Updated PPI Weights

Table 1. | Continued—Relative importance of Producer Price Index commodity
groupings by stage of processing, based on 1982 and 1987 weights
Relative importance,
‘December 199°
Commodity Grouping Percent
code 1982 1987 change
weights | (revised) weights
104 Hardware ........ 0.129 0.132 23
106 Heating equipment 040 040 0.0
107 Fabricated structural metal products 456 316 -30.7
108 Miscellaneous metal products... .. 304 346 13.8
"1 Machinery and equipment . 13.045 12.399 5.0
iit Agricuttural machinery and equipment 982 499 49.2
112 Construction machinery and equipment . 748 873 98
113 Metalworking machinery and equipment 1.489 1.268 148
114 General purpose machinery and equipment .. .. 1.621 1.435 “11.5
115 Electronic computers and computer equipment . 750 1.230 64.0
116 ‘Special industry machinery and equipment 1.569 1.578 6
117 Electrical machinery and eauipment 3,723 4.119 10.6
118 Miscellaneous instruments 768 74d 35
119 Miscellaneous machinery . 1.396 858 38.7
12 Furniture and household durables . 5.471 6.022 10.1
121 Household furniture 1.554 1.714 10.3
122 ‘Commercial furniture 992 1.174 18.3
123 Floor coverings . . : 484 588 as
124 Household appliances ... 1.168 4.232 55
125 Home electronic equipment . . 398 430 8.0
126 Other household durable goods . . 876 884 0.9
13 Nonmetallic mineral products ce eeteveeen eee 102 an 88
134 Glass . : : 035, 034 -29
133 Concrete produ 021 030 42.9
138 Glass containers 007 005 28.6
139 Other nonmetallic minerals . 039 043 10.3
14 Transportation equipment. . 14.901 19,186
141 Motor vehicies and equipme 9.080 13.621
1411 Motor vehicles 8.451 12.652
141101 Passenger cars. . 5.616 7.759
141105 Trucks, 10,000 Ibs. avw and under 2.037 3.473
141106 Trucks, over 10,000 Ibs. cvw . 641 1.267
142 Aircratt and aircraft equipment. 4.056 4.108
143, Ships and boats .... . 1.476 1.222
144 Railroad equipment 202 421
149 Transportation equipment, n.e.c. 087 114
15 Miscellaneous products ... .. 7.896
151 ‘Toys, sporting goods, smail arms, ete. 1.039
152 Tobacco products, including stemmed and redried - 3.631
1521 Cigarettes : 3.452
153 Notion: O17
154 Photographi 1,008
155 Mobile homes : 449
156 Medical, surgical and personal aid devices . Sat
157 tndustrial safety equipment... 009
159 Other miscellaneous products .. 1.202
159901 Fire extinguishers ......... "006
intermediate materiale, supplies
and components, 100.000 100.000
o2 Processed toods and feeds . 5.091 4.786
021 Cereal and bakery products . 442 362
022 Meats, poultry, and fish... 876 790
023 Dairy products .......... 521 751
024 Processed fruits and vegetables : sees 120 114
025 Sugar confectionery ....... : 636 “601
026 Beverages and beverage materials - 336 266
027 Fats and oils . 391 323
028 Miscellaneous pr 218 227
029 Prepared animal teeds . . 1,551 1,356
03 Textile products and apparal ...........--... 4.423 4.605
‘See footnotes at end of table.

40 Monthly Labor Review March 1993



preparations index moved up, largely because of
stronger sales for sunscreen oils and lotions and
for hair care and skin care products. Weight in-
creases were also registered for the circulation of
periodicals and for textile housefurnishings.

The weight for the finished energy goods index
dropped 9.1 percent, recording a relative impor-
tance of 13.831. Weights for petroleum products
decreased in response to major shifts in interna-
tional markets, as increased production in the
world market decreased many nations’ share of
marketable oil. Among other influences were the
rise in world production capacity, which reflected
expanded North Sea oil production; a boost in ex-
ports from countries with troubled economies
needing to service their overseas debts; and higher
production from Iran and Iraq, both seeking export
revenues to finance their long war. All these fac-
tors contributed to a breakdown of production dis-
cipline within the Organization of Petroleum Ex-
porting Countries (opec) and the consequent
lessening of each producer’s share of marketable
oil. In this country, figures for domestic crude pe-
troleum field production, rigs in operation, and
drilling of new wells declined during the 1982-87
period.’

Within the gasoline category, there was a ma-
jor shift from leaded gasoline to unleaded grades
as more of the older motor vehicles, which were
the sole users of leaded gasoline, were no longer in
use. (Leaded-gasoline vehicles were increasingly
retired from use after unleaded-gasoline vehicles
became required under government environmen-
tal regulations created in the 1970's.) A drop in
natural gas production prompted a decrease of
29.0 percent in relative importance for residential
natural gas. The phaseout of government price
controls on natural gas during the late 1970’s and
early 1980's led initially to much higher prices,
which dampened demand and thereafter resulted
in lower production.

The weight for the finished consumer foods
category declined 5.5 percent to a relative impor-
tance level of 21.933. The index for fluid milk
products dropped nearly 30 percent in weight.
Consumption of whole beverage milk and cottage
cheese was reduced, partly reflecting a relative
decline in the proportion of young people. The
weight for cola excluding diet cola fell 27.7 per-
cent as many consumers switched to diet cola and
noncarbonated drinks. The beef and veal category
weight decreased 9.2 percent, mostly because of
lower commercial cattle and calf slaughter rates,
as consumers shifted to poultry products. The pro-
duction and consumption of pork also decreased
as consumer preferences moved from pork to
poultry; accordingly, the weight for pork fell 12.4
percent.

