Appendix A

1. MANUFACTURING EMPLOYEES-CLASSIFICATIONS USED

All Employees

The category "all employees" comprises all fulltime and part-time employees on the payrolls of operating manufacturing establishments who worked or received pay for any part of the pay period ended nearest the 12th of the months specified on the report form. Included are all persons on paid sick leave, paid holidays, and paid vacations during these pay periods. Excluded are members of the Armed Forces and pensioners carried on the active rolls but not working during the period. Officers of corporations are included as employees; proprietors and partners of unincorporated firms are, however, excluded from the total.

Production and Related Workers.-- Workers (up through the working foreman level) engaged in fabricating, processing, assembling, inspection, receiving, storage, handling, packing, warehousing, shipping (but not delivering), maintenance, repair, janitorial, watchman services, product development, auxiliary production for plants' own use (e.g., power plant), recordkeeping, and other services closely associated with these production operations at the establishment covered by the report are included. Supervisory employees above the working foreman level are excluded from this category.

All Other Other Employees.--Represents nonproduction personnel of the manufacturing establishment, including those engaged in the following activities: Factory supervision above the working foreman level, sales (including driver salesmen), sales delivery (highway truck drivers and their helpers), advertising, credit, collection, installation and servicing of own products, clerical and routine office functions, executive, purchasing, financing, legal, personnel (including cafeteria, medical, etc.), professional, and technical. Also included are employees on the payroll of the manufacturing establishment engaged in the construction of major additions or alterations to the plant and who are utilized as a separate work force.

Central Administrative Office and Auxiliary Unit Employees

For the 1963 Census and the 1964 and 1965 Annual Surveys, respondents were asked to file separate reports for each central administrative office or auxiliary unit at a different location from the establishments served.

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They were also required to file a separate report if the central administrative office and auxiliary unit was at the same location as one of the manufacturing establishments but served more than one manufacturing establishment and was not operated as an integral part of any manufacturing establishment. The functions of employees in central administrative offices include general company policy determination, planning, and management (i.e., company purchasing, accounting, general engineering, direction of company personnel matters, and legal and patent matters). Auxiliaries are storage facilities, garages, repair shops, purchasing offices, sales promotion offices, and research laboratories serving the plants or central management of the company.

2. MANUFACTURING EMPLOYEES--AVERAGE EMPLOYMENT

The Annual Survey report forms requested employment figures for "production and related workers" for four selected pay periods (i.e., production workers' mid-month employment in March, May, August, and November). For "all other employees" only a midMarch figure was requested. Thus, the "annual average" is composed of an average of the four monthly figures for the "production workers" plus the March figure for "all other employees."

3. MANUFACTURING EMPLOYEES--PAYROLLS

This total includes the gross earnings paid in the calendar year to all employees on the payroll of operating manufacturing establishments. Respondents were told they could follow the definition of payrolls used for calculating the Federal withholding tax. It includes all forms of compensation such as salaries, wages, commissions, dismissal pay, all bonuses, vacation and sick leave pay, and compensation in kind, prior to such deductions as employees' Social Security contributions, withholding taxes, group insurance, union dues, and savings bonds. The total includes salaries of officers of these establishments if a corporation; it excludes payments to the proprietor or partners, if an unincorporated concern. Also excluded are payments to members of Armed Forces and pensioners carried on the active payrolls of manufacturing establishments.

The Census Bureau definition of payrolls is identical to that recommended to all Federal statistical agencies by the Bureau of the Budget. It should be noted that this

definition does not include employers' Social Security contributions, or other nonpayroll labor costs such as employees' pension plans, group insurance premiums, and workmen's compensation. Beginning with the 1965 Annual Survey, separate information was requested on these supplements to payrolls. However, reporting and processing difficulties which often accompany modifications to an established survey made it impossible to include the results in this 1965 publication. Data for both 1965 and 1966 will be published as part of the 1966 Annual Survey of Manufactures.

4. PRODUCTION AND RELATED WORKER MANHOURS

This total consists of all plant man-hours of production and related workers as defined above. It represents all man-hours worked or paid for at the plant including actual overtime hours (not straight-time equivalent hours). It excludes hours paid for vacations, holidays, or sick leave, when the employee was not at the plant. Where employees elected to work during the vacation period, only actual hours worked by such employees were reported.

The production worker man-hours total provides a comprehensive measure of labor input, taking into account both the number of production workers and their actual hours of work.

