PPI Updates Commodity Weight Allocations for the Final Demand–Intermediate Demand Aggregation Structure

Notice

Effective with the release of January 2015 data on February 18, 2015, the Bureau of Labor Statistics (BLS) updated the weight allocations used to calculate its Final Demand–Intermediate Demand (FD–ID) producer price indexes (PPI). This update more accurately reflects recent sales patterns. The PPI weights are based on shipment values from the 2007 economic census. However, BLS changed the proportion of these weights allocated to the various FD–ID categories. Data published in the 2007 Input–Output (I–O) Accounts from the Bureau of Economic Analysis (BEA) provide the basis for the new allocations. This update affects all portions of the PPI FD-ID system: final demand indexes, intermediate demand by commodity type indexes, and intermediate demand by production flow indexes. This article first discusses commodity types among final demand and intermediate demand by commodity type together and then describes updates to the intermediate demand by production flow indexes. [1]

It is important to note that the allocation update will not change the PPI classification system, reference base, aggregation structure, or historical index data. The update does cause some significant, though not unexpected, shifts in the relative importance of component series in the FD–ID system. Appendix A of this report presents some of these more noteworthy shifts.

Final Demand and Intermediate Demand by Commodity Type Methodology

The primary data source used in the weight allocations of the PPI commodity FD–ID indexes by commodity type is the Use of commodities by industries, before redefinition table (hereafter known as the use table). [2] The use table shows—for each commodity group—the dollar value (in millions of dollars at producers’ prices) used by each industry and final user.

BLS analysts convert these dollar values of use to percentages and sum them to 100 percent for each I–O commodity group. Analysts truncate individual values of less than 0.5 percent and normalize the residual values.

BLS analysts then determine the FD–ID categories that correspond to the uses of each commodity group in the I–O table. Next, analysts analyze each detailed record on the I–O table and assign it to one or more of the detailed FD–ID codes. These assignments combine information about the type of use indicated in the table and use informed judgment by BLS analysts relating to definitions of the FD–ID categories. The next section of this article includes these definitions. Only the lowest level FD-ID codes are used in the assignment process. Analysts do not make direct assignments to the higher level FD–ID codes (for example, FD4 Final Demand). These higher level indexes are calculated through aggregation of the lower level FD–ID indexes.

To make the FD–ID assignments, the analyst determines

1. What is the product (transportation service, food, fuel, capital equipment, trade service, unprocessed material input, processed material input, etc.)?
2. In what manner will this product be used by the consuming industry or user?

Analysts use the combined answer to these questions to determine the appropriate FD–ID code assignment. Often, the same product will fall into different FD–ID categories, depending on its use. For example, fresh fruit purchased by households is considered a Crude Finished Consumer Food (FD41113), while the same fruit purchased by a food company for canning is considered an Unprocessed Foodstuff and Feedstuff (ID621).

BLS analysts assign FD–ID weight allocations at the PPI 6-digit commodity group level, because this is the level used for building the lowest level FD-ID indexes. In the next step, analysts match the 6-digit PPI codes with I–O codes in the BEA use table. They use a concordance between the PPI and the North American Standard Industrial Classification System (NAICS). BEA I–O data are generally classified according to NAICS. BEA provides a concordance between the NAICS and the I–O industry and commodity codes, which further enhances the match. Next, BLS analysts apply the percentage allocations by FD–ID for each PPI 6-digit code to the total value weight of the 6-digit commodity. The resultant products are used in their respective FD–ID aggregations for index calculation. Relative importances are then calculated for component 6-digit series in the PPI by FD–ID. [3]

Final Demand and Intermediate Demand by Commodity Type Structure and Definitions

Inherent in the Final Demand–Intermediate Demand by Commodity Type categorization are the concepts of type of buyer and type of commodity. The two main buyer types are final-demand buyers and intermediate-demand buyers. Final-demand buyers include consumers, government, foreigners, and domestic industries that purchase the commodity as capital investment. Intermediate demand buyers consist of domestic industries that purchase the commodity as an input to production, excluding capital investment.