The relative weight for roasted coffee declined

almost 20 percent, partly because of poor coffee
bean harvests in the 1980’s, Other sizable weight
decreases were registered for fresh and dried veg-
etables, fish, bakery products, condensed and
evaporated milk, and dry milk products. By con-
trast, the relative importance of processed poultry
expanded 19.6 percent. Other considerable weight
increases within the consumer foods category
were recorded for noncarbonated soft drinks, fro-
zen specialties, and canned fruit juices.*

Within the overall finished goods category, one
of the most important technical changes that coin-
cided with the major weight revision was largely
responsible for the 20-percent drop recorded in the
weight of the cigarettes index. The relative impor-
tance of the cigarettes index had been revised up-
ward each year before 1991 because of sharp price
increases for cigarettes. However, until December
1991, cigarette prices collected for the pr! did not
include export prices, which increased at a slower
pace than did domestic prices. The value of ship-
ments data which underlie the relative importance
statistics have always been based on commodities
both for export and domestic use. Therefore, the
new relative importance figure appeared to decline
because the previous statistics were based on data
that failed to capture the slower rate of increase for
export prices.’

Intermediate goods

Although the Intermediate Goods Price Index en-
compasses more commodities than does either the
Finished Goods Price Index or the Crude Goods
Price Index, the weight shifts within the intermedi-
ate stage of processing categories were milder than
for those within either of the other two major
stage-of-processing categories. The most promi-
nent increases in relative importance occurred in
the categories for construction materials and for
manufacturing components. Advances were also
recorded in the categories for both durable and
nondurable manufacturing materials. In contrast,
the relative importance dropped in categories for
energy goods, containers, and supplies for non-
manufacturing industries.

The weight for the construction materials cat-
egory expanded 9.1 percent, registering a relative
importance of 13.462 as of December 1991. A vig-
orous revival in both residential and nonresidential
construction activity played a major part in the
economic recovery of the 1980's. The resurgence
of residential construction was prompted by a de-
crease in mortgage rates, as 30-year conventional
fixed mortgage rates fell from 16 percent in 1982
to 10 percent in 1987.* Housing starts advanced 53
percent during this interval, reaching a peak of
more than 1.8 million units in 1986. There was a
stronger demand for larger homes, as well as a

Monthly Labor Review March 1993 45


Updated PPI Weights

Table 1. | Continued—Relative importance of Producer Price index commodity
groupings by stage of processing, based on 1982 and 1987 weights
Relative importance,
December 1991°

‘Commodity Grouping Percent

code 1962 1967 change

weights | (revised) weights
119 Miscellaneous machinery 2.455 1.909 222
12 Furniture and household durables 0.847 0.947 11.8
124 Household furniture 053 054 19
122 Commercial furniture 146 176 205
123 Floor coverings . .. 253 328 296
124 Household appliances 187 188 05
125 Home electronic equipment . 047 049 43
126 Other household durable goods . ... 161 154 43
13 Nonmetallic mineral products 3.896 4.186 74
131 Glass 0... 412 531 28.9
132 Concrete ingredients and related products... 314 303 35
133 Concrete products... 0... ee ceeeee evens 1.200 1.439 19.9
134 Clay construction Products axcept refractories 123 1147 19.5
135 Refractories . 130 1125 38
136 Asphalt felts ar B13 231 85
137 ‘Gypsum products 098 “137 39.8
138 Glass containers 542 365 32.7
139 Other nonmetallic minerals . 863 909 53
14 Transportation equipment... 6,222 6.236 19.4
141 Motor vehicles and equipment 3.485 4.329 24.2
1412 Motor vehicle parts . 3.271 4.062 24.2
141203 Motor vehicle parts, new . 3.180 3.975 25.0
142 Aircraft and aircraft equipment 4.482 4.720 16.1
143 Ships and boats... 1136 096 -29.4
144 Railroad equipment... 097 062 36.1
149 Transportation equipment, n.e.c 023 029 26.1
15 Miscellaneous products 1.876 1.790 46
151 Toys, sporting goods, smal! arms, etc. 080 065 -188
152 Tobacco products, including stemmed and redried . 242 133 45.0
153 Notions . “060 044 26.7
154 Photographic equipment and supplies . .. 291 281 -3.4
156 Medical, surgical and personal aid devices . ‘517 590 14.4
157 Industrial safety equipment . 101 083 ~178
159 Other miscellaneous products: 584 595, 19
Crude materials ................ 100.000 100.000

1 Farm products... soceecceeveeee anes 97.886 42.011 10.9
ont Fresh and dried fruits and vogetabes a 1.000 1.747 747
0119 Tree nuts . 708 562 see
12 6.038 7.852 206
0122 4.403 5.856 33.0
12202 4.044 5.001 23.7
013 16.157 16.883 45
0131 13.284 14.222 7A
013101 Slaughter steers and heifers... 9.981 12.052 20.7
013102 Slaughter cows and bulls . 2.886 1.921 33.4
014 2.619 3.502 33.7
O14 : 2.005 2.633 31.3
014102 Slaughter broilerfryars .. 2.005 2.588 291
015 Plant and animal fibers... . 728 0.902 23.9
016 Fluid milk. 5.967 6.084 2.0
017 Eggs . 248 552 122.6
018 Hay, hayseeds a 3411 3716 89
019 ‘Other farm products ... . 1.719 774 85.0
02 Processed foods and feeds 687 893 30.0
022 Meats, poultry, and fish . 236 459 94.5
025 ‘Sugar confectionery . 451 434 38
04 Hides, skins, leather, and related products .... 515 505 1.9
05 Fuels and related products and power . . 48.088 40.028 16.8
051 Coal 8.240 7.522 87
‘See footnotes at end of table.