As in the 1963 Census, man-hours data were requested by quarter for the calendar year. The man-hours figures issued by the Census Bureau differ from those published monthly by the Bureau of Labor Statistics which cover all hours paid for, whether or not worked, and relate only to the payroll period ending nearest the middle of each month.

5. COST OF MATERIALS, PARTS, COMPONENTS, ETC.

The term "cost of materials, etc." refers to direct charges actually paid or payable for items consumed or put into production during the year, including freight charges and other direct charges incurred by the establishment in acquiring these materials. Manufacturers included the cost of materials or fuels consumed regardless of whether these items were purchased by the individual establishment from other companies, transferred to it from other establishments of the same company, or withdrawn from inventory during the year.

To arrive at the industry total "cost of materials, etc.," separate figures were obtained for (a) the total delivered cost of all raw materials, semifinished goods, parts, components, containers, scrap, and supplies put into production or used as operating supplies, and for repair and maintenance during that year; (b) the amount paid for electric energy purchased; (c) the amount paid for all fuels consumed for heat, power, or the generation

of electricity; (d) the cost of work done by others on materials or parts furnished by manufacturing establishments (contract work); (e) cost of products bought and resold in the same condition. The total excludes the cost of services used, such as advertising, insurance, telephone, etc., and research, developmental, and consulting services of other establishments; it also excludes overhead costs, such as depreciation charges, rent, interest, royalties, etc.; it excludes materials, machinery, and equipment used in plant expansion or capitalized repairs which are chargeable to fixed assets accounts.

It should be noted that the cost of fuel consumed under "c" above, does not include fuel used as a material in the manufacturing process; for example, coal used in the production of coke. Such costs were included with other materials costs in category “a," above.

6. VALUE OF SHIPMENTS

The amounts under "value of shipments," both for industries and for classes of products, are the received or receivable net selling values, f.o.b. plant, after discounts and allowances, and excluding freight charges and excise taxes. However, where the products of an industry are customarily delivered by the manufacturing establishments (bakery products, fluid milk, and soft drinks, for example) the value of shipments is based on the delivered price of the goods rather than the f.o.b. plant price.

Under the general heading of shipments, manufacturers were asked to include all items made by or for each establishment from materials owned by it, whether sold, transferred to other plants of the same company, or shipped on consignment. Also included were receipts for contract work and for such miscellaneous activities as sale of scrap and refuse, installation work by manufacturing plant employees, research and development work, and repair work. The net selling value of products made in one plant on a contract basis from materials owned by others was reported by the plant providing the materials. The value of products bought and resold without further processing (merchandising) was reported separately and is included in the value of shipments totals for each industry but not for individual products or classes of products.

In the case of multiunit companies, the manufacturer was requested to report the value of products transferred to other establishments of the same company (i.e., other manufacturing plants, separate sales branches, or retail stores) as though the establishments were a separate economic unit. The company was requested to include in "value of interplant transfers within the company" not only the direct costs of production but also a reasonable proportion of "all other costs" (including company overhead) and profit.

For a relatively few industries (canning and preserving, aircraft, and shipbuilding) where shipment figures are generally not maintained or do not adequately measure activity, the "value of production" or the "value of work done" was requested. These instances are noted in the tables for the industries involved.

7. SHIPMENTS BY CLASSES OF PRODUCTS

A "class of product" is a group of individual products considered primary to an industry. It is designated by a 5-digit code--the first four digits indicating the industry and the fifth digit, the specific group of products. The value of shipments for a class of product code is on a "wherever made" basis; i.e., it represents total shipments by all manufacturing establishments regardless of industry classification, unless, as indicated above, a product class is limited to the products of a particular manufacturing industry because of process or material

used.

The total value of shipments of all product classes belonging to an industry is also shown on the same "wherever made" basis. It is designated by the 4-digit industry code followed by a dash (e.g., 2015-) if the industry has more than one product class, and by the 4-digit industry code followed by another digit if the industry has only one product class (e.g., 20210). The 4-digit product group aggregate is not the same as the total industry value of shipments. This latter total comprises all shipments by establishments classified in the specified industry, including their shipments of product classes primary to other industries but excluding shipments by establishments in other industries of product classes primary to the specified industry.

