U.S. BUREAU OF LABOR STATISTICS FEBRUARY 2014 • VOLUME 3 / NUMBER 4 P R I C E S A N D S P E N D I N G Improvements to the Producer Price Index measure: the Final-Demand–Intermediate-Demand system Authors: Joseph Kowal, Lana Borgie, Brian Hergt, and Antonio Lombardozzi T Related Articleshe release of January 2014 Producer Price Index (PPI) data More BLS articles related to the Producer Price Index marks the transition from the Stage of Processing (SOP) Final Demand–Intermediate Demand system are aggregation system to the Final Demand–Intermediate available online at the following links: Demand (FD–ID) aggregation system. The transition to the FD– y “Comparing new final-demand producer price ID system is the culmination of a longstanding PPI objective to indexes with other government-price indexes,” improve upon the SOP aggregation system by incorporating Monthly Labor Review, http://www.bls.gov/opub/ price data for services, construction, government purchases, and mlr/2014/article/comparing-new-final- exports. In comparison to the SOP system, the FD-ID system more demand-producer-price-indexes-with-other- government-price-indexes.htm. than doubles PPI coverage of the U.S. economy to over 75 percent of in-scope domestic production. y “Analyzing price movements within the Producer Price Index final demand–intermediate demand The FD–ID system highlights the index for final demand. Examples system,” Monthly Labor Review, http://www.bls.gov/ of final-demand goods include pharmaceutical preparations mlr/2014/article/analyzing-price-movements- within-the-producer-price-index-final- destined for personal consumption, construction machinery and demand-intermediate-demand-aggregation- equipment for private capital investment, diesel fuel and jet fuel system-1.htm. for government, and organic chemicals for export. Examples of U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 1 www.bls.gov BEYOND THE NUMBERS P R I C E S A N D S P E N D I N G Chart 1 Producer Price Index for total final demand, goods, and services, 12-month percent change, 2012 and 2013 Percent change 2012 2013 3.0 2.2 2.0 1.9 1.4 1.3 1.1 1.0 0.7 0.0 Final demand Goods Services SSoouurrccee:: UU..SS.. BBuurreeaauu ooff LLaabboorr SSttaattiissttiiccss.. final-demand services include consumer loan services, This issue of Beyond the Numbers presents 2013 PPI apparel retailing margins, passenger air transportation, data based on the new FD–ID system. The PPI estimates wired and wireless telecommunication services for shown with this system represent the beginning government, wholesale margins from machinery and of wider coverage by the index, to be continued in equipment sold for capital investment, and wholesale subsequent issues. margins from organic chemicals sold for export. Examples of final-demand construction include new school Price trends: producer inflation remains low in 2013 construction and new hospital construction.1 The PPI for final demand advanced 1.1 percent in 2013 after rising 1.9 percent in 2012. Almost three-quarters The FD–ID system also includes two separate parallel of the slower rate of increase can be traced to prices treatments of intermediate demand: price changes for final-demand services, which moved up 1.3 percent for goods, services, and construction sold to business following a 2.2-percent gain the previous year. The index as inputs to production. One treatment, intermediate for final-demand goods also rose less than it did in 2012, demand by type of commodity, measures price changes 0.7 percent compared with 1.4 percent. (See chart 1.) In on the basis of similarity of product and includes contrast, prices for final-demand construction climbed 3.0 aggregate indexes for processed goods for intermediate percent in 2013 after moving up 1.4 percent the previous demand, unprocessed goods for intermediate demand, year. Within intermediate demand, the index for processed and services for intermediate demand. The other goods was unchanged following a small increase in 2012, treatment, intermediate demand by production flow, prices for unprocessed goods turned downward in 2013, is a stage-based system of price indexes in which price and the index for services moved up at a slower rate than it changes for goods, services, and construction can be did the previous year. (See table 1.) studied as they move through the production chain of the economy to final demand. This treatment includes four Economic background stages of intermediate demand, which were established Leading the deceleration in producer inflation in 2013, to maximize the forward flow of production through the prices for final-demand services and for services for economy while minimizing backflow of production.2 intermediate demand rose less than they did in 