling errors are limitations on the precise accuracy of the index, not mistakes in calculating the index. The CPI program has developed measurements of sampling error, which are updated and published annually in the CPI Detailed Report. An increased sample size would be expected to increase accuracy, but it would also increase CPI production costs. The CPI sample design allocates the sample in a way that maximizes the accuracy of the index, given the funds available. Non sampling errors. These errors occur from a variety of sources. Unlike sampling errors, they can cause persistent bias in the measurement of the index. Non sampling errors are caused by problems of price data collection, logistical lags in conducting surveys, difficulties in defining basic concepts and their operational implementation, and difficulties in handling the problems of quality change. Non sampling errors can be far more hazardous to the accuracy of a price index than sampling errors. BLS expends much effort to minimize these errors. Highly trained personnel ensure the comparability of quality of items from period to period (see answer to question 8); collection procedures are extensively documented. The CPI program has an ongoing research and evaluation program, to identify and implement improvements in the index. Will the CPI be updated or revised in the future? Yes. The CPI will need revisions, as long as there are significant changes in consumer buying habits or shifts in population distribution or demographics. By developing annual Consumer Expenditure Surveys and Point-of-Purchase Surveys, the Bureau has the flexibility to monitor changing buying habits in a timely and cost-efficient manner. In addition, the census conducted every 10 years by the Department of Commerce provide information that enables the Bureau to reselect a new geographic sample that accurately reflects the current population distribution and other demographic factors. As a matter of policy, BLS is continually researching improved statistical methods. Thus, even between major revisions, further improvements to the CPI are made. For example, until recently, the Bureau would continue to price the brand-name version of a prescription drug even after it lost its patent protection if the brand-name drug was still sold in the selected outlet. Starting in January 1995, BLS changed this policy. Now, six months after a drug loses its patent protection, a unique item to be priced is reselected from all therapeutically equivalent drugs (including the original) sold in the selected retail outlet. This approach gives generic versions of the drug a chance to be selected as a substitute. BLS waits until six months after the patent expires to give the emerging generic drugs time to gain market share, because the chance of selection is proportional to the sales of each version of the drug in the retail outlet. The new procedure provides a better reflection of consumers' experience with prescription drug prices, because many consumers switch to generic versions of drugs as they become available. Producer Price Index What is the Producer Price Index (PPI)? The Producer Price Index is a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser's perspective. Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs. Over 10,000 PPIs for individual products and groups of products are released each month. PPIs are available for the products of virtually every industry in the mining and manufacturing sectors of the U.S. economy. New PPIs are gradually being introduced for the products of industries in the transportation, utilities, trade, finance, and services sectors of the economy. How are PPIs used? Producer Price Index data are widely used by the business community as well as government. Three major uses are: As an economic indicator. The PPIs capture price movements prior to the retail level. Therefore, they may foreshadow subsequent price changes for businesses and consumers. The President, Congress, and the Federal Reserve employ these data in formulating fiscal and monetary policies. As a deflator of other economic series. PPIs are used to adjust other economic time series for price changes and to translate those series into inflation-free dollars. For example, constant-dollar gross domestic product data are estimated using deflators based on PPI data. As the basis for contract escalation. PPI data are commonly used in escalating purchase and sales contracts. These contracts typically specify dollar amounts to be paid at some point in the future. It is often desirable to include an escalation clause that accounts for increases in input prices. For example, a long-term contract for bread may be escalated for changes in wheat prices by applying the percent change in the PPI for wheat to the contracted price for bread. (See BLS Report 807, Escalation and Producer Price Indexes: A Guide for Contracting Parties.) When did the Wholesale Price Index become the Producer Price Index? The Wholesale Price Index (WPI) was the name of the program from its inception in 1902 until 1978, when it was renamed the "Producer Price Index." At the same time, emphasis was shifted from one index encompassing the whole economy, to three main indexes covering the stages of production in the economy. By changing emphasis, BLS eliminated the double counting phenomenon inherent in aggregate commodity-based indexes. The change from "Wholesale Price index" to "Producer Price Index" did not include a change in the index methodology, and the continuity of the price index data was unaffected. The name change reflects the theoretical model of the output price index that underlies the PPI. (See BLS Working Paper 44, "On the Theory of Industrial Price Measurement: Output Price Indexes.") In addition, the term