42° Monthly Labor Review March 1993



Table 1. Continued—Relative importance of Producer Price Index commodity
groupings by stage of processing, based on 1982 and 1987 weights
Relative Importance,
December 1991"

Commodity Grouping Percent

code 1962 1987 change

weights | (revised) weights

031 Synthetic fibers... - 0615 0.750
032 Processed yarns and threads . 920 974
033 Gray fabrics .. 949 887
034 Finished fabrics. 1.196 1.159
038 ‘Apparel and other fabricated textile products . 587 707
039 Textile fibers, yarns and fabrics, n.0.c.......... 158 129
4 Hides, skins, leather, and related products - 292 218
042 er... sees 227 178
043 006 003
04a 060 “041
0s 15.143 13.654
052 112 089
053 525 485
084 Electric power . 7.443 6.857
055 Utility natural gas : 2.298 1.686
087 Petroleum products, refined ......- 4.985 4.449
058 Petroleum and coal products, n.e.c. . 080 088
06 Chemicals and allied products . . 11.333 11.523
061 Industrial chemicals .... 4349 4272
062 Paints and allied products 1.343 1.403
063 Drugs and pharmaceuticals . 1.028 1.097
064 Fats and oils, inedible 066 066
065 ‘Agricultural chemicals and chemical products. : 4.204 914
066 Plastic resins and materials . 7 1.574 1,901
067 ‘Other chemicals and allied products, 1.770 1.870
07 Rubber and plastic products . 5,093 5.523 84
071 Rubber and rubber products . 1.476 1.466 -7
072 Plastic products ..... : 3.618 4.057 12.4
0726 Plastic parts and components for manutacturing . 249 1.052 3225
072602 Other parts and components tor manufacturing a 111 Au 270.3
0729 Other plastic products . : 1.850 567 69.4
038 Lumber and wood products - 2.940 3.846 30.8
oat 938 1.220 30.1
082 975 1.432 46.9
083 Plywood 397 484 219
084 (Other wood products - 346 344 -6
088 Prefabricated wood buildings and components’. 140 1187 33.6
087 ‘Treated wood and contract wood preserving . ... 1144. 179 243
09 Pulp, paper, and allied products - 11.278 11.850 51
091 Pulp, paper ing paper 6691 6.612 “12
og2 Bulking pa paper and building board mill products . . 152 194 276
093 Publications, printed matter and printing materials 4.435 5.044 137
10 Metals and metal products 18.735 17578 ~62
101 Iron and steel . 5311 4.554 143
102 Nonferrous metals 442 4.189 $1
103 Metal containers . 1.108 866 21.8
104 Hardware : 730 792 7A
105 Plumbing fixtures and brass fittings 247 324 312
106 Heating equipment . : 301 290 -37
107 Fabricated structural metal procucts 3.242 2.795 13.8
108 Miscellaneous metal products ....... 3.384 3.779 WT
n Machinery and equipment . 13,832 13.257 42
14 Agricultural machinery and equipment - 252 126 50.0
412 ‘Construction machinery and equipment . . 212 167 “22
413 Metalworking machinery and equipment 969 876 06
114 General purpose machinery and equipment . 3.318 2.881 132
115 Electronic computers and computer equipment . 255 “401 87.3
116 Special industry machinery and equipment 304 264 13.2
117 Electrical machinery and equipment 5.535 6.145 11.0
118 Miscellaneous instruments 532 488 83
See footnotes at end of table,

Monthly Labor Review March 1993 41

~ d


44 Monthly Labor Review

Updated PPI Weights

during 1982 when video games first appeared in
commercial markets. By 1987, however, initial
fads had waned, Production figures thus appeared
much smaller than they did in 1982, resulting ina
lower ppt weight.

The relative importance for single-wide resi-
dential mobile homes fell more than 30 percent as
consumer interest shifted to multi-section residen-
tial mobile homes, for which the pp: weight in-
creased. Other considerable weight declines were
registered for small household appliances and for
textbooks,

The weight for the capital equipment index
rose 4,1 percent, registering a relative importance
of 24.745 based on 1987 weights, As previously
noted, sizable increases were registered in the
weights of passenger cars and light motor trucks,
which represent a major portion of the capital
goods grouping as well as the consumer durables
category. Weights nearly doubled for the heavy
trucks index and increased nearly 60 percent for
truck trailers; these shifts reflected increased de-
mand during the mid-1980’s, prompted by both
the recovery and the deregulation of the trucking
industry. The relative importance of electronic
computers increased more than 60 percent as a re-
sult of the shift from 1982 to 1987 weights; indus-
try sales expanded greatly as the recently devel-
oped personal computer increasingly became a
staple for consumers and businesses. The weight
for commercial furniture rose nearly 20 percent as
office space increased with the rise of commercial
construction during the recovery.

By contrast, the relative weight of agricultural
machinery dropped nearly 50 percent, with
sharper declines registered for wheel-type farm
tractors and harvesting machinery. As farmers
were unable to make large purchases because of
excess debt and other factors, sales for new agri-
cultural machinery plummeted. In addition, a
37.0-percent decline occurred in the PPI weight
for ships, as production moved offshore and mili-
tary expenditures were cut back. The weight for
the oil field and gas field machinery grouping
plunged nearly 80 percent. The industry suffered a
severe reversal in the early 1980's as exploration
came to a virtual halt when the worldwide price of
petroleum plummeted. The relative importance of
metal cutting machine tools fell by more than half
despite the broad economic expansion because of
the influx of imports.

