1. Restating the normative values which form the basis of much of the budget into current terms and then pricing and updating the cost of these values on the basis of a specification pricing program conducted in conjunction with the CPI. This approach would be comparable to the basic program formulation initiated in 1946 and updated in 1959 and in 1966. It suffers from all of the deficiencies noted in Appendix 4 to The Measure of Poverty, primarily that there are no objective criteria to guide BLS in determining what items must be purchased by a family in order to enjoy a stated living standard which in turn is also subjectively determined, except that the data base would be current and would be maintained on a current basis.

2. Basing the series on actual expenditure patterns at various income levels developed through the most recent Consumers' Expenditure Survey (CES) and updating the results through data collected in the proposed continuing CES. This approach would eliminate all normative judgments. It would suffer, as does the current approach, in not appropriately providing for place-to-place comparisons of the cost of maintaining the "same" purchasing patterns. This is a necessary concomitant of developing budgets based on actual expenditures since the expenditure patterns in different areas reflect regional differences in clothing and housing requirements and in food and recreation among other expenditure elements. Also, different purchasing patterns may result either because of preference or because some items freely available in one place may be either unavailable or available only at a high price in other areas. Thus, budgets for different places based on actual expenditure patterns in each place may not reflect the relative difference in cost of an identical or comparable living standard in the various places.

The Family Budget Subcommittee and the Statistical Policy Coordination Committee should provide guidance to BLS as to the appropriate changes that should be made in the family budget program so as to achieve the purpose(s) for which the program is used.

International Price Index Program

It is expected that data from this program will be used, among other purposes, to deflate the value of all exports and imports in the gross national product accounts as soon as sufficient information for that

purpose is available. This data will provide for more accurate deflation than is possible using the unit value indexes previously employed for this purpose. Resources currently available to the program will provide for the coverage of about 50% of the value of all imports and 65% of the value of all U.S. exports of products. The international price index program should be expanded to cover 100% of the value of imports and exports. The completion of this program, conducted by BLS on the basis of a sample of transactions from export declarations and import records held by the U.S. Customs Service, could permit the discontinuance of the unit value indexes compiled by the Census Bureau. However, only a few countries have a pricing system for exports and imports other than unit values. Accordingly, the need for unit value indexes may continue after the international price program has been completed.

Producer Price Program

The producer price program has three major elements: the Producer Price Index, formerly called the Wholesale Price Indexe (WPI), the stage of processing indexes, and the industry sector price indexes (ISPI). These series suffer from several conceptual, statistical, and operational inadequacies:

1. The PPI data are used as precursors of change in the CPI. This is without regard to the fact that the data are not designed to be used for this purpose. Some price indexes necessary to better understanding of the price mechanism are missing entirely: e.g., input materials indexes, final demand indexes, and industrybased stage of processing indexes;

2. The PPI is based on a hodgepodge of prices to different sectors-some of which are final demand sectors, and some of which are not. Further, the aggregation structure by total shipments in the PPI's leads to multiple counting of price changes;

3. Many major industry sectors are either unpriced or have poor coverage: ISPI's are available for only about one-fourth of the four-digit manufacturing and mining industries; PPI's are available for less than half of the total value of shipments in agriculture, manufacturing and mining; and almost nothing is priced in the service or construction sectors;

4. Prices collected are heterogeneous in nature— some are spot market prices, some contract prices, others are based on prices of delivered

orders, list prices, nominal or trade journal prices;

5. Sampling is judgmental and many items are priced on the basis of very few quotes. Probability sampling (with expanded samples) would provide measures of reliability. Although not all bias can be removed, it is likely that probability sampling will reduce it. Because of these limitations, gaps exist in our knowledge about both specific price movements and the total structure of price relationships. In addition, the current data may be misleading, but the degree of misrepresentation, if any, cannot be assessed.

To correct these deficiencies the producer price program should be improved using the recommendations in the Ruggles' report for the Council on Wage and Price Stability. To this end, the Bureau of Labor Statistics has launched a comprehensive program to revise the producer price program and its components and provide accurate measures of price change for the major sectors of the American economy. To achieve this objective, the revised program will provide a complete system of price measures consisting of the following major elements:

1. Output price indexes for all major industrial sectors;

2. Detailed commodity indexes and service indexes covering both primary and secondary production;

3. Stage-of-processing indexes which accurately reflect processing flows in the economy;

4. Input materials price indexes for all major industry sectors; and

5. Final demand price indexes of major industry

sectors.

The indexes will be based on a statistical sample of establishments within four-digit SIC's and within each establishment on a probability selection of commodities or services with each sample being stratified by size of firm and sales volume. The data obtained after initial selection should be specification priced and should permit the completion of the types of indexes noted earlier. (This type of approach seems to be consonant with the recommendations contained in the 1977 study, "Review and Evaluation of the Wholesale Price Index" conducted by Professor Richard Ruggles under the auspices of the National Bureau of Economic Research for the Council on Wage and Price Stability. The BLS approach to the revision of this program is comparable to virtually all of the other suggestions in the Ruggles report.)