2012. U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 2 www.bls.gov BEYOND THE NUMBERS P R I C E S A N D S P E N D I N G Table 1 Selected Producer Price Indexes for final demand and intermediate demand, 12-month percent change, 2012 and 2013 Index 2012 2013 Final demand price index Final demand 1.9 1.1 Goods for final demand 1.4 0.7 Foods 4.1 –1.1 Energy goods –1.3 1.0 Goods less foods and energy 1.4 1.1 Services for final demand 2.2 1.3 Trade services 3.8 –0.1 Transportation and warehousing services 2.7 1.6 Services less trade, transportation, and warehousing 1.4 1.9 Construction for final demand 1.4 3.0 Intermediate demand, by type of commodity Processed goods for intermediate demand 0.4 0.0 Processed foods and feeds 7.2 –3.1 Processed energy goods –2.8 –1.3 Processed materials less foods and energy 0.6 0.8 Unprocessed goods for intermediate demand 1.4 –2.1 Unprocessed foodstuffs and feedstuffs 10.6 –6.2 Unprocessed energy materials –4.5 4.4 Unprocessed nonfood materials less energy –1.6 –5.9 Services for intermediate demand 2.9 1.0 Trade services for intermediate demand 7.1 –1.5 Transportation and warehousing services for intermediate demand 3.3 2.2 Services less trade, transportation, and warehousing for intermediate demand 1.6 1.6 Construction for intermediate demand 1.0 1.9 Intermediate demand, by production flow Stage-4 intermediate demand 1.9 0.8 Total goods inputs to stage-4 intermediate demand 1.2 0.3 Total services inputs to stage-4 intermediate demand 2.5 1.4 Stage-3 intermediate demand 1.5 0.4 Total goods inputs to stage-3 intermediate demand 1.0 0.2 Total services inputs to stage-3 intermediate demand 2.1 1.0 Stage-2 intermediate demand 0.5 –0.3 Total goods inputs to stage-2 intermediate demand –2.0 –0.4 Total services inputs to stage-2 intermediate demand 3.8 –0.1 Stage-1 intermediate demand 1.0 0.2 Total goods inputs to stage-1 intermediate demand –1.3 –1.0 Total services inputs to stage-1 intermediate demand 4.1 2.1 Source: U.S. Bureau of Labor Statistics. U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 3 www.bls.gov BEYOND THE NUMBERS P R I C E S A N D S P E N D I N G Within services, the indexes for both final-demand trade the index for final-demand services. That index rose 1.3 services and intermediate-demand trade services turned percent after climbing 2.2 percent in 2012. Within final- downward in 2013. (Trade indexes in the PPI measure demand services, the slower rate of advance was led by average changes in margins received by wholesalers and margins for final-demand trade services, which edged retailers.3) The downturn in trade margins was heavily down 0.1 percent after rising 3.8 percent the previous influenced by activity in the retail sales sector. Retail year. Also contributing to the deceleration in inflation sales increased 4.2 percent in 2013, compared with larger for final-demand services, the index for final-demand advances of 5.4 percent in 2012 and 7.5 percent in 2011.4 transportation and warehousing services increased 1.6 Retail sales excluding the motor vehicle sector moved percent following a 2.7-percent rise in 2012. In contrast, up at a modest 3.2-percent rate in 2013, following a prices for final-demand services less trade, transportation, 4.9-percent increase in 2012. In contrast, sales in motor and warehousing advanced 1.9 percent after a 1.4-percent vehicles and related parts climbed 8.7 percent in 2013, climb the previous year. surpassing the 7.7-percent rise in 2012.5 The PPIs for both final-demand and intermediate-demand transportation Services detail. The advance in margins for apparel and warehousing services rose less in 2013 than they wholesaling slowed to 2.0 percent in 2013, from a did the previous year. Prices for transportation and 24.3-percent increase the previous year. The indexes for warehousing services often change in response to contract truck transportation of freight and inpatient care also rose adjustment formulas structured in accordance with a base less than they did in 2012. Margins for fuels and lubricants price–fuel adjustment factor mechanism.6 In 2013, the retailing turned downward after rising a year earlier. index for gasoline fell 1.0 percent and prices for diesel fuel In contrast, the index for securities brokerage, dealing, declined 0.9 percent. investment advice, and related services increased 2.9 percent following a 2.2-percent decline in 2012. Margins From the perspective of goods, food prices turned for flooring and floor coverings retailing also turned downward consistently within final demand, intermediate- upward in 2013. demand processed goods, and intermediate-demand unprocessed goods. Prices for corn and soybeans exhibited Final-demand goods. The increase in the index for steep declines, following large increases the