The value of shipments shown for a class of products is not necessarily equal to the total production of that class of products during the year. In addition to net inventory changes, a difference between production and shipments may result from the integrated operations of manufacturing plants. Some commodities, instead of being shipped, are used for further manufacture in the plants producing them. Data for such intermediate production at the same establishment are usually not reflected in the totals for a particular product class. For example, a plant that is engaged in such integrated operations as (1) producing cotton yarn, (2) weaving the yarn into fabrics, and (3) producing and shipping apparel, would report the value of shipments of apparel but would not report separately the value of the yarn or fabrics going into the production of such apparel.

The number of product classes for which data are shown has been increased considerably over that shown in earlier Annual Surveys. Quantity figures are also shown in a separate table for approximately 65 product classes. It should be noted that the Bureau's current commodity surveys provide more complete information on some products. Part II of this volume presents a summary of

all commodity data collected in the Current Industrial Reports Series. A more detailed discussion of this series is given in the introductory text preceding Part II.

8. DUPLICATION IN COST OF MATERIALS AND VALUE OF PRODUCTS

The aggregate of the cost of materials and value of shipments figures for industry groups and for all manufacturing industries includes large amounts of duplication since the products of some industries are used as materials by others. With some important exceptions, such as motor vehicles and parts, this duplication is not significant within individual industries but arises from the addition of related industries representing successive stages in the production of a finished manufactured product. Examples are the addition of flour mills to bakeries in the food group and the addition of pulp mills to paper mills in the paper and allied products group of industries. Estimates of the overall extent of this duplication indicate that the value of manufactured products exclusive of such duplication--the value of finished manufactures--tends to approximate two-thirds of the total value of products reported in the Annual Survey.

In the past, the Bureau of the Census has not published figures for cost of materials or value of shipments if they contained significant duplication, even if they could be derived at the industry group level by adding the 4-digit industry detail. Effective with the 1962 Annual Survey, these figures were shown at all industry levels for the United States to meet the requests for their use in studies in which the presence of an indeterminate amount of duplication is not a limiting factor. However, they are appropriately footnoted. Effective with the 1964 Annual Survey, these industry group totals are also shown at the State, standard metropolitan statistical area and large county level.

Even where no significant amount of duplication is involved, value of shipments figures are deficient as measures of the relative economic importance of individual manufacturing industries or geographic areas because of the wide variation in ratio of materials, labor, and other processing costs to value of shipments, both among industries and within the same industry.

9. VALUE ADDED BY MANUFACTURE

This measure of manufacturing activity is derived by subtracting the cost of materials, supplies, containers, fuels, purchased electricity, and contract work from the value of shipments for products manufactured plus receipts for services rendered. The result of this calculation is then adjusted by the addition of value added by merchandising operations (that is the difference between the sales value and cost of merchandise sold without further manufacture, processing, or assembly) plus the net change in finished goods and work-in-process inventories between the beginning and end of the year.

Value added avoids the duplication in the value of shipments figures which results from the use of products of some establishments as materials by others. Consequently, it is considered to be the best value measure available for comparing the relative economic importance of manufacturing among industries and geographic areas.

Value added by manufacture should not be confused with either gross national product or national income originating in manufacturing as presented in national income statistics compiled by the Office of Business Economics (OBE), Department of Commerce. The national income originating in manufacturing is the sum of the factor cost of production (employee compensation, corporate profits, etc.). The gross national product originating in manufacturing is the sum of factor costs as included in national income plus nonfactor costs (indirect business tax, depreciation, etc). Gross national product may also be measured as the total value of an industry's output less the cost of purchased materials and business services used in production. On the other hand, Census Bureau value added by manufacture for an industry consists essentially of the total value of its output less its cost of purchased materials. It, therefore, includes costs of purchased business services. Hence, each OBE

measure is a more "net" concept of value added than that used in the census or Annual Survey of Manufactures.

The gross national product originating estimates are closely related to the establishment-based estimates of value added by manufacture. However, the national income originating estimates are prepared from company rather than establishment data. This results in the inclusion of some part of the net value added by nonmanufacturing establishments of companies classified as being primarily manufacturing and, conversely, in the exclusion of some part of the net value added by manufacturing establishments of companies classified as primarily nonmanufacturing. It is believed that for manufacturing as a whole the net effect increases income originating. (In fact, in the Petroleum and Coal Products major industry group, nonmanufacturing activities of manufacturing companies are so significant that this is the one major industry group in which OBE "national income originating" exceeds "value added by manufacture" compiled by the Bureau of the Census.)

The figures below comparing gross national product, national income, and value added originating in manufacturing should be reviewed in light of these comments.