Monthly Labor Review July 2001 25

 Producer Prices, 2000

Producer prices in 2000:

energy goods continue to climb

Soaring natural gas prices sparked higher inflation

among finished, intermediate, and crude goods,

resulting in the steepest increase

in the finished goods index in 10 years

William F. Snyders

William F. Snyders is an

economist in the

Office of Prices and

Living Conditions,

Bureau of Labor

Statistics.

E-mail:

snyders_w@bls.gov

The Producer Price Index (PPI) for Finished

Goods advanced 3.6 percent in 2000, the

largest annual gain since 1990. Excluding

energy goods, the index for finished goods rose

1.5 percent. The PPI for finished consumer foods

was up 1.7 percent in 2000. The index for producer prices for finished goods excluding foods

and energy advanced 1.3 percent in 2000, following a 0.9-percent increase in 1999. This index includes both consumer goods and capital

equipment.

Price movements for intermediate goods and

crude goods followed a pattern similar to that of

finished goods. The index for intermediate goods

rose 4.1 percent in 2000, following a 3.7-percent

gain in 1999. (Intermediate items in the PPI reflect

changing prices for material inputs to the manufacturing process, as well as various supplies

consumed in the production process.) The crude

goods index advanced 35.5 percent, after rising

15.3 percent in the previous year. (Generally,

crude goods are unprocessed goods that are

outputs from mining industries and agricultural

production.) (See chart 1.)

For energy goods at the crude stage of processing, higher inflation was observed in 2000

compared with 1999. However, price increases

slowed for both intermediate and finished energy goods, while price advances for crude petroleum and petroleum-based products decelerated from 1999 to 2000.

Prices for foods and food-related materials at

the crude and intermediate stages of processing

rose in 2000. The intermediate “core” index, which

removes the volatile foods and energy component, slowed to a 1.6-percent increase in 2000,

following a 1.9-percent advance a year ago. By

contrast, prices for crude core items decreased

5.5 percent, after increasing 14.0 percent in 1999.

(See table 1.)

Energy goods

Skyrocketing natural gas prices and double-digit

price increases for many crude petroleum-based

items helped push energy prices higher for all

three stages of processing in 2000. The index for

finished energy goods rose 16.6 percent, following an 18.1-percent advance in 1999. Price increases were observed for finished energy items,

such as residential natural gas, gasoline, residential electric power, and home heating oil.

Prices for intermediate energy goods advanced

19.0 percent, after having increased 19.6 percent

a year earlier. The indexes for jet fuels, commercial and industrial natural gases, diesel fuel, liquefied petroleum gas, and commercial electric

power continued to increase in 2000. The crude

energy goods index jumped 85.6 percent, following a 36.9-percent gain in 1999, as prices continued to rise for natural gas and crude petroleum.

(See table 2.)

Natural gas. Decreasing supplies of natural gas,

rising crude oil prices, and weather-related demand helped push residential, commercial, and

industrial natural gas prices to their highest levels since the publication of these indexes began
26 Monthly Labor Review July 2001

Producer Prices, 2000

in December 1990. The producer price index for natural gas

posted a record 192.6-percent rate of increase, as demand

outpaced supply most of the year. June and December registered the two largest gains for the year, rising 38 percent and

42.3 percent respectively. Due to industry regulation, the majority of natural gas utility companies are inhibited from passing along their higher input costs directly to residential and

commercial customers. However, natural gas utility companies are able, with little regulatory guidance, to pass on their

higher input costs to their industrial customers, who then

absorb and pass on these costs indirectly in their own costs

of doing business. Residential gas prices increased 41.8 percent, commercial natural gas prices rose 56 percent, and industrial natural gas prices jumped 91.9 percent for the year.

(See chart 2.)

By spring and early summer, supplies of natural gas tightened and prices began climbing throughout the rest of the

year. Above-average temperatures and reduced electric output from nuclear power plants in the summer of 2000 meant

that utilities had to produce more electricity using natural

gas. As colder temperatures arrived in December, natural gas

usage shifted to heating. The resulting withdrawals from already low inventories pushed prices even higher. As of December 2000, natural gas storage levels stood at 1,720 billion

cubic feet; 803 billion cubic feet less than the available storage levels in December 1999.1

Petroleum-based products. Led by strong global demand,

crude petroleum prices continued to rise for most of the year,

but at a much slower pace than in 1999. The PPI for crude

petroleum increased 11.0 percent from December 1999 to December 2000, after jumping 172.0 percent from December 1998

to December 1999. Throughout the summer, crude petroleum

stocks in the United States reached a 24-year low, pushing

down domestic supplies.2 Petroleum prices declined somewhat, however, at the end of 2000, as a result of the Organization of Petroleum Exporting Countries (OPEC) decision to increase oil production by 800,000 barrels a day and the U.S.

decision to tap the U.S. Strategic Petroleum Reserve for 30

million barrels of oil.

Looking closer at refined petroleum goods, the jet fuels

index increased 42.6 percent in 2000, due to the rising cost of

oil and diminishing supplies. During the first quarter, prices

were higher, because supplies were weak throughout that

period. Prices then leveled off through the summer as inventories rebounded and prices per crude oil decreased, a result

of an increase in OPEC production. By September, enough

high demand for jet fuels and the return of rising oil costs

helped raise jet fuel prices.