previous final-demand goods slowed to 0.7 percent in 2013, year. Corn production jumped 29.2 percent, to 12.925 after a 1.4-percent increase in 2012. In 2013, prices for billion bushels in 2013, compared with a drought-induced final-demand goods less foods and energy advanced 12.8-percent drop in production in 2012. Similarly, soybean 1.1 percent, compared with a 1.4-percent increase production rose 8.4 percent, to 3.289 billion bushels in the previous year. The index for final-demand foods 2013, after declining 1.9 percent a year earlier.7 Moving fell1.1 percent after jumping 4.1 percent in 2012. In through the production chain reveals that the indexes contrast, prices for final-demand energy rose 1.0 percent for prepared animal feeds, beef and veal, and processed subsequent to a 1.3-percent decline the previous year. young chickens also turned downward after rising in 2012. In contrast, the indexes for final-demand energy goods Product detail. Price increases for motor vehicles slowed and unprocessed energy materials turned upward in 2013, to 1.2 percent in 2013, from 2.3 percent the previous while prices for processed energy goods declined less than year. The indexes for corn; prepared animal feeds; and they had in 2012. hay, hayseeds, and oilseeds turned downward after rising in 2012. In contrast, prices for liquefied petroleum gas Final demand rose 5.2 percent in 2013 following a 26.4-percent drop a Final-demand services. In 2013, the slower rate of increase year earlier. The index for fresh and dry vegetables also in the index for final demand can be traced primarily to increased after declining in 2012. U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 4 www.bls.gov BEYOND THE NUMBERS P R I C E S A N D S P E N D I N G Finished goods. The finished-goods index is a special Unprocessed goods for intermediate demand. Prices for grouping that represents about two-thirds of final-demand unprocessed goods for intermediate demand declined 2.1 goods through the exclusion of the weight for government percent in 2013, after rising 1.4 percent in 2012. Leading purchases and exports. The finished-goods index constitutes the downturn, the index for unprocessed foodstuffs and about one-quarter of overall final demand. The index for feedstuffs fell 6.2 percent after jumping 10.6 percent a finished goods moved up 1.2 percent in 2013, subsequent year earlier. Prices for unprocessed nonfood materials to a 1.4-percent increase a year earlier. In 2013, higher prices less energy dropped 5.9 percent in 2013, following a for pharmaceutical preparations, motor vehicles, residential 1.6-percent decline the previous year. In contrast, the electric power, and fresh and dry vegetables outweighed index for unprocessed energy materials rose 4.4 percent falling prices for processed young chickens and electronic subsequent to a 4.5-percent decrease in 2012. computers and computer equipment. Product detail. Leading the downturn in the index for unprocessed goods for intermediate demand, prices Intermediate demand for corn decreased 41.3 percent in 2013 after climbing Intermediate demand includes goods, services, and 23.6 percent in 2012. The indexes for hay, hayseeds, and maintenance and repair construction sold to businesses, oilseeds; gold ores; and coal also turned downward in excluding capital investment. BLS publishes two parallel 2013. In contrast, prices for crude petroleum advanced 7.4 treatments of intermediate demand, each constructed percent, compared with an 11.0-percent decrease in 2012. from the identical set of commodity price indexes. One The index for carbon steel scrap also increased in 2013 treatment organizes commodities according to their type, after falling a year earlier. and the other organizes commodities in accordance with a stage-based, production flow model. Services for intermediate demand. In 2013, the rise in the index for services for intermediate demand Intermediate demand by type of commodity slowed to 1.0 percent, from 2.9 percent in 2012. The Processed goods for intermediate demand. The index for index for transportation and warehousing services processed goods for intermediate demand was unchanged for intermediate demand rose less, advancing 2.2 in 2013, following a 0.4-percent rise in 2012. The index percent, compared with a 3.3-percent increase in 2012. for processed foods and feeds fell 3.1 percent in 2013, Margins for trade services for intermediate demand fell compared with a 7.2-percent jump in the previous 1.5 percent, following a 7.1-percent rise the previous 12-month period. In contrast, price declines for processed year. Prices for services less trade, transportation, and energy goods slowed to 1.3 percent, from 2.8 percent in warehousing for intermediate demand climbed 1.6 2012. The