Several items within the office and stores ma-
chines and equipment category experienced a sub-
stantial decline in weight. A decrease was noted
for typewriters and word processors, as demand
for these items shifted to personal computers. The
calculator and adding machine industries saw
much of their production move offshore, and
many domestic producers were displaced by in-

March 1993

creased competition from Japan. Among other
categories, the weight for power cranes fell con-
siderably as sales for drag lines, a major product of
the industry, declined markedly. Decreases also
occurred for pumps, compressors, and equipment;
railroad equipment; transformers and power regu-
lators; and industrial material handling equip-
ment,

The weight for the consumer nondurable goods
excluding foods category decreased 6.8 percent,
showing a relative importance of 36.041 in De-
cember 1991 after the weight update. The weight
for the apparel grouping fell 12.1 percent, as com-
petition from foreign producers increasingly
crowded out domestic production. This encour-
aged manufacturers to move the assembly of fin-
ished garments offshore; such products are not
counted as part of domestic production. Weights
for the women's apparel category fell 17.5 per-
cent, but declined only 6.2 percent for men’s and
boys’ apparel, reflecting the fact that the domestic
women’s apparel industry was more affected by
import competition than was the domestic men’s
apparel industry. The relative weight for footwear
declined almost 40 percent, chiefly because of in-
tensified import penetration, particularly from
China, Taiwan, and South Korea. The weight for
women’s footwear dropped 45.0 percent, whereas
the weight for men’s footwear fell 28.2 percent.
Relative to women’s footwear, men’s footwear is
more expensive to produce, is more durable, and is
subject to fewer style changes; accordingly, the
men’s footwear industry is less vulnerable to im-
port competition.

Weights for prescription drugs dropped 15.0
percent, but rose 22.1 percent for over-the-counter
drugs. During the 1980's, a number of drugs for-
merly sold by prescription were approved by the
Food and Drug Administration for over-the-
counter sales. In addition, a number of cheaper
generic drugs appeared on the market when long-
standing patents expired. Other considerable
weight declines were registered for pet food and
tires,

In contrast, the relative importance of the plas-
tic products grouping expanded to more than 5
times its previous level after the major weight re-
vi , chiefly because plastic products were in-
creasingly replaced by metal, wood, and glass in
the packaging, construction, and automotive in-
dustries. Within the packaging industry, end uses
for specialty packaging produced a strong demand
for plastics. The automakers’ need to reduce costs
in an increasingly global marketplace, as well as
Federal Government pressure on the automakers
to establish greater fuel efficiency by producing
lighter weight vehicles, both enhanced the trend
toward greater use of plastics.

The weight for the cosmetics and other toilet



Roger Bums,
Harry Briggs,
and

William Thomas

Roger Burns, Harry Briggs,
and William Thomas are
economists in the Office

of Prices and Living
Conditions, Bureau of Labor
Statistics. They were
assisted by Jaclyn Shend and
Scott Sager, economists in
the same office.

Effect of updated weights
on Producer Price Indexes

PPI data now reflect 1987 instead of 1982
shipment values in the weight structure;

a broad economic recovery

and increased oil production from 1982 to 1987

contributed to major weighting shifts

eginning with data for January 1992, the

weights used to construct Producer Price

Indexes (ppl) were updated to reflect 1987
ipment values of commodities. From January
1987 through December 1991, weights were
based on 1982 shipment values. Most of the
weight shifts reflected changes in the American
economy during the 1982-87 period; however,
some of the shifts are attributable to coincidental
alterations in the structure or pricing procedures in
the PPI.

Weights for individual products in the pri are
based on the shipment values of the commodity,
as measured by the Census of Manufactures and
other sources.' For categories broader than indi-
vidual products, indexes are calculated using
weighted averages of the components. Weights
at all levels of aggregation and detail are im-
plicitly adjusted each month in accordance with
relative monthly price changes; that is, group-
ings or items whose prices are rising faster than
average automatically attain proportionately in-
creased weight, while weights for other catego-
ries simultaneously decrease. Over a period of
years, however, such implicitly adjusted weights
may no longer reflect contemporary production
patterns. Therefore, it is occasionally necessary
to revise the pri weight structure by updating
shipment values through what is called a major
weight revision. Because the Census of Manu-
factures is conducted every 5 years, pri weights

36 Monthly Labor Review March 1993

ideally should also be updated on a 5-year cycle.

This latest major weight revision affected all pt
series derived from the commodity code system,
including stage-of-processing, durability-of-prod-
uct, and special commodity groupings. It did not
affect the pri series for the net output of selected
industries and their products, whose weights are
updated on an industry-by-industry basis as part of
the periodic resampling process; most of these in-
dustry and product weights already are based on
1987 shipment values. The proportional alloca-
tions of commodity series to the various stage-of-
processing categories continue to be based on
1972 input-output data.

Relative importance data

Each December, the Bureau of Labor Statistics
publishes pri weights in the form of relative impor-
tance data, representing the value of shipments for
a good or grouping as a proportion of the value of
shipments for all goods within a broader category.
In concept, shifts in relative importance resulting
from a major weight revision are prompted by the
change in the volume of units produced for a
commodity series, relative to the average change
for the larger category, such as finished goods.
Because the aggregate shipment value of com-
modities comprising each of the three major stage-
of-processing categories—finished goods, inter-
mediate goods, and crude goods—increased about



the following indexes declined considerably:
natural gas for commercial, industrial, and electric
utility use; premium grade motor gasoline; re-
sidual fuels; and finished lubricants. Weights for
industrial and commercial electric power felt
about 4 percent. Leaded gasoline dropped to one
quarter of its previous weight level, and the weight
for diesel fuel decreased 9 percent. Expansions
were noted, however, for jet fuels and for
unleaded regular and mid-premium gasolines.

The category for nonreturnable containers
showed a drop of 14.2 percent in weight. Weights
for steel cans and glass containers both declined
about 33 percent. Demand for cans shifted from
steel to aluminum as effective programs for alumi-
num recycling lowered costs and influenced con-
sumer preference. Glass containers were increas-
ingly replaced by plastic containers.

The weight for the supplies for nonmanufactur-
ing industries index fell 3.5 percent. Substantial
decreases were registered for steel pipe and tubes,
agricultural chemicals, formula feeds, farm ma-
chinery parts, and farm tractor parts. The weight
for miscellaneous publishing, however, increased
by more than haif as the telephone book industry
expanded. Organizational and other specialized
telephone books were developed and successfully
marketed, and competition in yellow pages publi-
cations intensified. Other advances were noted for
plastic packaging, advertising printing, medical
instruments and equipment, and agricultural
equipment parts. The weight for consumer, insti-
tutional, and commercial plastic products in-
creased sixfold.