WPI was very misleading in that the index never measured price change in the wholesale market. No indexes were discontinued as a result of the changes in terminology or analytical emphasis. How does the Producer Price Index differ from the Consumer Price Index? While both the PPI and CPI measure price change over time for a fixed set of goods and services; they differ in two critical areas: (1) the composition of the set of goods and services, and (2) the types of prices collected for the included goods and services. The target set of goods and services included in the PPIs is the entire marketed output of U.S. producers. The set includes both goods and services purchased by other producers as inputs to their operations or as capital investment, as well as goods and services purchased by consumers either directly from the service producer or indirectly from a retailer. Because the PPI target is the output of U.S. producers, imports are excluded. The target set of items included in the CPI is the set of goods and services purchased for consumption purposes by urban U.S. households. This set includes imports. The price collected for an item included in the PPIs is the revenue received by its producer. Sales and excise taxes are not included in the price because they do not represent revenue to the producer. The price collected for an item included in the CPI is the out-of-pocket expenditure by a consumer for the item. Sales and excise taxes are included in the price because they are necessary expenditures by the consumer for the item. The differences between the PPI and CPI are consistent with the different uses of the two measures. A primary use of the PPI is to deflate revenue streams in order to measure real growth in output. A primary use of the CPI is to adjust income and expenditure streams for changes in the cost of living. The composition of items in the Finished Goods Price Index differs from that of the All Items Consumer Price Index in two major respects. First, the Finished Goods Price Index includes price changes for producers' durable equipment, which are not purchased by typical consumers and, therefore, are not included in the CPI. Second, the All Items CPI includes services which are not reflected in the Finished Goods Price Index. An additional difference is that the Finished Goods Price Index is only available at the U.S. level, while the All Items CPI is available at the regional, metropolitan area, and U.S. levels. How Does the Producer Price Index Differ from the Consumer Price Index? (PDF 29KB) How is an index interpreted? An index is a tool that simplifies the measurement of movements in a numerical series. Movements are measured with respect to the base period, when the index is set to 100. Currently, most PPIs have an index base set at 1982 = 100. (Some PPIs have a base corresponding to the month prior to the month that the index was introduced.) BLS measures price change in relation to that figure. An index of 110, for example, means there has been a 10-percent increase in prices since the base period; similarly, an index of 90 indicates a 10-percent decrease. Movements of price indexes from one month to another are usually expressed as percent changes rather than as changes in index points because index point changes are affected by the level of the index in relation to its base period, while percent changes are not. An advantage of calculating percent changes is that the result will be the same no matter what base period is specified. The example below demonstrates the computation of index point and percent changes. Index point change Finished Goods Price 107.5 Index Less previous index 104.0 Equals index point 3.5 change Index percent change Index point change 3.5 Divided by the previous 104.0 index Equals 0.034 0.034 x Result multiplied by 100 100 Equals percent change 3.4 How are PPIs calculated? The formula used to calculate the PPIs is a modified Laspeyres index. The Laspeyres index compares the base period revenue for a set of goods to the current period revenue for the same set of goods. The following formula closely approximates the actual computation procedure: Where: is the price of a commodity in the base period; is the price of a commodity in the current period; and is the quantity of the commodity shipped during the base period. In this form, the index is the weighted average of price relatives (price ratios for each item . The expression represents the weights in value form. How are PPIs weighted? To improve the precision of PPI estimates of price change, sampled items are weighted by a measure of their size and importance. In the first stage of PPI computation, price indexes are constructed for narrowly-defined goods or services. The individual items included in these indexes are weighted by the establishment's revenue for the product line. In the second stage of PPI computation, indexes for individual goods and services are combined into aggregate indexes. Data for weighting together the product-line indexes comes primarily from the economic censuses of the Bureau of Census. These weights are changed every 5 years. The weights for combining product-line indexes into aggregate indexes are somewhat different for each of the three types of aggregate indexes. For industry net output indexes, product-line weights are the value of shipments from establishments in the industry primarily engaged in the production of the product to establishments outside of the industry. For the traditional commodity grouping indexes, product line weights are the gross value of shipments across all industries engaged in the production of the product. For the commodity stage- of-processing indexes, the product-line weights from the traditional commodity grouping indexes are simply