index for processed materials less foods and percent in 2013, the same rate as in 2012. energy moved up 0.8 percent in 2013, after increasing 0.6 Services detail. Among services for intermediate demand, percent the previous year. the rise the prices for truck transportation of freight slowed Product detail. Within the index for processed goods to 0.2 percent in 2013 from 3.2 percent the previous year. for intermediate demand, prices for prepared animal The indexes for metals, minerals, and ores wholesaling; feeds dropped 8.4 percent in 2013, compared with a paper and plastics product wholesaling; and television 20.3-percent rise a year earlier. The indexes for industrial advertising time sales turned downward after advancing electric power, diesel fuel, and particleboard and in 2012. In contrast, the index for securities brokerage, fiberboard also turned down after rising in 2012. In dealing, investment advice, and related services rose contrast, prices for jet fuel advanced 0.9 percent in 2013 2.9 percent in 2013 following a 2.2-percent decline the following a 5.4-percent decline the previous year. The previous year. Prices for airline passenger services rose index for steel mill products dropped less than in 2012. more than in 2012. U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 5 www.bls.gov BEYOND THE NUMBERS P R I C E S A N D S P E N D I N G Intermediate demand by production flow percent, after rising 0.5 percent in 2012. Prices for total Stage-4 intermediate demand. The stage-4 intermediate- services inputs to stage-2 intermediate demand fell 0.1 demand index measures price changes for products percent in 2013, following a 3.8-percent increase the purchased by industries that primarily produce output previous year. In contrast, the decrease in the index sold to final demand. The advance in the index for stage-4 for total goods inputs slowed to 0.4 percent from 2.0 intermediate demand slowed to 0.8 percent in 2013, percent in 2012. The indexes for metals, minerals, from 1.9 percent in 2012. In 2013, prices for total services and ores wholesaling; corn; prepared animal feeds; inputs to stage-4 intermediate demand rose 1.4 percent, and paper and plastics products wholesaling turned following a 2.5-percent increase the previous year, and downward in 2013 after rising the previous year. In the index for total goods inputs climbed 0.3 percent, contrast, prices for crude petroleum and securities after moving up 1.2 percent in 2012. Prices for truck brokerage, dealing, investment advice, and related transportation of freight rose less in 2013 than they had services rose following decreases in 2012. the previous year. The indexes for corn; metals, minerals, Stage-1 intermediate demand. The stage-1 intermediate- and ores wholesaling; and paper and plastics products demand index measures price changes for products wholesaling turned downward after large increases in purchased by industries that primarily produce output 2012. In contrast, the index for securities brokerage, sold to industries classified into stage 2. The index for dealing, investment advice, and related services, as well stage-1 intermediate demand rose 0.2 percent in 2013, as the index for jet fuel, turned upward in 2013 following after advancing 1.0 percent in 2012. Price increases for decreases a year earlier. total services inputs to stage-1 intermediate demand Stage-3 intermediate demand. The stage-3 intermediate- slowed to 2.1 percent, from 4.1 percent in 2012. In demand index measures price changes for products contrast, the index for total goods inputs fell 1.0 percent purchased by industries that primarily produce output in 2013 after a 1.3-percent decline the previous year. The sold to industries classified into stage 4. In 2013, the increase in prices for rail transportation of freight and mail index for stage-3 intermediate demand rose 0.4 percent, slowed in 2013. The indexes for industrial electric power; following a 1.5-percent increase in 2012. Price advances paper and plastics products wholesaling; and metals, for total services inputs to stage-3 intermediate demand minerals, and ores wholesaling turned downward after slowed to 1.0 percent, from 2.1 percent in 2012, and rising in 2012. In contrast, the indexes for carbon steel the index for total goods inputs edged up 0.2 percent scrap and for securities brokerage, dealing, investment in 2013 after advancing 1.0 percent the previous year. advice, and related services rose in 2013 after falling the The index for air mail and package delivery services previous year.  (excluding USPS) rose less in 2013 than in 2012. Prices for slaughter chickens, corn, and industrial electric This BEYOND THE NUMBERS article was prepared by power turned downward in 2013 after rising the Joseph Kowal, Lana Borgie, Brian Hergt, and Antonio previous year. In contrast, the index for steel mill Lombardozzi, economists in the Producer Price Index products fell less, and prices for staffing services rose Program. Email: ppi-info@bls.gov. Telephone: 202-691- more, in 2013 than in 2012. 7705. Stage-2 intermediate demand. The stage-2 intermediate- Information in this article will be made available upon demand index measures price changes for products request to individuals with sensory impairments. Voice purchased by industries that primarily produce output phone: (202) 691-5200. Federal Relay Service: 1-800- sold to industries classified into stage 3. In 2013, the 877-8339. The article is in the public domain and may be index for stage-2 intermediate demand declined 0.3 reproduced without permission. U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 6 www.bls.gov BEYOND THE NUMBERS P R I C E S A N D S P E N D I N G Suggested citation Joe Kowal, Lana Borgie, Brian Hergt, and Antonio Upcoming articles Lombardozzi, “Improvements to the Producer Price Index y Why does BLS provide both the CPI-U and CPI-W? measure: the Final-Demand–Intermediate-Demand y Employer-sponsored benefits extended to system,” Beyond the Numbers: Prices and Spending, vol. domestic partners 3, no. 4 (Bureau of Labor Statistics, February 2014), www.bls.gov/opub/btn/volume-3/improvements-to- the-producer-price-index-measure-the-final- Visit our online archives to access past publications at demand–intermediate-demand-system.htm. http://www.bls.gov/opub/btn/archive/home.htm. Notes 1. The FD–ID system was first introduced as a set of experimental indexes in January 2011. Nearly all new FD–ID goods, services, and construction indexes provide historical data back to either November 2009 or April 2010, and the indexes for goods that correspond with the historical SOP indexes go back to the 1970s or earlier. For more information about the FD–ID system, see “A new, experimental system of indexes from the PPI program,” Monthly Labor Review, February 2011, pp. 3–24, http://www.bls.gov/opub/mlr/2011/02/art1full.pdf; or Producer price indexes: PPI Final Demand–Intermediate Demand (FD–ID) aggregation system (U.S. Bureau of Labor Statistics, February 3, 2014), http://www.bls.gov/ppi/fdidaggregation.htm. For more detail about overall PPI methodology, see “Chapter 14. Producer Prices,” BLS Handbook of Methods (U.S. Bureau of Labor Statistics), http://www.bls.gov/opub/hom/pdf/homch14.pdf. 2. The intermediate demand indexes titled “Processed Goods for Intermediate Demand” and “Unprocessed Goods for Intermediate Demand” are equivalent to the SOP indexes titled “Intermediate Materials, Supplies, and Components” and “Crude Materials for Further Processing.” 3. “Wholesale and retail Producer Price Indexes: margin prices,” Beyond the numbers: prices and spending (U.S. Bureau of Labor Statistics, August 2012, http://www.bls.gov/opub/btn/volume-1/pdf/wholesale-and-retail-producer-price-indexes- margin-prices.pdf. 4. Monthly and annual retail trade (U.S. Census Bureau, January 14, 2014), http://www.census.gov/retail. Data for December 2013 are provided under the section titled “Advance monthly retail trade report.” For historical data, an Excel file is provided under the heading “Monthly retail trade report.” Data for 2013 described in the analysis presented in this Beyond the Numbers article were taken from the advance report, downloaded January 16, 2014; the remainder of the data presented was extracted from the historical Excel file. 5. In 2010 and 2011, retail sales of motor vehicles and related parts increased 10.7 percent and 9.9 percent, respectively. From the sector’s low point in 2009, during the 2007–2009 recession, to the close of 2013, retail sales of motor vehicles and related parts jumped 42.4 percent. 6. “The impact of fuel surcharges on the PPI,” Focus on prices and spending, Producer Prices Index: second quarter 2011 (U.S. Bureau of Labor Statistics, August 2011), http://www.bls.gov/opub/focus/volume2_number6/ppi_2_6.pdf. 7. Tom Capehart, Edward Allen, and Jennifer Bond, “Corn and sorghum production and carryout down for 2013/14,” Feed outlook, Economic Research Service Situation and Outlook Report FDS-14a (U.S. Department of Agriculture January 2014), see especially table 1, p. 13, http://www.ers.usda.gov/ersDownloadHandler.ashx?file=/media/1256968/fds_14a.pdf; and Mark Ash, “Record demand is seen for U.S. soybeans in first quarter of 2013/14,” Oil crops outlook, Economic Research Service Situation and Outlook Report OCS-14a (U.S. Department of Agriculture, January 14, 2014), see especially table 1, p. 8, http://www.ers.usda.gov/ersDownloadHandler.ashx?file=/media/1256457/ocs14a.pdf. U.S. BUREAU OF LABOR STATISTICS | FEBRUARY 2014 7 www.bls.gov