Diesel fuel prices increased 39.8 percent in 2000, a result

Chart 1. Annual percent changes for stage of processing indexes, 1990–2000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

-20

-10

0

10

20

30

40

-20

-10

0

10

20

30

40

Crude goods

Intermediate goods

Finished goods

Percent Percent
Monthly Labor Review July 2001 27

Finished goods ....................................... –0.1 1.6 0.2 1.7 2.3 2.8 –1.2 0.0 2.9 3.6

 Foods ................................................... –1.5 1.6 2.4 1.1 1.9 3.4 –.8 .1 .8 1.7

 Energy ................................................. –9.6 –.3 –4.1 3.5 1.1 11.7 –6.4 –11.7 18.1 16.6

 Other ................................................... 3.1 2.0 .4 1.6 2.6 .6 .0 2.5 .9 1.3

Intermediate materials,

 supplies, and components .................. –2.6 1.0 1.0 4.4 3.3 .7 –.8 –3.3 3.7 4.1

 Foods and feeds ............................... -.2 –.5 5.5 –4.5 10.3 2.1 –1.7 –7.3 –4.2 3.6

 Energy ............................................... –11.6 .7 –4.2 2.9 1.1 11.2 –7.0 –12.1 19.6 19.0

 Other ................................................. –.8 1.2 1.6 5.2 3.2 –.9 .3 –1.6 1.9 1.6

Crude materials for further processing .. –11.6 3.3 .1 –.5 5.5 14.7 –11.3 –16.7 15.3 35.5

 Foodstuffs and feedstuffs ................ –5.8 3.0 7.2 –9.4 12.9 –1.0 –4.0 –11.0 –.1 7.4

 Energy ............................................... –16.6 2.3 –12.3 –.1 3.7 51.2 –23.1 –23.8 36.9 85.6

 Other ................................................. –7.6 5.7 10.7 17.3 –4.2 –5.5 .0 –16.0 14.0 –5.5

Table 1. Annual percent changes for major categories of the Producer Price Index by stage of processing, 1991–2000

Index 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Table 2. Annual percent changes in Producer Price Indexes for selected energy items, 1995–2000

Finished energy goods .......................... 1.1 11.7 –6.4 –11.7 18.1 16.6

 Residential natural gas ...................... –2.4 11.2 2.4 –2.4 .9 41.8

 Gasoline ............................................. 2.4 27.1 –15.0 –33.1 74.8 17.2

 Residential electric power .................. .9 .6 –.2 –2.5 –.5 3.2

 Home heating oil ................................. 11.9 25.0 –21.7 –36.1 89.4 37.0

Intermediate energy goods .................... 1.1 11.2 –7.0 –12.1 19.6 19.0

 Jet fuels ............................................. 6.1 26.1 –22.3 –35.8 90.9 42.6

 Commercial natural gas ..................... –3.9 16.8 .9 –4.7 4.1 56.0

 Industrial natural gas ......................... –4.6 22.3 3.1 –9.7 7.4 91.9

 Diesel fuels ........................................ 11.1 26.2 –22.5 –33.8 86.4 39.8

 Liquefied petroleum gas ..................... 3.9 71.4 –29.3 –32.6 87.0 49.3

 Commercial electric power ................. .6 –.1 .0 –1.8 .6 4.4

 Industrial electric power ..................... .2 .0 .5 –1.3 –.1 4.9

Crude energy materials .......................... 3.7 51.2 –23.1 –23.8 36.9 85.6

 Natural gas ......................................... –.3 92.0 –27.9 –17.8 7.9 192.6

 Coal .................................................... –.8 –1.1 4.9 –1.2 –9.3 .0

 Crude petroleum ................................. 10.8 35.8 –28.3 –48.6 172.0 11.0

Index 1995 1996 1997 1998 1999 2000

of the low supply of distillates and the rising costs of oil. In

the first quarter, diesel fuel prices climbed as the supply of

distillates plummeted. For the 12 months ended in February

2000, the diesel fuel index more than doubled, which caused

a cavalcade of truck drivers to protest by driving through the

streets of Washington DC, in search of Federal relief via the

immediate removal of diesel fuel taxes. By April and May,

prices eased as warmer temperatures decreased the demand

for distillates, but then prices increased throughout the third

quarter in anticipation of a major winter shortage of distillates and the return of higher crude oil prices.

Gasoline prices increased by 17.2 percent from December

1999 to December 2000, mainly because of an 11-percent rise

in the price of oil over the same time period. Crude oil, gasoline, and home heating oil all showed similar movements over

the last 2 years. (See chart 3.) Large price increases for gasoline took place in the first quarter of 2000, as rising oil costs

and low inventories put upward pressure on prices. Prices

fell in April, when OPEC announced it would increase oil production by 1.7 million barrels per day to counteract rising

global oil prices. By early June, however, gasoline prices rose

to their highest levels in nearly 20 years due to rising summer

demand. By the end of 2000, gasoline prices began to decline

as the release of oil from the Strategic Petroleum Reserve

helped lower oil costs.

Home heating oil prices increased 37 percent for the 12

months ended in December 2000, driven by rising oil costs,

an extremely low supply of distillates, and cold winter temperatures. The high demand and shortage of gasoline in the

summer months caused oil refineries to focus all available

resources on gasoline production, thereby reducing the

buildup of heating oil supplies. Prices climbed throughout

the summer, as refiners anticipated winter shortages, but beginning in October, prices declined with the supply assistance of the Strategic Petroleum Reserve.

Among other petroleum products, prices for liquefied pe-
28 Monthly Labor Review July 2001

Producer Prices, 2000

Chart 2. Residential natural gas, 1998–2000

troleum gas rose 49.3 percent, following an 87-percent increase a year earlier. As for many other energy commodities,

the 2000 increase in the index was a result of rising oil and

natural gas prices.

Electric power. Residential electric power prices increased

3.2 percent, following a 0.5-percent decline in 1999. Increased

weather-related demand and the electricity crisis in California

were the main causes for the acceleration. Demand for electricity rose, as many regions of the United States experienced

hot summer temperatures and colder-than-normal temperatures throughout the fall. An 83.1-percent jump in prices for

natural gas to electric utilities (input costs to electricity industries) also contributed to higher residential electricity

prices in 2000. As natural gas prices skyrocketed during the

year, many electricity producers increased their rates in the

form of fuel cost adjustments. In addition to residential electricity, the high cost of natural gas also was passed on in

electricity prices for commercial and industrial uses. The index for commercial electric power rose 4.4 percent, after increasing 0.6 percent in 1999. Industrial electricity prices advanced 4.9 percent in 2000, following a 0.1-percent decline in

the previous year.

