Transcript Globalization and Price Measurement Challenges and Options Prepared for The 2008 World Congress on National Accounts and Economic Performance Measures for Nations May 15 Session.

Globalization and Price Measurement
Challenges and Options
Prepared for The 2008 World Congress on
National Accounts and Economic
Performance Measures for Nations
May 15 Session 2: Outsourcing, Economic
Growth, and Productivity Measurement
11:10am-11:30am
Bill Alterman (U.S. Bureau of Labor Statistics)
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2
I
• “Effects of Terms of Trade Gains and
Tariffs Changes on the Measurement of
U.S. Productivity Growth”
by R.C. Feenstra, M.B. Reinsdorf, and M.J. Slaughter
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The Basic Argument
(from BW)
• Import Price Index ONLY Measures Price
Changes of Imports
• Producer Price Index ONLY Measures
Prices Changes of Domestic Production
• BLS Industrial Price Indexes Do NOT
Measure price shifts as goods (and
services) move from domestic sourcing to
foreign sourcing (and vice versa)
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Why Historically This was NOT an Issue
• Shifts tend to happen Slowly
• Operationally, Neither PPI nor IPP
Designed to pick this up
• Only ‘overlap’ area which did receive any
attention was overlap between PPI and
Exports.
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Why A BIG Issue Now
• Perception That More and More Jobs are
Going Overseas
– Once Viewed As Primarily a Problem for low
wage industries
– More and More High End Industries Are being
viewed as Susceptible
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Potential Evidence of Shift in Sourcing
• From Article
• Furniture Prices (Dec. 2003-April 2007)
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–
–
–
–
CPI went down 0.5 percent
PPI went up 9.0 percent.
Imports went up 6.7 percent.
Value of Imported Furniture soared 76 percent.
Official BLS measure of productivity indicated that
productivity in the furniture industry went up 23
percent between 2000 and 2005.
– Output in Furniture Industry up 3 percent.
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90
PPI
MPI
Feb-08
Dec-07
Oct-07
Aug-07
Jun-07
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Apr-06
Feb-06
Dec-05
Oct-05
Aug-05
Jun-05
Apr-05
Feb-05
Dec-04
Oct-04
Aug-04
Jun-04
Apr-04
Feb-04
Dec-03
Furniture Prices
115
110
105
100
95
CPI
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Evidence of Shift in Sourcing
• Not From Article
• Department of Commerce Recently
revised Estimate of Size of US Wood
Furniture Industry
• Value of Production in 2006
– As originally Reported: $13.5 bil.
– As recently Revised:
$8.6 bil.
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Shift in Computer Sourcing
• Calendar 2002, imports accounted for 31
Percent of U.S. Consumption
• Third Quarter 2007 (Most recent data)
Imports Accounted for 58 percent of U.S.
Consumption
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19
7
19 5
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19 6
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19 7
7
19 8
7
19 9
8
19 0
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19 1
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19 2
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19 3
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19 4
8
19 5
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19 6
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19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
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20 9
0
20 0
0
20 1
0
20 2
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20 3
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20 4
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IPR Percent
30%
25%
20%
100
80
15%
60
10%
40
5%
0%
IPR
Trade Weighted Exchange Rate (FRB-Broad)
XR Index (jan. 97=100)
Import Penetration Ratio for U.S. Manufacturing Outputs, and Exchange
Rate Movements
(1975-2006)
140
120
20
0
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Implications
• Increases in ‘Real’ Imports are
Underestimated.
• Increase in Domestic Production has been
Overestimated.
• Increase in GDP has been Overestimated.
• Gains as a result of ‘Terms of Trade’ are
being incorrectly Measured as Productivity
Gains.
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Mitigating Factors
• Some Shifting may be in the reverse
direction
– Goods that were formerly imported are now
being sourced in the U.S.
• Some outsourcing may actually be shifts
to domestic suppliers
• These would lead to underestimating GDP
and productivity
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Worth Mentioning
• CPI does account for shift in sourcing
• PPI may be measuring this shift in
sourcing in cases where respondent
continues to price output even when
sourcing shifts
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Congressional Response
As included in FY 2008 Omnibus:
Accurately Reflecting Economic Conditions. - Within funds
provided the BEA is directed to enter into an agreement with
the National Academy of Sciences to conduct a study on
methods for collecting data regarding the status of the U. S.
economy and determine whether the current data results in an
overstatement of economic growth, domestic manufacturing
output, and productivity.
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Possible Options
• Continue with Current Methodology
• Combine MPI and PPI into a Composite
Wherever made price index
• Sample and Develop a true input Price
Index
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Jan-08 Feb-08 Mar-08 Apr-08
Chair A
Domestic
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10
10
10
Chair B
Domestic
10
10
10
10
Chair B
Imported
Chair C
Domestic
Chair C
Imported
Chair D
Imported
10
5
May08 Jun-08
10
10
5
5
10
5
5
5
5
5
5
5
5
5
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Possible Options
Fe
b.
M
ar
ch
A
pr
il
M
ay
Ju
ne
n.
120
100
80
60
40
20
0
Ja
• Continue with
Current Methodology
• Combine MPI and
PPI into a Wherever
made price index
• Develop a true Input
Price Index
PPI
MPI
Wherever Made
Input
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BLS Had Proposed Input Price Index
• “Improving the Measurement of producer price
change”
Monthly Labor Review, April 1978
• Described comprehensive changes to the
concepts and structure of the then Wholesale
Price Index, subsequently renamed the
Producer Price Index
• Included segment for Industry input price
indexes (which resulted in net materials input
indexes
• Also addressed issue of collecting buyer’s prices
• Viewed it as ‘either/or” issue
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Composite Input Price Index
• BLS actually produced an “Input Price
Index” between 1988 and 2003.
• Based on PPI Output Price indexes only
• Imports NOT included
• PPI’s indexes for nonresidential
construction are based on input costs
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Net Material Input Price Index
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True Input Price Index
How Feasible?
• Do not know
• Three Key Questions
– Can we Draw a Sample?
– Can we Get the Appropriate Data?
– What is Aggregation Structure
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Sample
• Current PPI uses comparatively ‘rough’
sample, with employment serving as a
proxy in determining relative weights.
• Respondent responsible for determining
actual products (based on revenue data)
• Data from Census of Manufactures used
to determine weights for detailed product
cells.
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Sample
• Sample for Input Price index (in theory could use
methodology similar to current PPI output index.
• A better frame would come from BLS accessing
the raw data from the Census of Manufactures
or Economic Census.
• Census of Manufactures has detailed
information on cost of specific inputs to the
establishment.
• Economic Census (which covers service
industries) does NOT have same level of detail
for inputs.
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Pricing
• Would item be repriceable?
– Is information from buyers as readily available
as information form Sellers?
– Is data more sporadic?
• Are we burdening same companies?
• Is data considered more sensitive?
• Every company may have same input (e.g.
business services). Do we ask every
establishment to reprice same inputs?
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Aggregation Structure
• Product Based
– Cost of Steel to all buyers of steel
• Industry Based
– Costs of inputs to steel industry
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Next Steps
• Develop a Proposal outlining a conceptual
framework of products for the BLS industrial
price programs
• Access the feasibility of producing a common
sample for the PPI and IPP outputs.
• Review work of other countries in constructing
input price indexes
– According to OECD website: Australia, Japan,
Ireland, Netherlands, Spain, United Kingdom
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Next Steps
• Any additional work will require a
commitment of resources
– Attempt to draw a sample of respondents
using data on input costs
– Field a sample of companies (most likely in
one industry) in order to test feasibility of data
collection and index calculation of an input
price index
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