The four main type of commodities are unprocessed goods, processed goods, services, and construction. Unprocessed goods are goods that have undergone no fabrication. For PPI purposes, unprocessed goods can be subject to picking, sorting, washing, packing, or transporting. Processed goods include goods that have been subjected to a treatment or series of treatments that in some way alters the initial physical nature or function of the goods. Mixing goods or assembling components is considered processing because, though the good itself is not changed, its function or usefulness is altered. Services include trade services; transportation and warehousing services; and services excluding trade, transportation, and warehousing. Trade services encompass both retailing and wholesaling services. The PPI views wholesalers and retailers as suppliers of distributive services (rather than as suppliers of goods), because little, if any, transformation of these goods takes place. This approach implies that the output of a wholesale or retail trade establishment is represented by the difference between its selling price of a good and the acquisition price for that same item. Gross margin prices, as collected by PPI, reflect the value added by the establishment for services such as marketing, storing, and displaying goods in convenient locations and making the goods easily available for customers to purchase. Transportation services include transportation of passengers, transportation of cargo, services related to transportation, and warehousing and storage of goods. Services less trade, transportation, and warehousing include all other types of services, such as health care services, professional services, financial services, entertainment services, etc. Finally, construction encompasses the creation and maintenance and repair of buildings or other engineering projects.

The Final Demand–Intermediate Demand (by commodity type) system consists of five major portions differentiated by the type of commodity and class of buyer. The five major FD–ID categories are processed goods for intermediate demand; unprocessed goods for intermediate demand; services for intermediate demand; construction for intermediate demand, and final demand.

Processed goods for intermediate demand include fabricated goods purchased by businesses as inputs to production, excluding capital investment. Unprocessed goods for intermediate demand are goods that have undergone no fabrication and are purchased by businesses as inputs to production. Services for intermediate demand include trade services; transportation and warehousing services; and services less trade, transportation, and warehousing purchased by businesses as inputs to production. Construction for intermediate demand includes maintenance and repair construction purchased by businesses. Final demand include all types of commodities (goods, services, and construction) consumed as personal consumption, by government, by businesses as capital investment, and as exports.

The full Final Demand–Intermediate Demand by Commodity Type structure is provided below. Direct weight allocations are made to the FD–ID categories which are italicized. Definitions of the detailed indexes follow the listing of their respective structure.

Structure of Processed Goods for Intermediate Demand

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Definitions of Processed Goods for Intermediate Demand

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ID61111 Materials for Food Manufacturing

contains partially processed food products that must undergo further preparation before reaching the final customer. Examples of materials for food manufacturing include milk products, canned or frozen fruits and vegetables, processed sugars, and certain chemicals.

ID61112 Materials for Nondurable Manufacturing

contains partially processed products that will undergo further preparation or usage in the manufacture of goods which have a life expectancy of less than 3 years. Examples of materials for nondurables manufacturing include cotton yarn used for shirts and woodpulp used to make paper.

ID61113 Materials for Durable Manufacturing

contains partially processed products that will undergo further preparation or usage in the manufacture of goods that have a life expectancy of more than 3 years. Examples of materials for durable manufacturing include textile materials, lumber, metals, and cement.

ID61121 Components for Nondurable Manufacturing

includes products, such as buttons and springs that are completely finished except for installation or assembly into a larger nondurable item. Nondurable goods are considered to have a life expectancy of less than 3 years.

ID61122 Components for Durable Manufacturing

includes products, such as pumps, valves, and fittings that are completely finished except for installation or assembly into a larger durable item. Durable goods are considered to have a life expectancy of 3 years or more.

ID6121 Materials for Construction

includes partially finished products that will undergo further preparation into a construction product. This usage is specifically defined in the I-O tables. Examples include lumber, concrete pipe, and architectural coatings.

ID6122 Components for Construction

includes completely finished products that will undergo installation into a construction product. This usage is specifically defined in the I–O tables. Examples include metal doors and water heaters.

ID6131 Processed Fuels and Lubricants for Manufacturing Industries

includes fuel and related products used in manufacturing industries to generate heat and power and for lubrication. Examples include industrial electric power, industrial natural gas, gasoline, diesel fuel, and greases and oils.

