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									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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