Food and related products

Producer prices for finished consumer foods advanced 1.7

percent in 2000, following a 0.8-percent gain in the previous

year. Nearly one-third of the 2000 increase can be traced to an

8.2-percent rise in beef and veal prices. Moreover, price increases for eggs for fresh use, dairy products, bakery products, and pork contributed to higher finished consumer foods

prices in 2000.

Led by rising prices for prepared animal feeds, the producer price index for intermediate foods and feeds rose 3.6

percent in 2000, after falling 4.2 percent a year ago. Prices for

crude foodstuffs and feedstuffs advanced 7.4 percent, after

edging downward 0.1 percent in 1999. Contributing to this

turnaround were price increases for fluid milk, corn, soybeans, and wheat. (See table 3).

Chicken eggs. The eggs for fresh use index soared 46.3

percent in 2000, after falling 27.4 percent in the prior year. In

1999, chicken egg producers experienced a period of gross

overproduction, caused mainly by a large oversupply of egglaying hens. However, by the year 2000, price levels began to

rebound as desperate producers lowered egg production by

Jan. April July Oct. Jan. April July Oct. Jan. April July Oct. Dec.

-40

-20

0

20

40

60

-40

-20

0

20

40

60

Residential gas PPI

Storage

Consumption

12-month

percent change

12-month

percent change

1998 2000 1999
Monthly Labor Review July 2001 29

removing seven million hens from the U.S. flock. This was

accomplished by the combination of higher cull rates and

drops in the number of egg-laying hens being hatched.

Dairy products. The index for dairy products was up 3.2

percent, after falling 11.1 percent in 1999. Prices for fluid milk

rose 7.0 percent for the 12 months ended in December 2000.

During the winter of 2000, milk production decreased, as a

result of cows suffering stress from cold weather. December

milk supplies were also lowered by higher energy prices and

power-related problems, especially in California, the largest

producer of milk in the country. As the State of California

experienced numerous power blackouts, farmers and processors were forced to remove milk that had spoiled. In addition,

processors in California, as well as in other areas of the United

States, were operating shorter hours to save on energy costs,

which ultimately further lowered milk supplies and raised prices.

Grains. Corn prices rose 7.8 percent for the 12 months ended

in December 2000, compared with a 12.4-percent drop in the

previous year. The corn futures market had an extremely volatile year in 2000. Corn production totaled 9.97 billion bushels,

up 6 percent from 1999, and was the second largest crop

behind 1994’s record production of 10.1 billion bushels.3 As

a result, the large crop pushed corn prices lower in June, July,

and August. However, corn prices then rebounded throughout the remainder of the year.

Soybean prices advanced 9.9 percent in 2000, following a

17.5-percent decline a year earlier. This turnaround was due

to higher demand for prepared animal feeds, a partially-processed commodity of soybeans. Prices were also higher due

to strong export demand from the European Union (EU) for

products such as soybean meal. The EU has since implemented a total ban on meat and bone meal, and blood meals

in animal feeds due to fears of spreading Bovine Spongiform

Encephalopathy (BSE), commonly known as “mad cow disease.” EU farmers were compelled to increase their use of

alternative animal feeds such as soybean meal to sustain

their herds.

The index for wheat increased 13.9 percent in 2000, after

decreasing at the same rate during 1999. The months of July

and August experienced weaker prices, as low corn prices

and sharp competition from abroad caused the price of wheat

to decline. However, the wheat index rebounded in the fall,

posting a 6.3-percent rise in September and a 9.7-percent

increase in October. This rally was brought on by rising corn

futures caused by unusually high international demand,

which influenced wheat trades.

Chart 3. Energy Index levels, monthly, 1998–2000

Jan. April July Oct. Jan. April July Oct. Jan. April July Dec.

0

20

40

60

80

100

120

0

20

40

60

80

100

120

Gasoline,

seasonally adjusted

Home heating oil,

seasonally adjusted

Crude petroleum,

unadjusted

Oct.

Index

level

Index

level

1998 1999 2000
30 Monthly Labor Review July 2001

Producer Prices, 2000

Collectively, higher prices for grains in 2000 put upward

pressure on prices for prepared animal feeds. This index rose

8.3 percent for the year, after decreasing 2.7 percent in 1999.

Flour. The price of flour increased 7.9 percent for the year

ended in December 2000, compared with a 7.5-percent decline in 1999. Wheat prices heavily influence flour prices, and

the extremely volatile wheat market contributed to the positive annual percent change during 2000, and the negative

annual change during 1999. Higher prices for flour helped

push up the index for bakery products, which increased 2.7

percent in 2000.

Meats. After a 266.9-percent surge in 1999, slaughter hog

prices rose 14.9 percent in 2000. Slaughter hog prices stayed

well above the break-even point for most of 2000, an occurrence not realized since 1997. In the finished and intermediate

stages of processing, the pork index increased 5 percent in

2000, after jumping 29.8 percent in the prior year. Overall,

pork prices continued their climb from the early 1999 levels

by virtue of good domestic demand for meat products and an

improvement in the export market.

In 2000, prices for slaughter cattle and for beef and veal

continued to show upward movements in 2000, rising 9.1

percent and 8.2 percent respectively. These increases were

the result of strong domestic demand for beef products, particularly for high quality beef products. While beef production was up 1.5 percent in 2000, prices for choice cuts of beef

at retail were a record $3.06 a pound. Retail beef prices rose

6.5 percent, more than the 1999 average and 4.6 percent, more

than the previous record of $2.93 a pound, set in 1993.4

Among other food items tracked in the PPI, price declines

were observed in 2000 for fresh and dry vegetables, roasted

coffee, fresh fruits and melons, refined sugar, and crude vegetable oils.

