July 2017 Producer Price Index

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The Producer Price Index for final demand declined 0.1 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices inched up 0.1 percent in June and were unchanged in May. (See table A.) On an unadjusted basis, the final demand index increased 1.9 percent for the 12 months ended in July.

Over 80 percent of the July decrease in final demand prices is attributable to the index for final demand services, which fell 0.2 percent. Prices for final demand goods edged down 0.1 percent.

The index for final demand less foods, energy, and trade services was unchanged in July following a 0.2-percent advance in June. For the 12 months ended in July, prices for final demand less foods, energy, and trade services rose 1.9 percent.

Final Demand

Final demand services: The index for final demand services moved down 0.2 percent in July, the first decline since a 0.3-percent drop in February. Most of the July decrease can be traced to margins for final demand trade services, which fell 0.5 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Additionally, prices for final demand transportation and warehousing services declined 0.8 percent. In contrast, the index for final demand services less trade, transportation, and warehousing advanced 0.2 percent.

Product detail: About 60 percent of the July decrease in prices for final demand services is attributable to a 5.8-percent drop in margins for chemicals and allied products wholesaling. The indexes for machinery and equipment wholesaling; portfolio management; apparel, footwear, and accessories retailing; airline passenger services; and fuels and lubricants retailing also moved lower. Conversely, prices for traveler accommodation services rose 2.2 percent. The indexes for apparel wholesaling and hospital outpatient care also increased. (See table 4.)

Final demand goods: Prices for final demand goods edged down 0.1 percent in July after inching up 0.1 percent in June. In July, the index for final demand energy fell 0.3 percent, and prices for final demand goods less foods and energy declined 0.1 percent. The index for final demand foods was unchanged.

Product detail: A major factor in the July decrease in prices for final demand goods was the index for gasoline, which moved down 1.4 percent. Prices for beef and veal, utility natural gas, motor vehicles, and basic organic chemicals also fell. In contrast, the index for grains jumped 17.1 percent. Prices for diesel fuel; pork; and consumer, institutional, and commercial plastic products also moved higher.

Intermediate Demand by Commodity Type

Within intermediate demand in July, prices for processed goods moved down 0.1 percent, the index for unprocessed goods fell 0.4 percent, and prices for services decreased 0.3 percent. (See tables B and C.)

Processed goods for intermediate demand: The index for processed goods for intermediate demand edged down 0.1 percent in July after declining 0.2 percent in June. Most of the July decrease is attributable to prices for processed materials less foods and energy, which moved down 0.3 percent. Additionally, the index for processed foods and feeds fell 0.5 percent. Conversely, prices for processed energy goods increased 0.8 percent. For the 12 months ended in July, the index for processed goods for intermediate demand rose 3.5 percent.

Product detail: Leading the July decline in the index for processed goods for intermediate demand, prices for basic organic chemicals fell 3.3 percent. The indexes for beef and veal, natural gas to electric utilities, gasoline, and residual fuels also moved lower. Conversely, the index for diesel fuel jumped 9.8 percent. Prices for industrial electric power, inedible fats and oils, and soybean cake and meal also increased. (See table 5.)

Unprocessed goods for intermediate demand: The index for unprocessed goods for intermediate demand declined 0.4 percent in July following a 1.5-percent advance in June. The decrease can be attributed to prices for unprocessed energy materials, which fell 5.1 percent. In contrast, the indexes for unprocessed foodstuffs and feedstuffs and for unprocessed nonfood materials less energy moved up 2.4 percent and 1.2 percent, respectively. For the 12 months ended in July, the index for unprocessed goods for intermediate demand climbed 5.2 percent.

Product detail: Leading the July decline in the index for unprocessed goods for intermediate demand, prices for crude petroleum decreased 8.1 percent. The indexes for slaughter steers and heifers, natural gas, slaughter cows and bulls, raw cotton, and unprocessed finfish also fell. Conversely, prices for grains jumped 17.1 percent. The indexes for coal and copper ores also rose.

Services for intermediate demand: The index for services for intermediate demand fell 0.3 percent in July, the largest decline since a 0.5-percent decrease in October 2015. Over 60 percent of the July drop can be traced to prices for services less trade, transportation, and warehousing for intermediate demand, which moved down 0.2 percent. The index for transportation and warehousing services for intermediate demand fell 0.4 percent, and margins for trade services for intermediate demand declined 0.3 percent. For the 12 months ended in July, the index for services for intermediate demand rose 2.2 percent.

Product detail: Nearly half of the July decline in the index for services for intermediate demand can be traced to prices for portfolio management, which fell 3.2 percent. The indexes for chemicals and allied products wholesaling; business loans (partial); securities brokerage, dealing, and investment advice; airline passenger services; and television advertising time sales also moved down. In contrast, margins for metals, minerals, and ores wholesaling increased 3.5 percent. The indexes for architectural and engineering services and for legal services also increased.