ID6132 Processed Fuels and Lubricants for Nonmanufacturing Industries

includes fuel and related products used in nonmanufacturing industries to generate heat and power and for lubrication. Examples include commercial electric power, commercial natural gas, jet fuel, diesel fuel, and greases and oils.

ID614 Containers for Intermediate Demand

contains paper, wood, plastic, metal, and glass receptacles used to ease the transport of unwieldy items.

ID6151 Supplies to Manufacturing Industries

includes products consumed in the manufacturing industries during the course of production or distribution of other items but not physically incorporated in those items. These products are distinguished from capital equipment in that they are not amortized. Examples of supplies for manufacturing industries include plastic packaging, small cutting tools, and machinery.

ID61521 Supplies to Nonmanufacturing Industries, Feeds

includes feed products consumed by animals in the livestock industry. Examples of manufactured animal feeds include poultry feed, hog feed, vegetable cakes, and meal fee.

ID61522 Supplies to Nonmanufacturing Industries, Other than Feeds

includes products used in the nonmanufacturing sector other than the animal feed industry, which are consumed during the course of production or distribution of other items but not physically incorporated in those items. Examples include sedatives for hospitals, tires, motor vehicle parts for auto repair shops, and photographic supplies.

Structure of Unprocessed Goods for Intermediate Demand

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Definitions of Unprocessed Goods for Intermediate Demand

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ID621 Unprocessed Foodstuffs and Feedstuffs

contains basic agricultural products that will undergo some processing prior to becoming completed food products, as well agricultural products consumed directly by the agricultural sector. Examples include fresh fruit that will be canned or raw corn consumed by livestock as animal feed. Other examples would be cattle, hogs, or chickens intended for slaughter, or raw cane sugar that will be refined.

ID62211 Unprocessed Nonfood Materials, Except Fuel to Manufacturing Industries

contains minerals, agricultural products, and scrap materials that are intended to be used in a manufacturing process other than manufacturing of foods. Raw cotton that will be turned into yarn, or aluminum base scrap that will end up as refined aluminum, are examples of this category. Crude petroleum is contained in this grouping rather than in Crude Fuels, because it is not used as a fuel in its crude state; it can be used as a raw material in manufacturing (for example, synthetic rubber or pharmaceuticals). Also included in the category are agricultural inputs to manufactures of pet foods and alcoholic beverages.

ID62212 Unprocessed Nonfood Materials, Except Fuel to Nonmanufacturing Industries

includes products such as sand, gravel, and crushed stone primarily used in the construction industry.

ID62221 Unprocessed Fuel to Manufacturing Industries

contains unrefined energy sources, specifically coal and natural gas, used to generate heat and power in manufacturing industries.

ID62222 Unprocessed Fuel to Nonmanufacturing Industries

includes coal and natural gas used to generate heat and power in nonmanufacturing industries.

Structure of Services for Intermediate Demand

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Definitions of Services for Intermediate Demand

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ID6311 Services less Trade, Transportation, and Warehousing for Manufacturing Industries

includes services used by the manufacturing sector other than trade and transportation services. Examples include manufacturing services, such as contract work on textiles and metal coating and allied services, as well as other types of services, including engineering services, truck rental, and software publishing.

ID6312 Services less Trade, Transportation, and Warehousing for Nonmanufacturing Industries

includes services used by nonmanufacturing sectors other than trade and transportation services. Financial services, legal services, architectural services, consulting services, and telecommunication services are examples.

ID63211 Transportation of Passengers for Manufacturing Industries

ID63212 Transportation of Passengers for Nonmanufacturing Industries

composed of business travel services, including railroad and airline passenger services, purchased by nonmanufacturing industries.

ID63221 Transportation of Goods for Manufacturing Industries

includes shipping, services related to shipping, and warehousing services for goods sold to manufacturing industries. Examples include pipeline transportation of petroleum products, long-distance motor carrying, and rail transportation of freight and mail.

ID63222 Transportation of Goods for Nonmanufacturing Industries

includes shipping, services related to shipping, and warehousing services for goods sold to nonmanufacturing industries. Examples include U.S. Postal Service, air transportation of freight, courier and messenger services, and marine cargo handling.