Finished goods other than foods and energy

As previously mentioned, the PPI for finished goods other

than foods and energy—the “core” index—accelerated

slightly from a 0.9-percent rate of increase in 1999 to a 1.3-

percent rise in 2000. This acceleration in prices was broadly

based. Prices for finished consumer goods other than foods

and energy rose 1.4-percent, following a 1.2-percent increase

in 1999. Among this category, prices accelerated for such

items as alcoholic beverages, prescription drugs, and light

trucks. The capital equipment index rose 1.2 percent for the

2000 calendar year, after gaining just 0.3 percent a year ago.

Rising prices were observed for producers of civilian aircraft,

commercial furniture, industrial material handling equipment,

heavy trucks, agricultural machinery, and construction machinery. (See table 4.)

Alcohol and tobacco products. Over the course of 2000, the

index for alcoholic beverages increased by 4.2 percent. According to the 1997 Census of Manufactures, beer accounts

for 30 percent of the beverage market with $18.2 billion in

sales. Wine, brandy, and distilled spirits accounted for 16.6

Table 3. Annual percent changes in Producer Price Indexes for selected food items, 1995–2000

Index 1995 1996 1997 1998 1999 2000

Finished consumer foods ................... 1.9 3.4 –0.8 0.1 0.8 1.7

 Eggs for fresh use ........................... 31.5 15.0 –15.6 –6.2 –27.4 46.3

 Beef and veal ................................... –1.4 7.4 –5.4 –2.7 10.8 8.2

 Bakery products ............................... 3.3 3.6 1.1 1.0 1.6 2.7

 Processed poultry ............................ 8.4 2.6 –6.3 3.8 –3.7 1.1

 Pork .................................................. 15.3 21.9 –13.6 –27.3 29.8 5.0

 Dairy products .................................. 5.4 2.4 4.7 10.7 –11.1 3.2

 Fresh fruits and melons ................... 2.5 37.2 –8.2 –19.0 8.2 –1.3

 Roasted coffee ................................. –8.2 –8.4 18.1 –9.5 –.9 –6.9

 Fresh and dry vegetables ................ –36.0 –24.3 21.6 8.8 4.4 –23.7

Intermediate foods and feeds ............. 10.3 2.1 –1.7 –7.3 –4.2 3.6

 Prepared animal feeds ..................... 20.6 5.4 –3.1 –20.4 –2.7 8.3

 Flour ................................................. 20.1 –9.0 –8.2 –5.6 –7.5 7.9

 Crude vegetable oils ........................ –14.1 –9.3 13.9 –2.7 –37.5 –16.5

 Confectionery materials ................... 1.5 2.2 –15.8 –1.0 1.7 .7

 Refined sugar ................................... .8 4.2 –4.5 .6 –2.2 –9.6

Crude foodstuffs and feedstuffs ......... 12.9 –1.0 –4.0 –11.0 –.1 7.4

 Fluid milk ........................................... 8.4 1.1 2.8 25.6 –31.3 7.0

 Corn .................................................. 49.4 –21.0 2.2 –22.5 –12.4 7.8

 Soybeans ......................................... 26.7 –3.7 1.8 –21.3 –17.5 9.9

 Wheat ............................................... 29.9 –19.3 –11.3 –15.0 –13.9 13.9

 Slaughter cattle ................................ –5.2 –2.5 2.0 –12.0 19.4 9.1

 Slaughter hogs ................................. 40.6 23.2 –21.7 –76.8 266.9 14.9
Monthly Labor Review July 2001 31

percent, or $7.6 billion. Among tobacco products, cigarette

prices rose 1.9 percent in 2000, mostly as a result of a 6-

cent per pack price hike in August (or $3 per 1000 cigarettes). Cigarettes make up more than 80 percent of the

overall tobacco market, with $29.3 billion in sales.

Prescription drugs. In 2000, the rate of increase for prices

received by pharmaceutical manufacturers was lower than

the rate of inflation measured in finished goods as a whole.

Producer prices for prescription drugs increased 3.0 percent,

a more typical increase than those of the previous 2 years

when the index rose 20.9 percent in 1998, but only 0.8 percent

in 1999. Drug prices in 2000 rose moderately, as insurance

companies, managed care groups, and pharmacy benefit managers tightened reimbursement policies to customers, pressuring consumers to find cheaper generic alternatives to expensive brand name drugs.

Cars and light trucks. Prices for passenger cars fell 0.7 percent during 2000, after rising 1.2 percent in 1999. Total car

sales were up for the year, although sales slowed substantially in the second half of 2000, due to a drop in consumer

confidence. An 18.1-percent jump in sales of small cars was

observed for the year, resulting mostly from a 46-percent

increase in sales for imported small cars.5 Luxury cars also

showed a gain, but both mid-sized and large cars had decreases in sales. The light truck price index rose 1.8 percent

during 2000, following a 0.3-percent gain in the prior year.

Light truck sales for 2000 were 3.8 percent higher than in

1999, due largely to new crossover vehicles. A few segments

of the market, such as small pickups and large luxury SUVs,

showed over-the-year decreases in sales. Collectively, sales both

for cars and light trucks totaled more than 17 million in 2000.

Civilian aircraft. Despite the 4.9-percent decrease in overall

aircraft industry sales, the 2000 calendar year was the second-best year on record, with industry profits of approximately $9.4 billion.6 Prices for civilian aircraft advanced 6.7

percent, after increasing 2.1 percent in 1999. Helicopters and

general aviation aircraft sales both showed substantial gains

in 2000.

Commercial furniture. Steady price increases were observed

for producers of commercial furniture. The PPI for commercial

furniture increased 1.1 percent in 2000, following a 1.2-percent gain a year earlier. Prices continued to rise moderately,

as consumer purchasing remained healthy throughout 2000.