Among series for intermediate foods and feeds
not already mentioned under the supplies for non-
manufacturing industries category discussed ear-
lier, declines were noted for refined sugar, flour,
beef and veal, and condensed and evaporated
milk. The weight of the category for confectionery
materials, however, expanded 26 percent.

Within the overall intermediate goods cat-
egory, a technical change affected the 41-percent
drop in the weight of the pp: for pumps and com-
pressors. This represented a reallocation of many
pump and compressor series to several special in-
dustry machinery categories. In the industrial
chemicals area, improved techniques of weight
estimation prompted declines in relative impor-
tance for aluminum oxide and miscellaneous or-
ganic chemicals.

Crude goods

The crude materials category showed a sizable
shift in weight from energy as a result of the major
weight revision, Crude oil and natural gas weights
declined, while weights for scrap metal and con-
struction-related commodities advanced.

The relative importance of crude energy mate-
rials fell 16.8 percent to a level of 40.028. The
weight for natural gas to pipelines led this contrac-
tion, dropping 24.1 percent, Prices and production
of natural gas decreased from 1982 to 1987 as con-
sumers shifted to other energy sources. The weight
of crude petroleum dropped 12.0 percent in re-
sponse to the world market pressures discussed
earlier. During the 1982-87 period, domestic field
production for crude oil dropped 3.5 percent, oil
wells drilled fell 58.5 percent, and oil and gas ro-
tary rigs in operation declined 70 percent. The
weight for contract sales of prepared bituminous
coal fell 14.1 percent, as many older and less effi-
cient mines were forced to shut down.

The weight for the index for crude nonfood
materials less energy advanced 24.0 percent as a
result of the weight update, with a relative impor-
tance of 18.629 as of December 1991. The weight
of the aluminum scrap index doubled. Aluminum
scrap became an increasingly valuable commodity
during the 1980’s, largely because the energy costs
forreclaiming aluminum from used aluminum bev-
erage cans was much less than the cost associated
with producing primary aluminum. In addition, de-
mand for aluminum products increased from the
aerospace, automotive, and construction industries.
The weight for copper scrap was driven 40.4 per-
cent higher, chiefly by intensified demand for
copper products from the residential construction
sector and by increased exports of copper scrap to
resource-poor countries such as Japan and Taiwan.

Weight increases for sand and gravel (about 42
percent) and for forestry products (about 29 per-
cent) were prompted by higher demand from the
construction sector. The weight for gold ores more
than tripled as a result of the discovery of large ore
deposits in northem Nevada which were amenable
to inexpensive open pit mining. With these new
mines in place, the United States expanded from
the world’s fourth largest producer of gold to the
second, trailing only South Africa. The weight for
pulpwood grew by more than two-thirds largely in
response to the growing demand for newsprint.
‘The relative importance of raw cotton expanded
more than 25 percent as Americans increasingly
preferred cotton garments to those made with syn-
thetic fibers.

In contrast, weights for wastepaper, leaf to-
bacco, and iron ore decreased. The decline of
nearly one-third in weight for the wastepaper in-
dex was prompted by the additional cost of sepa-
rating different types of paper for recycling,
which made wastepaper prices increasingly
uncompetitive. The weight decrease of 23.5 per-
cent for leaf tobacco resulted from a decline in
planted acreage which was in response to the in-
creased proportion of imported leaf tobacco used
in domestic blends to manufacture tobacco prod-

Monthly Labor Review March 1993 47

||


Updated PPI Weights

trend toward remodeling and repairing older
homes. In response, [umber production expanded
50 percent during this period.’ In nonresidential
construction markets, the total floor space for
newly constructed commercial and other nonresi-
dential buildings rose 46 percent and the value of
new nonresidential building construction moved
up 23 percent from 1982 to 1987.'" Changes in tax
laws facilitated this boom in nonresidential con-
struction.

The mid-1980’s witnessed the increased use of
plastic construction products in place of metal
pipes and other construction products made from
metal; the weight for plastic construction products
accordingly jumped 81 percent. Substantial in-
creases in relative importance were also observed
for millwork products, softwood lumber, concrete
products, lighting fixtures, floor coverings, uni-
tary air conditioners, and mineral wool for insula-
tion.

In contrast, a decline of 23 percent was noted in
the weight for structural metal products. Produc-
tion figures for these items had in fact remained
steady because demand for these products is de-
pendent on long-term contracts for civil engineer-
ing projects. The pri weight for structural metal
products declined relative to the increase of about
20 percent in the total value of shipments for inter-
mediate goods that resulted from the shift to 1987
shipment values. (This is an example of what was
discussed earlier in “Relative importance data.”)

The relative importance of the components for
manufacturing index increased 5.2 percent, regis-
tering a relative importance of 19.569 as of De-
cember 1991. Increased demand for plastic parts
and components for manufacturing prompted that
category to more than quadruple its previous
weight. The following categories also expanded
substantially: new motor vehicle parts; electronic
components and accessories; automobile stamp-
ings and other miscellaneous metal products; air-
craft parts and auxiliary equipment; engine electri-
cal equipment; aircraft engines and parts; and
hardware products. In contrast, weights for mis-
cellaneous plastic products and for steam and hy-
draulic turbines dropped to about one-third of their
previous levels. Declines were also registered for
industrial controls, intemal combustion engines,
rubber tires, mechanical power transmission
equipment, and motors and generators.

The weight for the durable manufacturing ma-
terials index rose 3.3 percent, registering a relative
importance of 11.089. Notably, the relative impor-
tance for flat glass rose 48 percent. This surge was
attributable to several factors, including the in-
crease in exports to Canada and Mexico during the
1982-87 interval; the rise in demand from the au-
tomobile industry, in line with the recovery; and

for natural gas, a major input to glass processing.
The weight for copper and brass mill shapes ad-
vanced by nearly a third. The copper industry had
contracted much more than most other industries
during the recessions of the early 1980’s; thus, the
increase in pp) weight reflected a larger rebound
for that industry. Advances of less than 10 percent
were noted for aluminum mill shapes, hot rolled
steel sheet and strip, and prepared paint.