ID6331 Trade Services for Manufacturing Industries

contains retail and wholesale trade services for goods sold to manufacturing industries. For PPI purposes, trade services are a margin service, measured as the difference between selling and acquisition price of the good. Parts and supplies for machinery and equipment wholesaling; metals, mineral, and ores wholesaling; and paper and plastics wholesaling are examples of trade services for manufacturing industries.

ID6332 Trade Services for Nonmanufacturing Industries

contains retail and wholesale trade services for goods sold to nonmanufacturing industries. For PPI purposes, trade services are a margin service, measured as the difference between selling and acquisition price of the good. Examples include hardware and building materials and supplies retailing, chemicals and allied products wholesaling, and automotive parts retailing.

Structure of Construction for Intermediate Demand

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Definitions of Construction for Intermediate Demand

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ID64 Construction for Intermediate Demand

includes maintenance and repair construction purchased by businesses as inputs to construction. Note that all new construction is defined as capital investment and is included under final demand.

Structure of Final Demand

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Definitions of Final Demand

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FD41112 Finished Consumer Foods, Processed

contains prepared food products that go directly to the consumer. Examples of processed finished foods include bread, packaged fluid milk and related products, candy and nuts, and carbonated drinks.

FD41112 Finished Consumer Foods, Crude

contains basic food products such as fresh fruits and vegetables that are used in an unprocessed state by the consumer.

FD4112 Government Purchased Foods

includes both processed and unprocessed foods purchased by government.

FD4113 Foods for Export

includes both processed and unprocessed foods sold as export. Examples include oilseeds, corn, and beef and veal.

FD4121 Finished Consumer Energy Goods

made up of energy goods, such as residential electric power, residential natural gas, gasoline, and home heating oil, purchased by consumers.

FD4122 Government Purchased Energy

includes energy goods purchased by the government. Examples of government purchased energy goods are jet fuel and diesel fuel.

FD4123 Energy for Export

composed of energy goods sold as exports. Jet fuel, gasoline, and diesel fuel are examples of exported energy goods.

FD413111 Nondurable Consumer Goods less Foods and Energy

contains nonfood and non-energy products ready for final consumption, with a life expectancy of less than 3 years. Examples include alcoholic beverages, women’s apparel, and cigarettes.

FD413112 Durable Consumer Goods

contains nonfood and non-energy products ready for final consumption, with a life expectancy of more than 3 years. Examples include furniture, passenger cars, and appliances.

FD413121 Private Capital Equipment for Manufacturing Industries

contains products that will undergo no further processing and are used to manufacture or transport other goods in the manufacturing sector. These products are distinguished by the fact that they are amortized over their useful lives and are identified in the I–O tables as Gross Private Fixed Investment. Examples of capital equipment for the manufacturing industry include industrial molds, motor trucks, tractors, and conveying equipment.

FD413122 Private Capital Equipment for Nonmanufacturing Industries

contains products that undergo no further processing and are used in the operation of nonmanufacturing industries. These products are distinguished by the fact that they are amortized over their useful lives and are identified in the I-O tables as Gross Private Fixed Investment. Examples of this category include telephone and telegraph equipment, office furniture, passenger cars bought by leasing companies, and civilian aircraft.

FD41321 Government Purchased Goods Excluding Foods, Energy, and Capital Equipment

includes government-purchased durable and nondurable goods other than foods, energy, and capital equipment.

FD41322 Government Purchased Capital Equipment

contains products that undergo no further processing and are used in the operation of the government. These products are distinguished by the fact that they are amortized over their useful lives and are identified in the I–O tables as Gross Government Fixed Investment. Examples include military aircraft, and search, detection, navigation, and guidance systems and equipment.

FD4133 Goods for Export Excluding Foods and Energy

composed of unprocessed and processed goods, other than foods and energy, sold as exports. Raw cotton, chemicals, and civilian aircraft are examples of goods for export excluding foods and energy.

FD42111 Finished Consumer Services less Trade, Transportation, and Warehousing

includes services other than trade and transportation services purchased by consumers, such as telecommunication services, medical care, insurance, and lodging.