Computers. Due to modern-day advances in technology

associated with manufacturing computers and the increases

in competition in specific markets, prices in the electronic

computer industry continued their downward trend during

Table 4. Annual percent changes in Producer Price Indexes for selected finished goods other than foods and energy,

1995–2000

Index 1995 1996 1997 1998 1999 2000

Finished goods other than

 foods and energy ............................. 2.6 0.6 0.0 2.5 0.9 1.3

Finished consumer goods

 less foods and energy ..................... 2.8 .8 .3 4.2 1.2 1.4

Alcoholic beverages ...................... 4.2 3.8 –.5 1.5 .6 4.2

Cigarettes ...................................... 3.7 3.3 10.0 49.4 9.6 1.9

Prescription drugs ......................... 4.2 2.0 3.6 20.9 .8 3.0

Light trucks .................................... 1.5 .2 –3.6 1.0 .3 1.8

Newspapers ................................... 8.8 4.2 .1 1.1 1.4 4.3

Sanitary papers

 and health products ................... 14.3 –2.6 –2.0 –.6 –1.0 2.7

Books ............................................. 6.5 3.2 3.3 4.1 1.8 3.4

Home electronic equipment ........... –1.0 –1.3 –3.2 –1.7 –2.3 –2.2

Household appliances ................... .1 –.5 –2.5 –.3 –.6 –1.7

Passenger cars ............................. 1.7 –.8 –2.6 .5 1.2 –.7

Capital equipment .......................... 2.2 .4 –.6 .0 .3 1.2

Civilian aircraft ............................... 6.1 3.2 .5 .5 2.1 6.7

Commercial furniture ...................... 3.4 2.0 1.2 .1 1.2 1.1

Industrial material handling

 equipment ................................... 2.1 1.7 1.4 1.5 .9 1.7

Heavy trucks ................................. 4.1 –4.5 .6 3.9 1.4 .7

Agricultural machinery ................... 4.7 1.4 1.4 .7 1.3 1.2

Construction machinery ................. 2.5 1.8 1.9 1.7 1.4 .9

Communication and related

 equipment ................................... .9 1.5 .8 –1.1 –1.9 –1.3

Computers ...................................... –12.7 –22.3 –21.5 –26.6 –19.7 –14.2
32 Monthly Labor Review July 2001

Producer Prices, 2000

2000. Producer prices for overall computers fell 14.2 percent,

after decreasing 19.7 percent in 1999. Price declines were registered in 2000 for large-scale and mid-range computers, personal computers/workstations, and portable computers.

Intermediate industrial materials

The PPI for intermediate materials other than foods and energy slightly decelerated, rising 1.6 percent in 2000, following

a 1.9-percent gain in the previous year. Price increases also

slowed for durable manufacturing materials and construction materials. In contrast, the index for nondurable manufacturing materials rose slightly more in 2000 than it did a year

ago. (See table 5.)

Durable manufacturing materials. The index for durable

manufacturing materials edged upward 0.2 percent in 2000,

after advancing 2.4 percent in 1999. Prices decreased in 2000

from their 1999 increases for building paper and board and

for cement. The indexes for copper cathode and refined copper and also for copper and brass mill shapes rose less in

2000 than in the previous year. Price declines were larger in

2000 than 1999 for plywood. By contrast, the index for steel

mill products fell at a slower rate, compared with its rate of

decline a year earlier.

The index for building paper and board decreased 9.3 percent, while cement prices fell 0.9 percent for the 12 months

ended in December 2000. During the same period, the index

for copper cathode and refined copper was up 8.3 percent,

after jumping 21.7 percent a year ago. Rising prices for copper and brass mill shapes slowed from 8.6 percent in 1999 to

3.8 percent in 2000. The copper market was boosted by reports of world refined copper being in deficit versus surplus,

good demand for the metal, and declining warehouse stocks.

Plywood prices declined by 6.2 percent over the course of

2000, after edging down 0.2 percent a year earlier. The downward trend in plywood prices resulted from fewer housing

starts in 2000, with residential construction representing 48

percent of the demand for plywood. In addition, the plywood

market suffered from oversupply and bad weather, which inhibited construction activities.

The index for steel mill products declined 0.6 percent in

2000, after falling 2.4 percent in the previous year. The continued decline in prices was due to the financial collapse of

many domestic steel companies in the second half of the

year. Excluding the fourth quarter, 2000 was a solid year for

the domestic steel industry in terms of production and sales,

with prices up slightly from the year before.7 Since the early

1990s, steel mills products were in high demand, but recently

mill owners have found it difficult to maintain prices in the face

of import competition and surplus global capacity. As a result,

many firms in the steel industry filed for bankruptcy in 2000.

Construction materials. Prices for materials and components

for construction inched upward 0.1 percent in 2000, after advancing 2.2 percent in 1999. This deceleration was brought

Table 5. Annual percent changes in Producer Price Indexes for selected intermediate and crude materials other than

foods and energy, 1995–2000

Index 1995 1996 1997 1998 1999 2000

Intermediate goods other than foods ...

 and energy ........................................ 3.2 –0.9 0.3 –1.6 1.9 1.6

Durable manufacturing materials ........ 1.1 –1.4 .0 –5.5 2.4 .2

 Building paper and board ................. –5.1 –5.8 –2.0 –1.3 10.3 –9.3

 Copper and brass mill shapes ......... 2.1 –10.6 –6.5 –11.5 8.6 3.8

 Plywood ............................................ –8.5 –1.3 –1.1 4.9 –.2 –6.2

 Cement ............................................. 6.0 5.0 3.5 5.2 1.6 –.9

 Steel mill products ........................... 1.3 –1.4 .5 –6.5 –2.4 –.6

Nondurable manufacturing materials .. 5.9 –3.3 .3 –5.3 4.0 4.1

Industrial chemicals ......................... 1.1 2.5 –1.1 –5.7 4.1 4.8

Paperboard ....................................... 16.3 –19.0 5.8 –8.0 13.0 10.6

Nitrogenates ..................................... 5.8 5.9 –13.5 –19.0 2.2 44.9

Paper ................................................ 20.5 –14.2 3.8 –4.1 2.8 4.1