In contrast, weights declined for most steel mill
products and other metal products. Steel mills
were greatly affected by the downsizing of U.S.
cars and by the declines in demand for new oil and
Bas operating rigs, for general machinery, and for
railroad equipment. Substantial decreases were
registered for steel pipe and tubes, foundry and
forge shop products, primary nonferrous metals,
hot rolled steel bars, plates and structural shapes,
secondary nonferrous metals, rough hardwood
lumber, and gold and silver mill shapes.

The weight for the nondurable manufacturing
materials index edged up 0.8 percent; many com-
ponent items within this category, however,
showed substantial advances or declines. Among
advances, the increased demand for plastic prod-
ucts prompted a weight expansion for plastic res-
ins and materials and for related petrochemicals.
Sales for American-made synthetic fibers were
boosted when China suspended its shipments for
that product in the early 1980’s. Demand for fabri-
cated textile products (car seat covers, awnings,
and so forth) increased as the automotive and
housing industries rebounded. Weight increases
of more than 20 percent were registered for sty-
rene monomer, plastic resins and materials, syn-
thetic fibers, industrial and other fabricated textile
products, biological products, printing ink, and
adhesives and sealants. Cotton yarns expanded
nearly 68 percent, reflecting increased consumer
preferences for natural fibers, as well as decreased
imports from China as inclement weather lowered
its cotton production.

Weights for several nondurable manufacturing
materials showed significant declines, however.
Production of pesticides and related products was
lower, partly because of increasing environmental
restrictions on their end use. Declines of greater
than 20 percent were noted for agricultural chemi-
cals and chemical products, fiber and composite
cans, miscellaneous converted paper and board
products, synthetic broadwoven gray and finished
fabrics, stemmed tobacco, and leather. Decreases
closer to 10 percent were registered for converted
paper and paperboard products; paper, plastic, and
foil bags; machine shop products; and synthetic
yarns,

The weight for intermediate

percent SOW 2

energy goods



Table 1.  Continued—Relative importance of Producer Price Index commodity
groupings by stage of processing, based on 1982 and 1987 weights
Relative importance,
December 1991'

Commodity Grouping Percent

fe 1982 1987 change

weights | (revised) weights
0512 Bituminous coal. 8.154 7.464 85
051203 Contract sales of prepared bituminous . 5.209 4.474 144
053 Gas fuels ... 21.124 16.025 24.1
058 Crude petroleum (domestic produ 18.724 16.480 12.0
06 Chemicals and allied products 0.288 0.322 118
062 Paints and allied products . 056 072 28.6
065 Agricultural chemicals and chemical products . . 231 “250 82
07 Rubber and plastic products ..........- 6... 023 018 34.8
08 Lumber and wood products 3.585 4.663 30.1
085101 ‘Softwood logs, bolts and timber . 2.882 3.706 28.6
09 Pulp, paper, and allied products....... 622 A2t 32.3
10 Metals and metal products... .. 5,769 7.750 34.3
101 {ron and steel . 2.867 3.377 178
1012 tron and steel scrap ....... 2.290 2.911 ara
101211 Carbon steel scrap - 1.837 2.444 33.0
102 Nonferrous metals .....0... 2... 2.902 4.374 50.7
1023 Nonferrous scrap 1.914 2.922 52.7
102302 ‘Aluminum base scrap . 499 1.070 114.4
13 Nonmetallic mineral products... . 2.538 3.392 33.6
132 Concrete ingredients and related products 1.977 2.813 423
139 Other nonmetallic minerals... . 561 578 3.0
| Relative importance data for commodity groupings include only these subproduct classes allocated to the respective
‘stage-ot-processing grouping, The revised weight structure (based on 1987 shipment of values) includes the effects of sample
changes in January 1992, while the old weight structure does not include these sample changes.
N@.c, = not elsewhere classified.

ries, such as fresh fruits and vegetables, were sub-
ject to internal weight shifts when series newly
added in January 1992 forced a reduction in
weights for series that were already included.
These internal shifts allow weights for broader
category totals to remain approximately the same
before and after the introduction of the new series.

Finished goods

Within the ppt for Finished Goods, weights in-
creased for the durable goods categories (con-
sumer durable goods and capital equipment) and
declined for the nondurable goods categories
(consumer nondurable goods excluding foods,
finished energy goods, and finished consumer
foods).

The weight for the consumer durable goods
category increased about one-fifth as a result of
the major weight revision, registering a relative
importance of 17.281 as of December 1991 with
respect to the total weight for finished goods. Be-
fore the weight revision, consumer durables had a
relative importance of 14.373 in that same month.
In addition to the sizable weight increase for pas-

senger cars described earlier, the weight for the
light motor trucks category expanded 70.5 per-
cent, partly because of the growing popularity of
vans and pickups as second vehicles for families.

In addition, renewed consumer demand which
accompanied the economic recovery boosted do-
mestic production from 1982 to 1987 for many
other items that are sensitive to the business cycle.
As a dramatic example of this trend, the weight
for the boats category and for motor homes on pur-
chased chassis both increased nearly 70 percent as
demand for recreation-oriented durable goods in-
creased during the economic rebound. In the wake
of increased demand for housing, weights for
household furniture and tufted broadloom carpet-
ing also climbed. Other substantial weight in-
creases within the consumer durable goods cat-
egory were recorded for lawn and garden
equipment excluding tractors, double-wide resi-
dential mobile homes, refrigeration equipment,
medical instruments and equipment, and televi-
sion receivers.