FD42112 Private Capital Investment Services less Trade, Transportation, and Warehousing

composed of services other than trade, transportation, and warehousing services identified in the I–O tables as Gross Private Fixed Investment. Examples include engineering services, support activities for oil and gas operations, and system software publishing.

FD42121 Government Purchased Services less Trade, Transportation, and Warehousing Excluding Capital Investment

includes government-purchased services other than trade, transportation, warehousing, and capital investment services. Examples are legal services and telecommunications services.

FD42122 Government Purchased Capital Investment Services less Trade, Transportation, and Warehousing

composed of government-purchased services other that trade, transportation, and warehousing identified in the I–O tables as Gross Government Fixed Investment. Examples include software publishing and information technology support services.

FD4213 Services for Export less Trade, Transportation, and Warehousing

includes services sold by domestic producers to foreigners other that trade, transportation, and warehousing services. Engineering services and securities, brokerage, and investment advice are examples.

FD42211 Transportation of Private Passengers

includes consumer travel services, such as airline passenger services and rail transportation of passengers.

FD42212 Transportation of Government Passengers

includes government-purchased travel services.

FD42213 Transportation of Passengers for Export

composed of travel services sold as exports. An example is airline passenger services.

FD422211 Transportation and Warehousing of Personal Consumption Goods

includes shipping, services related to shipping, and warehousing services for goods eventually sold to consumers. Examples of transportation and warehousing of personal consumption goods are long distance motor carrying, deep sea water transportation of freight, and U.S. Postal Service.

FD422212 Transportation and Warehousing of Private Capital Equipment

includes shipping, services related to shipping, and warehousing services for goods sold as capital investment. This use category is identified in the I–O tables as Gross Private Fixed Investment.

FD42222 Transportation and Warehousing of Government Purchased Goods

includes shipping, services related to shipping, and warehousing services for goods sold to government.

FD42223 Transportation and Warehousing of Exports

includes shipping, services related to shipping, and warehousing services for goods sold as exports.

FD42311 Trade of Personal Consumption Goods

composed of retail and wholesale trade services for goods sold to manufacturing industries. For PPI purposes, trade services are a margin service, measured as the difference between selling and acquisition price of a good. Examples of personal consumption trade services are apparel wholesaling, food and alcohol retailing, and automotive fuels and lubricant retailing.

FD42312 Trade of Private Capital Equipment

includes retail and wholesale trade services for goods sold as capital equipment. Machinery and equipment wholesaling, furnishings wholesaling, and automotive retailing represent examples of private capital equipment trade services.

FD42321 Trade of Government Purchased Goods Excluding Capital Equipment

composed of retail and wholesale trade services for goods sold to government other than capital equipment. For PPI purposes, trade services are a margin service, measured as the difference between selling and acquisition price of the good. Examples include chemicals and allied products wholesaling and parts and supplies for machinery wholesaling.

FD42322 Trade of Government Purchased Capital Equipment

includes retail and wholesale trade services for goods sold to government as capital equipment. For PPI purposes, trade services are a margin service, measured as the difference between selling and acquisition price of a good. Examples of trade of government purchased capital investment are machinery and equipment wholesaling and furnishing wholesaling.

FD4233 Trade of Exports

includes retail and wholesale trade services for goods sold as exports. For PPI purposes, trade services are a margin service, measured as the difference between selling and acquisition price of the good. Examples include machinery and equipment wholesaling and alcohol wholesaling.

FD431 Construction for Private Capital Investment

includes construction identified in the I-O tables as Gross Private Fixed Investment. All new construction is identified in the I–O tables as fixed investment. Examples include new office building construction, new industrial building construction, and new healthcare building construction.

FD432 Construction for Government

composed of all construction purchased by the government. New school building construction and maintenance and repair of nonresidential buildings are examples of construction for government.

Intermediate Demand by Production Flow Methodology

The intermediate demand by production flow portion of the FD-ID system reorganizes into four stages of production the same set of intermediate demand commodities included in the intermediate demand by commodity type portion of the system. The stages are developed such that commodities in one stage are used as inputs to produce commodities in the next stage. The stage-based treatment of intermediate demand allows data users to study price transmission relationships between the intermediate stages of production as well as the relationship to final demand.