Construction materials ........................ 1.9 1.8 1.2 .1 2.2 .1

Softwood lumber .............................. –10.3 19.6 –3.8 –10.1 10.1 –14.5

Gypsum products ............................. 1.0 6.6 7.1 7.3 23.1 –27.1

Plastic construction products .......... 1.8 –1.1 –2.0 –2.2 5.6 1.6

Nonferrous wire and cable ............... 1.6 –3.1 –2.2 –4.6 .3 4.6

Crude nonfood materials less energy . –4.2 –5.5 .0 –16.0 14.0 –5.5

 Iron and steel scrap........................ –4.1 –11.1 14.5 –39.9 40.0 –28.8

 Wastepaper ..................................... –50.9 –1.3 11.6 –28.9 110.5 –18.5

 Raw cotton ...................................... 4.2 –13.0 –11.2 –8.0 –20.8 30.2
Monthly Labor Review July 2001 33

on by the downturn in the indexes for softwood lumber and

and gypsum products. During the same period, rising prices

for plastic construction products, millwork, and fabricated

structural shapes decelerated from 1999. Conversely, the index for nonferrous wire and cable rose more in 2000 than it

did a year earlier.

Construction demand held up well; the value of new construction put in place for the year 2000 was $807.8 billion

current dollars, 6.0 percent more than the $764.2 billion in

1999. In constant (1996) dollars, the value in 2000 was $704.3

billion, 2 percent above the 1999 figure of $692.5 billion.8

Softwood lumber prices finished the year 14.5 percent below their 1999 level, taking their biggest hit in May, with a 4.7-

percent decrease. Prices declined throughout most of 2000,

as the softwood lumber market suffered from oversupply and

lower demand from the construction industry. The index for

gypsum products dropped a record 27.1 percent, for the 12

months ended in 2001. A year earlier, gypsum prices rose 23.1

percent. By early 2000, new plants came online and the shortage of gypsum products began to recede. With an eventual

oversupply of gypsum wallboard, overall prices started dropping sharply. The index for plastic construction products rose

1.6 percent in 2000, following a 5.6-percent gain in the prior

year. By contrast, prices for nonferrous wire and cable rose

4.6 percent, after edging upward 0.3 percent in 1999.

Nondurable manufacturing materials. The index for nondurable manufacturing materials increased 4.1 percent in 2000,

following a 4.0-percent gain in 1999. Rising prices for industrial chemicals, paperboard, nitrogenates, and paper outweighed price declines for phosphates, inedible fats and oils,

and for medicinal and botanical chemicals.

The index for industrial chemicals advanced 4.8 percent in

2000, following a 4.1-percent gain a year ago. This increase

can be attributed to a 13.1-percent rise in prices for primary

basic organic chemicals. The industrial chemicals market experienced a long period of declining 12-month percent

changes that finally turned positive in September of 1999, the

result of higher crude oil prices and recovering world demand, both of which put upward pressure on prices for organic chemicals. Among other chemicals, the index for

nitrogenates jumped 44.9 percent in 2000, following a 2.2-

percent gain in the prior year.

The index for paperboard advanced 10.6 percent in 2000,

after rising 13.0 percent a year earlier. Due to a strong economic outlook at the beginning of 2000, paperboard producers implemented several spring price increases, which extended into the summer. By the third quarter, demand dropped

somewhat and prices declined for the remainder of the year.

Paper prices also accelerated throughout 2000, rising 4.1 percent, following a 2.8-percent increase in 1999. Paper prices

rose steadily throughout the first half of 2000 and then leveled off for the rest of the year, as orders began to drop and

inventories slowly began to build.

Crude nonfood materials less energy

After jumping 14.0 percent in 1999, the PPI for basic industrial

materials—crude nonfood materials less energy—fell 5.5 percent in 2000. Prices for iron and steel scrap dropped 28.8

percent, following a 40.0-percent surge a year earlier. The

indexes for wastepaper, aluminum base scrap, and for softwood logs, bolts, and timber also fell, after rising in 1999.

Conversely, raw cotton prices advanced 30.2 percent in 2000,

following a 20.8-percent decline in the prior year. (See table 5.)

Iron and steel scrap. Iron and steel scrap metal prices declined 28.8 percent in 2000, as the domestic steel industry

was battered by a flood of low-priced imports. The domestic

steel industry has struggled to recover from the Asian economic crisis of 1997–98, when low-cost steel had a negative

impact on the domestic market.

Wastepaper. The index for the wastepaper in 2000 was down

18.5 percent, compared with a 110.5-percent surge in 1999.

After a continual rise in prices for the first 5 months of 2000,

the wastepaper industry experienced an extreme “cooling off”

period, which began in June and continued throughout the

end of the year. The reasons for the fall in paper prices in the

second half of 2000 included increased collection, weak export demand from Asia, and weak demand from U.S. mills.

Prior to this period, the wastepaper index had not shown a

decline since late 1998, when it occurred in a much less dramatic fashion.

Raw cotton. In the last quarter of 1999, the index for raw

cotton had reached its lowest level since November 1986.

Prices then rebounded in 2000, rising 30.2 percent for the

calendar year. Demand for cotton was heavy by March, because merchants and shippers needed cotton to cover commitments to customers located near the processing facilities.

Also adding to higher raw cotton prices was the United States

Department of Agriculture forecast of lower world production, higher consumption, and lower stocks for 1999–2000.

Many cotton producers abandoned their fields in the last

half of the year, due to dry weather throughout the growing

season, coupled with poor harvest conditions in the fall.