allocated, based on relationships seen in the U.S. input-output accounts, to either the crude, intermediate, or finished goods stages. How are producers and products selected for the PPI survey? PPIs are published for the output of virtually all U.S. mining and manufacturing industries and are gradually being introduced for the output of industries in other sectors of the economy. For any given industry, producers are selected for the survey via a systematic sampling from a listing of all firms that file with the Unemployment Insurance System. Typically, a firm's probability of selection is based on its employment size. After a firm is selected and agrees to participate in the survey, a probability sampling technique called disaggregation is used to determine which specific products or services will be in the PPI. Disaggregation is a process in which iterative steps are taken to select items based on their proportionate value to the manufacturer's overall revenue. First a reporter breaks down the type of items shipped into categories. Next, these categories are broken down further by price determining characteristics, for example, options, color, size. Further break downs may be necessary to differentiate between types of buyers or discounts. Disaggregation continues until a specific product sold to a specific buyer is selected. How are PPI data collected? When an establishment is selected to participate in the PPI survey, it is visited by a field economist who solicits the firm's voluntary cooperation and informs the firm of the strict confidentiality rules that will safeguard the information being requested. Once cooperation is obtained, the field economist uses the disaggregation technique (see question 8) to select the specific goods or services for which prices will be reported. From this point forward, the establishment reports prices for the selected products, usually on a monthly basis, on a form provided by BLS. Establishments are asked to report their prices as of Tuesday of the week containing the 13th of the month. Each month approximately 100,000 prices are collected from 30,000 reporters. If the establishment fails to report or reports incomplete information, it is called by a BLS economist who requests the needed information. Nearly all establishments report prices through the mail. However, the use of electronic reporting methods such as fax is gradually being expanded. Establishments continue to report until a new sample is selected—after 7 years, on average, for an industry. Are PPIs seasonally adjusted? Because PPI data are used for different purposes, BLS publishes seasonally adjusted as well as unadjusted changes each month. Certain 4-digit and 6-digit commodity series are selected for seasonal adjustment if statistical tests indicate seasonality and if there is an economic rationale for the observed seasonality. Indexes for most 2-digit commodity groupings and 8-digit individual commodities, as well as industry and Census product indexes, are published only as unadjusted data. When should seasonally adjusted PPIs be used? Seasonally adjusted indexes are preferred for analyzing general price trends in the economy because such indexes eliminate the effect of changes that normally occur at about the same time and in about the same magnitude every year. Such recurring movements may result from normal weather patterns, regular production and marketing cycles, model changeovers, seasonal discounts, and holidays. These are removed from seasonally adjusted data, thereby clearly revealing underlying cyclical trends. Unadjusted data are of primary interest to users who need information that can be related to actual dollar-value transactions. Individuals requiring this information include marketing specialists, purchasing agents, budget and cost analysts, contract specialists, and commodity traders. Unadjusted data are virtually always used for escalating long-term contracts such as purchasing agreements or real estate leases. (See Escalation and Producer Price Indexes: A Guide for Contracting Parties, BLS Report 807, September 1991.) Are actual prices published? No, BLS publishes only price indexes, not actual or average prices. Of course, actual transaction prices are used in the calculation of the indexes. The actual prices are not published because they are provided on a voluntary and confidential basis by PPI reporters. Should a PPI user have a need for a time series of actual prices for an item, BLS suggests that the user obtain the actual price from a published source, such as a trade journal, and move it forward or backward by the change in the applicable PPI. Is the base period subject to change? Yes, the official reference period is subject to change every 10 years or so. This makes it easier to compare PPIs with other economic series compiled by the Federal Government. The switch to the 1982 reference period occurred in January 1988 to comply with the mandate of the Office of Management and Budget to implement common reference periods for all government statistics. When are PPI data made available? Producer Price indexes are published monthly. First-published data for a particular month as well as the revisions from the previous 4 months (final figures) are available the following month, usually during the second full week. Price indexes apply to the entire month. For example, in August 1999, the latest available, first-published PPIs would be for July 1999 and the latest final figures would have been for March 1999. In September, first-published indexes for August and final figures for April will be released. Information is released after 8:30 AM Eastern time. Click on the link below to view the current year's release dates.
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