To construct the intermediate demand by production flow indexes, a five-step procedure is followed. The procedure utilizes both BEA Make of commodities by industries and Use of commodities by industries, before redefinition tables. Both tables are included in the Benchmark Input-Output Accounts of the United States, 2007, published by BEA. As stated earlier, Use of commodities by industries, before redefinition shows—for each commodity group—the dollar value (in millions of dollars at producers’ prices) used by each industry and final user. The Make of commodities by industries table indicates the dollar value (in millions of dollars at producers’ prices) of each commodity made by each industry.

The first step in the procedure is to determine the total production of each industry in the economy. In general, industries are classified as primary producers of specific goods or services; however, industries may also be secondary producers of other goods or services. A firm classified in the automobile industry, for example, produces primarily automobiles, but the same firm may also produce and sell additional commodities, such as car parts, scrap metal, or car rentals. These additional commodities are classified as secondary production. The first step therefore requires determining both the primary production and secondary production of each industry in the economy. The 2007 BEA Make of commodities by industries table was used for this purpose.

The second step is to ascertain where the total output of each industry is consumed. This step requires determining, for each industry, the portion of the industry output consumed as final demand and the portion consumed as intermediate demand. For the intermediate-demand portion, determining which specific industries are consuming the industry’s output also is required. BEA 2007 Use of commodities by industries, before redefinition data were employed to make this determination.

The third step in developing stages is to assign industries to stages of production. Within a stage-based system, transactions can be classified as forward flow, backflow, or internal flow. Forward flow occurs when an industry sells its output to an industry classified in a forward stage of production (to be used as an input) or to final demand. Internal flow occurs when an industry sells its output to be used as an input by another industry classified within the same stage of production. Backflow occurs when an industry sells its output to be used as an input by an industry classified in an earlier stage of production in the system. To successfully develop a forward-flowing system of price change, industries should be assigned to stages in a manner that minimizes backflow and internal flow while maximizing forward flow within the system. Towards this end, PPI assigned all industries included in the BEA I-O tables to stages in a manner that attempted to maximize net forward flow of the system. Net forward flow is defined as:

Net forward flow = (forward shipments of the industry stage + inputs received from previous stages of process) - (backward shipments of the industry stage + inputs received from forward stages of process)

The PPI program implements a two-step procedure to attempt to maximize net forward flow. In the first step, a set of rules is used to assign industries to stages and select the appropriate number of stages for the system. The system that the PPI program eventually chose is a four-stage system. The set of rules used to assign industries to the four stages is summarized as follows:

• Assign industry to stage 4 if shipments sold to final demand ≥ 75 percent of industry production.
• Assign industry to stage 3 if shipments sold to final demand and to stage 4 ≥ 75 percent of industry production and shipments sold to final demand < 75 percent of production.
• Assign industry to stage 2 if shipments sold to final demand, to stage 4, and to stage 3 ≥ 60 percent of industry production; and shipments sold to final demand and to stage 4 < 75 percent of production; and shipments sold to final demand < 75 percent.
• Assign industry to stage 1 if it does not meet the conditions of stage 4, 3, or 2.

Before selecting the number of stages and set of rules just described, the PPI program examined many different sets of rules and numbers of stages. It eventually chose the aforementioned system because it maximized net forward flow as compared with other sets of rules examined. [4]

After the assignment of industries to stages by use of the aforementioned rules, the second step in the procedure to maximize net forward flow was to examine the effects on net forward flow of moving individual industries to stages to which they were not originally assigned. In cases in which there were substantial gains to net forward flow, industries were left in the new stage.

The PPI production-flow-based system exhibits strong forward flow and little backflow: 83.7 percent of transactions in the system are forward flowing, 5.6 percent are back flowing, and 10.7 percent are internally flowing.