Selected services industries

Rising prices were observed for the majority of services industries tracked in the PPI. The following indexes rose
34 Monthly Labor Review July 2001

Producer Prices, 2000

Table 6. Percent change in Producer Price Indexes for the net output of selected service industries, 1995–2000

SIC code Industry 1995–96 1996–97 1997–98 1998–99 1999–2000

 Distribution

4011 Railroads, line-haul operating .............................................. 0.0 1.0 0.5 0.1 1.8

4212 Local trucking without storage ............................................ .0 .2 1.7 1.1 4.2

4213 Trucking, except local .......................................................... 3.5 2.6 3.4 3.4 6.3

4214 Local trucking with storage ................................................. .1 .6 .5 .5 1.4

4215 Courier services, except by air ........................................... 3.0 3.8 4.2 3.4 4.4

4221 Farm product warehousing and storage .............................. –1.5 2.0 .6 5.3 1.6

4222 Refrigerated warehousing and storage ............................... .5 .1 .5 1.2 1.7

4225 General warehousing and storage ...................................... 1.4 .7 2.9 2.6 3.0

4311 United States Postal Service .............................................. .0 .0 .0 2.2 .0

4412 Deep sea foreign transportation of freight .......................... .7 –3.7 4.7 22.9 12.8

4424 Deep sea domestic transportation of freight ...................... 1.9 –.6 .2 1.2 4.8

4432 Freight transportation on the

 Great Lakes-St. Lawrence Seaway ................................. 1.8 1.4 .8 –.1 –.1

4449 Water transportation of freight, n.e.c. ................................ –10.1 –.4 –2.2 8.1 9.8

4491 Marine cargo handling .......................................................... 1.0 1.2 1.8 1.5 2.6

4492 Tugging and towing services ............................................... 2.4 2.2 2.8 2.9 4.1

4513 Air courier services ............................................................. 4.6 –3.9 3.1 5.1 8.3

4581 Airports, flying fields, and airport services ......................... 3.8 3.0 3.0 3.9 5.8

4612 Crude petroleum pipelines ................................................... –12.4 –3.7 1.4 –1.7 6.1

4613 Refined petroleum pipelines ................................................ .4 1.2 –1.1 .3 1.0

4731 Freight transportation arrangement ..................................... 2.7 –1.4 –.6 –2.8 4.5

5411 Grocery stores .................................................................... – – –– 4.7

5421 Meat and fish (seafood) markets ........................................ – – –– 6.9

5431 Fruit and vegetable market .................................................. – – –– 5.2

5441 Candy, nut, and confectionery stores ................................. – – –– 5.0

5461 Retail bakeries ..................................................................... – – –– 1.0

5499 Miscellaneous food stores .................................................. – – –– 10.0

5511 New car dealers ................................................................... – – –– 1.0

 Communications

4812 Wireless telecommunications .............................................. – – – ––6.1

4813 Telephone communications, except radiotelephone ........... –.1 –.4 –1.7 –3.0 –1.7

4832 Radio broadcasting .............................................................. 10.8 3.1 .8 7.7 4.9

4841 Cable and other pay television services ............................. 5.1 4.7 3.7 3.3 5.7

 Real estate

6512 Operators and lessors of nonresidential buildings ............. –.6 2.2 1.2 5.7 1.3

6531 Real estate agents and managers ...................................... –.5 1.4 2.6 1.5 4.6

 Professional, scientific, and technical

7311 Advertising agencies ........................................................... 1.7 2.5 1.3 2.8 4.0

8111 Legal services ..................................................................... – 4.1 2.5 2.9 3.9

8711 Engineering design, analysis, and consulting services ..... – 3.1 2.9 3.1 3.1

8712 Architectural design, analysis, and consulting services .... – 3.0 5.3 4.9 2.5

8721 Accounting, auditing, and bookkeeping services ............... 2.8 2.1 3.0 3.5 3.3

 Health care

8011 Offices of physicians .......................................................... .7 1.2 2.6 2.1 1.6

8053 Skilled and intermediate care facilities ............................... 5.4 4.2 4.4 4.0 6.3

8062 General medical and surgical hospitals .............................. 1.5 .5 1.3 1.8 3.7

8063 Psychiatric hospitals ........................................................... 5.0 –6.7 .5 .9 –.6

8069 Specialty hospitals, except psychiatric .............................. 2.9 .6 2.3 2.7 2.6

8071 Medical laboratories ............................................................. .2 .9 .2 –.8 4.6

8082 Home health care services .................................................. – 6.2 .5 4.0 1.0

 Other

4512 Air transportation, scheduled .............................................. 6.5 .9 2.5 6.7 18.6

4522 Air transportation, nonscheduled ........................................ 2.2 –1.6 2.6 2.0 8.1

4724 Travel agencies .................................................................... 2.6 1.5 –2.3 .3 14.6

6311 Life insurance carriers ........................................................ – – ––.3 –.6

6331 Property and casualty insurance ........................................ –– – 1.1 1.1

7011 Hotels and motels ................................................................ 4.8 4.1 4.2 2.8 5.7

7349 Building cleaning and maintenance services, n.e.c. .......... 2.0 1.4 1.1 2.6 3.9

7361 Employment agencies .......................................................... 1.8 1.0 2.9 2.2 2.4

7363 Help supply services ........................................................... 1.4 1.8 2.2 1.8 1.2

7372 Prepackaged software ......................................................... – – .9 –2.4 2.4

7513 Truck rental and leasing, without drivers ............................ –.8 .5 –.9 .3 4.5

7514 Passenger car rental, without drivers ................................. –5.0 13.7 -4.0 3.8 2.8

NOTE: Calculations are based on 12-month change from December to December of indicated years. Dashes indicate index was not used in estimation.
Monthly Labor Review July 2001 35

throughout 2000: scheduled air transportation, general medical and surgical hospitals, real estate agents and managers,

grocery stores, offices of physicians, skilled and intermediate care facilities, legal services, property and casualty insurance, hotels and motels, nonlocal trucking, and for operators

and lessors of nonresidential buildings. On the other hand,

price declines were registered for telephone communications

(except radiotelephone), life insurance carriers, wireless communications, and psychiatric hospitals. (See table 6.)