In contrast, the relative importance of toys and
games declined 40.8 percent. This category had
experienced a strong boost in sales just before and

Monthly Labor Review March 1993 43

ail


Table 1. _ Relative importance of Producer Price Index commodity groupings by stage of
processing, based on 1982 and 1987 weights
Relative importance,
December 1991'

Commodity Grouping Percent

code 1982 1987 change

weights | (revised) weights
Finished goods ................... 100.000 100.000
ot Farm products .... 1.413 14.2
on Fresh and dried fruits a 0.744 75
016 Fluid milk. 061 0
017 Eggs ... : 307 10.0
019 (Other farm products . -000 bese
02 Processed foods and feeds .. 23.276 56
021 Cereal and bakery products 3.227 A2
022 Meats, poultry, and fish 5.669 42
023 Dairy products ......... 2.898 ~174
023t Fluid milk products . 1.345 29.8
023103 Packaged fluid milk and retated products . 1.140 33.1
024 Processed fruits and vegetables 1.742 1.0
025 Sugar contectionery ........... 1.192 10.7
026 Beverages and beverage materials - 4.563 +49
027 Fats andoils...............-. 379 19.9
028 Miscalianeous processed foods 3.082 69
029 Prepared animal feeds 524 ~14.4
03 Textile products and apparel . 5.530 88
032 Processed yarns and thraads . 033 65
033 Gray fabrics... : “048 Cy)
034 Finished fabrics 126 96
038 Apparel and other fabricated textile products 5.324 9.3
0381 Apparel . 4.555 12.4
04 Hides, skins, eather, and related products « 658 30.4
043 Footwear. . ; t 406 38.4
044 Other leather and related produ 252 122
05 Fuels and related products and power... 13.831 9.0
051 Coal ..... eee 001 60.0
053 Gas fuels . 800 “35
054 Electric power 6.167 6.301 22
055 Utility natural gas. 3.219 2.285 29.0
057 Petroleum products, refined 5.114 4.547 4
057102 Leaded regular motor gasoline 708 184 -74.0
058 Petroleum and coal products, n. 083 096 15.7
06 Chemicals and allied products .... 4777 47i =14
061 Industrial chemicals . 4 030 36.4
062 Paints and allied prodi 035 94
063 Drugs and pharmaceuticals - a 2.003 65
065 Agricuitural chemicals and chemical products .. ; 074 -26.7
067 Other chemicals and allied products ......... 2.479 2.570 37
07 Rubber and plastic products... 709 1.350 90.4
071 Rubber and rubber products . . 544 483 112
072 Plastic products 165 867 4255
0728 Consumer, institutional, and commercial
products, n.e.c. 128 819 555.2

08 Lumber and wood proguets . 094 110 17.0
081 Lumber . 022 030 36.4
082 Millwork 063 070 114
083 Plywood 009 ‘010 11.4
09 Pulp, paper, and allied products ............ 3.885 3.926 BI
091 Pulp. paper, and products, except building paper 1.687 1.686 “1
092 Building paper and building board mili product. 025 023 8.0
093 Publications and printed matter . : 2.173 2218 24
10 Metals and metal Products 954 859 10.0
101 lron and steel. 002 002 °
402 Nonferrous metals 019 021 10.5
103 Metal containers . . 003 .003 0
See footnotes at end of table.

Monthly Labor Review March 1993 39



Updated PPI Weights

Chart 1. Changes in composition of PPI weight structure, by stage of processing, December 1991

Crude materials

industrial
materials

1982 1987

Intermediate goods

Foods and
«q_—feeds_»
Intermediate goods.
except foods
and energy
1982 1987
Finished goods

Finished

except food
and energy

1982

38 Monthly Labor Review March 1993



20 percent during the 1982-87 interval, an indi-
vidual index whose shipment values also in-
creased by 20 percent would show a revised rela-
tive importance approximately the same as its
former relative importance. By the same logic, an
item whose absolute shipment values remained
unchanged over the 1982-87 period would show a
sharp decline in relative importance after the shift
to 1987 weights,

In a few cases, the shift in relative importance
data for a PP! series was attributable not to any real-
world economic change, but to the fact that BLS
coincidentally made a technical change affecting
that particular index at the same time that the ma-
jor weight revision was made.

Example of weight shifts

The index for passenger cars (commodity code
141101) may serve as an example as to how and
why pp! weights have changed. The December
1991 relative importance for passenger cars
shifted from a 1982 weight of 5.616 with respect
to Finished Goods (that is, with the weight for Fin-
ished Goods set equal to 100.000) to 7.759 on a
1987 weight basis, a climb of 38.2 percent. There
were several economic reasons underlying this
shift.

One important factor, which also played a role
in many other weight shifts throughout the pri,
was the general economic rebound from the reces-
sion that dominated most of 1982. Consumer
durables are unusually sensitive to the business
cycle because during a recession, buyers tend to
postpone purchases, such as new cars to replace
their older models, and wait for the ensuing recov-
ery before they reenter the market.

Another notable economic development dur-
ing the 1982-87 period was that Japanese auto
manufacturers began building production plants
in the United States. Although vehicles from such
plants were produced by foreign manufacturers,
the fact that they were now being built in this
country meant that their weight would henceforth
be included in the ppi series; production in other
countries, even by American-owned firms, is, by
definition, excluded from the ppt weight universe.

The relative increase in domestic auto produc-
tion was also partly a result of the movement of
international exchange rates. The value of the
American dollar fell from an average of 249.06
Japanese yen in 1982 to 144.60 Japanese yen in
1987, a 42-percent drop.’ This produced higher
prices for some imported Japanese cars, thus
Prompting a shift in consumer preference towards
domestically made cars. The trend towards con-
struction of foreign-owned plants in this country
also reflected this de facto devaluation of the dol-
lar. In addition, tight controls on unit labor costs in

the auto industry, based on improvements in pro-
ductivity and continued wage restraints, facilitated
industry expansion.