Intermediate Demand by Production Flow

Stage 4 intermediate demand: The index for stage 4 intermediate demand was unchanged in July following a 0.3-percent increase a month earlier. In July, prices for total goods inputs to stage 4 intermediate demand rose 0.3 percent. Conversely, prices for total services inputs fell 0.3 percent. Advances in the indexes for diesel fuel; grains; metals, minerals, and ores wholesaling; architectural and engineering services; and legal services offset declining indexes for portfolio management; chemicals and allied products wholesaling; beef and veal; business loans (partial); and basic organic chemicals. For the 12 months ended in July, prices for stage 4 intermediate demand increased 2.6 percent.

Stage 3 intermediate demand: Prices for stage 3 intermediate demand fell 0.1 percent in July following a 0.3-percent increase in the previous month. In July, the index for total services inputs to stage 3 intermediate demand decreased 0.1 percent. Prices for total goods inputs were unchanged. Declines in the indexes for chemicals and allied products wholesaling, slaughter steers and heifers, basic organic chemicals, gasoline, and business loans (partial) outweighed increases in the indexes for raw milk; slaughter chickens; slaughter hogs; and metals, minerals, and ores wholesaling. For the 12 months ended in July, prices for stage 3 intermediate demand advanced 3.2 percent.

Stage 2 intermediate demand: The index for stage 2 intermediate demand moved down 0.7 percent in July following a 0.5-percent increase in the prior month. In July, prices for total goods inputs to stage 2 intermediate demand fell 1.4 percent, and the index for total services inputs moved down 0.3 percent. Decreases in prices for crude petroleum, natural gas, portfolio management, basic organic chemicals, plastic resins and materials, and airline passenger services outweighed advances in the indexes for grains; hay, hayseeds, and oilseeds; and legal services. For the 12 months ended in July, prices for stage 2 intermediate demand rose 2.6 percent.

Stage 1 intermediate demand: The index for stage 1 intermediate demand fell 0.1 percent in July following a 0.2-percent increase in the preceding month. In July, prices for total services inputs to stage 1 intermediate demand moved down 0.5 percent. In contrast, the index for total goods inputs rose 0.2 percent. Declines in the indexes for chemicals and allied products wholesaling, basic organic chemicals, business loans (partial), airline passenger services, and crude petroleum outweighed advances in the indexes for diesel fuel; grains; metals, minerals, and ores wholesaling; and wastepaper. For the 12 months ended in July, prices for stage 1 intermediate demand rose 4.4 percent.

PPI Weights to be Updated

In February 2018, with the release of January 2018 Producer Price Index (PPI) data, the Bureau of Labor Statistics will update PPI value weights to more accurately reflect recent production and marketing patterns. The updated weights will be based on shipment values from the year 2012. These value weights come from the Census of Manufactures, the Census of Mining, the Census of Services, and the Census of Agriculture. PPI weights have been based on 2007 Census shipment values since January 2012.

All PPIs will be affected by this weight update, including all the industry net output indexes, as well as indexes for traditional commodity groupings. In addition, weights will be updated from the 2007 to the 2012 Census for all Final demand-Intermediate demand (FD-ID) indexes, durability of product indexes, special commodity-grouping indexes, and input to industry indexes. This weight revision will not change any arithmetic reference bases for indexes, the dates when PPIs were set to 100.

It is important to note that the basic structures of the PPI commodity and FD-ID classification systems will not change as a result of the weight revision. The PPIs classified according to the North American Industry Classification System (NAICS), however, will be updated to reflect 2017 NAICS definitions, as established by the U.S. Census Bureau. The weight update will also result in significant shifts in the relative importance of various industries and products. These shifts will impact aggregate indexes in a manner commensurate with the relative gains and losses in value weights from 2007 to 2012.

In addition, the PPI sample updates normally occurring with the release of October and February data will be combined and released in conjunction with the weight update in February 2018. Commodity and FD-ID relative importance figures for December 2017 will be available two business days prior to the release of January 2018 PPI data. This information will be available on the PPI website at www.bls.gov/ppi or by contacting the PPI Section of Index Analysis and Public Information at ppi- info@bls.gov or (202)691-7705.

Variance Estimates for the PPI

The Producer Price Index (PPI) program recently published variance estimates for 2016. These variance estimates measure the uncertainty caused by using a sample, rather than the entire population, to calculate PPI indexes. Variance estimates are available on the PPI website at www.bls.gov/ppi/ppivariance.htm or by contacting the PPI Section of Index Analysis and Public Information at ppi-info@bls.gov or (202)691-7705.

Beyond the Numbers: Nailing down the price of nonresidential construction

The Producer Price Index (PPI) has created a new set of special indexes to provide nonresidential construction data by region and type of contractor. This Beyond the Numbers article explains how these indexes are calculated, what their structures are, and how analysts can use the data to better understand price movements in the nonresidential building sector of the U.S. economy. This article is available on the Bureau of Labor Statistics website at www.bls.gov/opub/btn/volume-6/nailing- down-the-price-of-new-nonresidential-building-construction.htm or by contacting the PPI Section of Index Analysis and Public Information at: ppi-info@bls.gov or (202)691-7705.