During 2000, prices for scheduled air transportation increased 18.6 percent, following a 6.7-percent gain in 1999.

The reason for this acceleration can be attributed to strong

demand for air travel and the continued dramatic rise in fuel

prices. Rising fuel cost, the airlines industry’s second largest

cost after labor, caused airlines to add a passenger fuel surcharge, especially to discounted domestic fares. The surcharges, however, were beneficial for the airlines because

while they were subject to Federal taxes, the airlines did not

pay commissions to travel agents on the surcharges.

Among health services in the PPI, the index for general

medical and surgical hospitals advanced 3.7 percent in 2000;

a year earlier, this index increased only 1.8 percent. Prices for

offices and clinics of doctors of medicine decelerated, rising

1.6 percent in 2000 and 2.1 percent a year ago. Prices for

pediatricians and general surgeons rose the most rapidly

among single specialty practices. By contrast, the index for

general practitioners and internal medicine specialists increased but at a slower pace in 2000. Prices for skilled and

intermediate care facilities accelerated from a 4.0-percent gain

in 1999 to a 6.3-percent rate of increase in 2000. By contrast,

the index for psychiatric hospitals fell 0.6 percent, after rising

0.9 percent in 1999.

Introduced in January 2000, producer prices in grocery

stores increased 4.7 percent throughout the year. Most of

this increase resulted from the influence of higher margins

among supermarkets, primarily within the volatile produce

and bakery departments. Also helping push up the index for

grocery stores were rising margins for convenience food/

gasoline stores.

The PPI for property and casualty insurance increased 1.1

percent for year 2000, the same rate as in the prior year. Advancing prices were observed by providers of the following

insurance programs: homeowners, commercial auto, commercial multiple peril, inland marine, and worker’s compensation. Increasing claims cost for homeowners insurance was a

main factor in propelling the overall index for property and

casualty insurance. Another factor increasing the

homeowners insurance index was the attempt by many insurers to combat catastrophic losses through higher premiums,

especially in catastrophe-prone zones.

For the 12 months ended in December 2000, prices for

nonlocal trucking services rose 6.3 percent, following a 3.4-

percent increase in 1999. This acceleration can be attributed

to continued retail sales growth in the strong U.S. economy,

driver shortages, and the rising cost of equipment. Another

factor in higher trucking prices came from rising diesel fuel

prices, which subsequently led trucking companies to increase their fuel surcharges.

The index for operators and lessors of nonresidential

buildings advanced 1.3 percent in 2000, as the economic condition created a good opportunity for new construction.

Prices increased in both industrial property and office property. Recent industry analysis, for the third quarter 2000,

showed that nationwide vacancy rates had declined and that

demand had been strong for office space as the economy

grew.9

Among other services industries that posted inflation

throughout 2000, the index for real estate agents and managers advanced 4.6 percent, following a 1.5-percent gain in 1999.

Prices for legal services rose 3.9 percent, after increasing 2.9

percent in the previous year. Finally, the index for hotels and

motels exhibited a 5.7-percent gain in 2000, continuing from

its upward movement of 2.8 percent a year ago.

In 2000, falling prices were registered for telecommunication services. The index for telecommunications (except radiotelephone) decreased 1.7 percent, following a 3.0-percent

decline in 1999. Prices for wireless communications dropped

6.1 percent. Specifically, the price for cellular and other wireless voice grade services decreased 6.3 percent, while paging services fell 4.5 percent. Declining prices for cellular services were the result of increased competition and further

development of the wireless telecommunication infrastructure. At the same time, more customers gained greater access

and wider utility while using the services. Furthermore, prices

fell, as carriers formed strategic alliances with other carriers

to eliminate roaming charges and, in many cases, long distance charges.

From December 1999 to December 2000, the index for life

insurance carriers decreased 0.6 percent, after falling 0.3 percent a year earlier. The 2000 decline is evidence of continued

competition due to the ability of other financial services companies to offer similar services. The majority of the overall

decrease for life insurance carriers can be accredited to group

life insurance policies, which fell 5.4 percent throughout the

year. On the other hand, variable-deferred annuities experienced price gains over 2000 due to increases in overall total

returns, although, this increase was not enough to offset the

price decline in group life insurance policies.
36 Monthly Labor Review July 2001

Producer Prices, 2000

1

 See Natural Gas Monthly, (Energy Information Administration,

May 2001), Table 9, Underground Natural Gas Storage–All Operators, 1995–2001.

2

 See Petroleum Supply Monthly, (Energy Information Administration, 1984 to present), Table S2, Crude Oil and Disposition; and

http://www.eia.doe.gov/pub/energy.overview/aer1999/txt/

aer0514.txt (visited July 12, 2001).

3

 See Agricultural Outlook, (USDA Economic Research Service,

May 2001), Table 17—Supply and Utilization.

4

 See Agricultural Outlook, (USDA Economic Research Service,

May 2001), Table 10—U.S. Meat Supply and Use.

5

 See Ward’s Automotive Report for 2000, U.S. Light-Vehicle Sales

by Ward’s Segmentation—December 2000.

6

 See David H. Napier, Director, 2000 Year-end Review and 2001

Forecast—An Analysis (Aerospace Industries Association).

7

 See Year 2000 Selected Steel Industry Data (American Iron and

Steel Institute, Steel Works).

8

 See Value of Construction Put In Place Press Release (Census of

Construction Industries, December 2000).

9

 See CB Richard Ellis, U.S. Vacancy Report, 2nd quarter, 2000,

which notes: “Both office and industrial vacancy rates declined significantly in the second quarter of 2000 reflecting the hot US economy,

but it is clear that both markets have an element of ‘phantom or

Venture Capital’ absorption.”

Notes

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