Overview of weight shifts

An overview of the weight changes, illustrated
in chart 1, shows that in each major stage-of-pro-
cessing category, weights contracted in the en-
ergy sector while expanding in the “core” com-
ponent (that is, excluding foods and energy).
(Note that for finished goods, the core category
is divided between consumer goods and capital
equipment.) Weights for the foods components
declined for finished goods and intermediate
goods but advanced for crude goods. Table |
shows the relative importance for December
1991 for many detailed series within the three
major stage-of-processing categories before and
after the shift to 1987 weights and the percent-
age change between the 1982-based weights and
1987-based weights.’

Many of the weight increases for various
commodity categories indicate increased pro-
duction in response to rising demand during the
economic recovery following the two recessions
of the early 1980's. This happened, for example,
for transportation equipment, metals, publish-
ing, and construction materials. In addition, sev-
eral other industries—computer, chemical, and
plastic products, among others—expanded be-
cause technological developments created greater
demand for their products. The greater use of
computers prompted a larger demand for paper,
thereby increasing weights for that category as
well.

In contrast, some categories registered a dimin-
ished relative importance after the weight shift.
For example, increased production of crude
leum by foreign producers during the 1982-87 pe-
riod diminished this country’s share of marketable
oil. This slowed production growth for domestic
petroleum and also prompted declines for oil drill-
ing services and equipment. Additionally, weight
declines for food and farm products and for agri-
cultural equipment were partly prompted by a
drop in agricultural exports from about $39 billion
in 1982 to nearly $28 billion in 1987.4 The de-
crease in weight for apparel reflected the contrac-
tion of that industry as imports made substantial
inroads into the domestic market during the 1982-
87 period.

The largest weight shift attributable to changes
to the ppt structure that coincided with the major
weight revision occurred for many series previ-
ously classified under commodity code 114,
general purpose machinery and equipment, now
reclassified to commodity code 116, special in-
dustry machinery and equipment. Other catego-

(Test continues on page 43.)

Monthly Labor Review

March 1993 37


Updated PPI Weights

ucts. The weight of the iron ore category de-
creased 19.2 percent, as old-style steel mills in-
creasingly gave way to minimills which smelted
scrap instead of ore.

The weight of the crude foodstuffs and
feedstuffs category climbed 11.9 percent, reach-
ing a relative importance level of 41.228. The
weight for corn expanded by 23.7 percent, and that
for alfalfa hay by nearly 30 percent. Carry-in
stocks for com and hay were much less in 1982
than in 1987, largely because of poor harvests at
the beginning of the decade. Also rising in weight

Footnotes

were slaughter chicken broilers and fryers, eggs,
and slaughter turkeys. Higher production of
slaughter broilers, fryers, and turkeys was
prompted by a shift in consumer tastes.

In contrast, the weight of the category for milk
for manufacturing fell 40 percent as improved
storage and transportation facilitated a quicker
conversion of fluid milk to a variety of dairy prod-
ucts. The weight for slaughter barrows and gilts
fell 8.1 percent in tandem with the shift in con-
sumer preferences away from pork towards
poultry products. Co

For a detailed analysis of the concepts underlying PP!
weights and a description of the previous Pri weight revision,
‘see Andrew Clem and William Thomas, “New weight struc
ture being used in Producer Price Index,” Monthly Labor
Review, August 1987, pp. 12-21, Also, see 84s Handbook of
Methods, Bulletin 2414 (Bureau of Labor Statistics, Septem-
ber 1992), Chapter 16, “Producer Prices.”

? Federal Reserve Bulletin, June 1985 and June 1988, table
3.28 (Foreign Exchange Rates),

* A comprehensive listing of the revised (1987) and former
(1982) weights can be found in the tables of relative impor-
tances which appear in Supplement to Producer Price In-
dexes Data for 1991 (Bureau of Labor Statistics, September
1992). This supplement includes three tables of relative im-
portance data. Table 10 of the Supplement provides the rela-
tive importance of subproduct classes by the detailed stage of
processing category; table 11 shows the relative importance
of commodity groupings by the major stage of processing
category; and table 12 lists the relative importance of com-
modity groupings and individual items with respect to the all
commodities index.

* Agricultural Statistics (Washington, 0c, U.S. Depart-
ment of Agriculture, 1989).

* Monthly Energy Review (Washington, pc, U.S. De-
partment of Energy, Energy Information Administration,
May 1992).

° One of the technical changes that affected weights within
the consumer foods category was the split of the PP! for white
potatoes (commodity code 01 1304) into two new series as of
January 1992. One new series, “Irish potatoes for consumer
use,” retained the old series code number (011304) while the

48 Monthly Labor Review March 1993

other new seties, “Irish potatoes for processing,” was as-
signed a new commodity code 01 | 305. The consumer use se-
ries appears to register a strong decline and the processing
series shows an increase (or a positive weight where there
‘was no weight before). Superficially, these might appear to
reflect large changes in these markets. However, the only
substantial change in this case has been in the definition of
the index series and not in the markets those series represent.
Another coincidental technical change affected the chicken
eggs indexes. A new series (017108) was created in January
1992 to account for the increasing importance of eggs used
by the processed food industry. A significant part of the
weight for eggs that had been allocated to finished goods was
accordingly moved to crude materials.

7 In another technical change that coincidently occurred
December 1991, the weight for photographic equipment, ex-
cluding photocopy rose immensely because the index for
photocopy equipment was eliminated at that time and its
weight was then imputed (that is, re-assigned) to the photo-
graphic equipment category. A technical factor of a different
sort underlay the large weight increases recorded for commu-
nication-related equipment; coverage within the PPI system
for these commodities expanded when the Ppt Revision pro-
gram first introduced this industry in 1986.

* Information from the Federal Home Loan Mortgage Cor-
poration,

* Current Industrial Reports (U.S. Department of Com-
merce, Bureau of the Census, Economics and Statistics Ad-
ministration, 1991).

"© Currem Construction Reports (U.S. Department of
Commerce, Bureaus of the Census, 1992).