The fourth step in constructing the production-flow-based intermediate demand indexes is to determine the commodities to be included and weights to be used in the intermediate demand indexes. The four main indexes in the production flow system are stage 1 intermediate demand, stage 2 intermediate demand, stage 3 intermediate demand, and stage 4 intermediate demand. These indexes track prices for the inputs consumed by industries in each of the four stages of production. They do not track prices for the output produced by industries in each of the four stages of production. For example, the stage 4 intermediate demand index tracks price change for inputs consumed by industries included in the fourth stage of production. Recall that industries classified in the fourth stage of production mostly produce goods sold to final demand. The stage 4 intermediate demand index therefore measures price change in the inputs to production of industries that produce primarily final-demand commodities.

The BEA Use of commodities by industries, before redefinition table is used to determine the set of commodities consumed by industries in each of the four stages. The use table indicates the commodities consumed by industries in terms of BEA I-O codes. Since FD-ID indexes are constructed from PPI 6-digit commodity group level indexes, BEA I-O codes are matched to 6-digit PPI codes through use of a concordance between the PPI commodity codes and BEA I-O data. In the end, through the BEA use table and the PPI/I-O concordance, the set of 6-digit PPI commodities consumed by each stage is determined, and these are the commodities that compose each of the four stages of intermediate demand included in the production flow model. The final step in developing the production flow indexes is to convert the indexes from gross weighted indexes to net weighted indexes. Net weighting is accomplished by removing transactions in which an input is both produced and consumed within a given stage. Net weighting eliminates multiple counting of price change from the production flow price indexes. Net weights are develop using both the BEA Use of commodities by industries and Make of commodities by industries tables.

Appendix B, Table 1 presents the updated industry stage assignments based on 2007 I-O data. Appendix B, Table 2 presents shifts in industry stage assignments between 2002 and 2007 I-O data.

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Appendix A

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Appendix B

Intermediate Demand by Production Flow Stage Assignments

The following table presents the final industry stage assignments of the PPI production flow model on the basis of 2007 BEA I–O data. Stage 1 includes 74 industries, stage 2 contains 93 industries, stage 3 includes 91 industries, and stage 4 contains 128 industries.

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To examine industry shifts resulting from the FD–ID allocation update, the following table compares previous industry stage assignments, based on 2002 I–O data, with the current assignments, based on 2007 I–O data. The 2007 I–O data include 386 industries, and of these industries, 312 are comparable with industries included in the 2002 I–O list. The remaining 74 noncomparable industries are included in the 2007 I–O list but not in the 2002 I–O data. Noncomparable industries are indicated by an NA in the 2002 assignment column. Of the 312 comparable industries, 231 (approximately 75 percent) are assigned to the same stage on the basis of 2007 I–O data as they were in on the basis of 2002 data. Of the 81 industries that shifted stages, 71 shifted one stage, 9 shifted two stages, and one shifted three stages.

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Footnotes

[1] For a detailed description of the FD–ID system as well as other information pertaining to the system, please visit https://www.bls.gov/ppi/fd-id/home.htm. ↩

[2] This table is found in Benchmark Input–Output Accounts of the United States, 2007, published by BEA at https://www.bea.gov/index.php/news/2013/2007-benchmark-input-output-account. ↩

[3] In many cases, the same commodity is purchased by different buyer types, so commodities are often included in several FD–ID indexes. For example, regular gasoline is purchased for personal consumption, export, government use, and business use. The PPI program publishes only one commodity index for regular gasoline, reflecting sales to all types of buyers. It is this index that is used in all FD–ID aggregations, regardless of whether the gasoline is sold for personal consumption, as an export, to government, or to businesses, with differences accounted for in the applicable weights to each aggregate FD or ID index. In some cases, buyer type is an important price determining characteristic and results in commodity indexes being created on that basis. For example, within the PPI category for loan services, separate indexes for consumer loans and business loans were constructed. In this case, the commodity index for consumer loans would be included in the final-demand index, and the commodity index for business loans would fall under intermediate demand. ↩

[4] For a detailed description of the methodology used to develop the PPI production flow model based on 2002 I–O data, see https://www.bls.gov/ppi/fd-id/2002-bea-data-analysis-for-the-development-of-the-experimental-ppi-aggregation-system.pdf. ↩

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Last Modified Date: February 23, 2015