The procedure can be carried out by BLS on the basis of the establishment universe material currently in its possession. This revision, which is now being phased in, is expected to continue for many years. When the revision is completed the data are expected to be significantly more complete, accurate, and useful than the present data. Nevertheless, the availability of sales volume data, as would be available if the Standard Statistical Establishment List information were available to BLS, would enhance the sample procedure by allowing for direct stratification of establishments on the basis of volume instead of employment (as in the BLS universe material) as a proxy for volume (see related chapter on standards development). It is believed that this approach would produce statistically reliable data in considerably more detail which can be aggregated in more meaningful ways than is now the case. However, the extent to which the availability of the Standard Statistical Establishment List would enhance the BLS effort is, in fact, not known, and furthermore there appears to be little question that the BLS approach will produce statistically reliable data in considerably more detail and aggregated in more meaningful ways than is now the case.

While the comprehensive revision being implemented will provide for a vast improvement in the quality of price data now available, there are some difficult data problems which would still remain. For example, price indexes do not now include "build-to-order" commodities such as commercial aircraft, ships, and some computers. The very nature of a build-to order commodity introduces severe technical questions of measurement and quality adjustment. Efforts toward developing a conceptual framework for the pricing of such commodities should continue.

Tuesday Spot Market Price Index

This index which shows changes in prices for 23 commodities is not based on direct transactions data, but rather on reports of prices as reported through trade and government sources. Moreover, spot prices reflect only the price that a seller in a spot market is willing to accept at that moment, and does not reflect actual transactions. Spot prices, moreover, do not generally reflect total transactions prices in the regular course of commercial events. The items priced, however, are considered to be highly price sensitive. Presently the Bureau of Economic Analysis uses data from this Index in developing preliminary estimates for the current month in several Business

'See separate chapter.

Conditions Digest series. However, the producer price program when revised will provide reliable monthly data for all or many of the commodities included in the Tuesday Spot Market Index. When those data are

available the long-term value of this measure to the Federal Government and its relative importance in terms of all other statistical program priorities should be reassessed.

Introduction

The production and distribution of goods and services is the most basic economic fact of life, ever since man first bartered one product for another. Although the measurement of production did not start until much later (probably with a flour miller making marks on the wall), statistics of production and distribution have been kept for centuries.

Early statistics were probably limited to a count of products made and sold and the number of persons employed. These two statistics are still the main measures of production and distribution today. The complexity of today's marketplace has meant that each and every different product cannot be counted separately, and dollar values are now used more and more to measure the production of a group of similar products.

Production, for purposes of this section, means those goods which are produced or those services which are performed by labor and capital resources and managerial skills and enter directly or indirectly (through intracompany sales or consumption in the same plant) into commercial trade. Distribution means the offering of goods or services at a specific time and place, in a particular quantity or amount by companies with wholesale or retail trade or transportation activities.

Many aspects of production and distribution are of special importance or of current interest. They are covered separately in the chapters on agricultural commodities, construction, transportation, energy, health, and education.

The areas that are the subject of this chapter are mining and manufacturing, wholesale and retail trade (including international trade in these commodities), communication and public utilities, finance, insurance, real estate, services including repair, and public administration.

The agencies collecting production and distribution data are the Bureau of the Census, Bureau of Mines, Interstate Commerce Commission, U.S. International Trade Commission, Social Security Administration, Department of Trans

portation, Federal Trade Commission, Corps of Engineers, Department of Energy, Federal Reserve Board, Small Business Administration, U.S. Forest Service, and many others.

Users of Production and Distribution
Statistics

Production and distribution statistics are used by almost every organization-public, private, national, international, state, or local-concerned with the economy of the United States as well as many organizations concerned with the social aspects of the nation. They are used in projections and analytic studies of capital, energy, labor, and civil defense requirements; defense mobilization; pollution control; international trade agreements; taxation; small business definition and evaluation; macroeconomic projections; production bottlenecks; antitrust actions; and input-output, industrialoccupational, and import-export models. In most cases the information is used directly, but in many others the use is through the Gross National Product (GNP), Industrial Production Index, or the Wholesale Price Index. In some series, these statistics are not used directly, but are needed to complete the measures of the economy at a higher level of aggregation.

Basic Source Program

Collectively, the quinquennial economic census is the largest Federal program of production and distribution statistics. In addition to this census, various Census Bureau monthly, quarterly, annual, or occasional programs fill in the data needs where more frequent data are required. Most of these intermediate series are benchmarked to annual and/or quinquennial series.

The quinquennial censuses provide the basic statistical profile of the Nation's businesses. Included in these censuses are the censuses of agriculture, mineral industries, construction, manufactures, wholesale trade, retail trade, services and governments; the census of transportation collects

shipments data from shippers rather than the transportation industry. This program includes the material needed to tie together most of the overall measures of the economy. The Census Bureau collects data on labor and capital input to industry with survey items on employees, wages, and capital expenditures for the above industries. In some of the censuses the consumption of raw materials, water, energy, and supplies; the production of goods and services; as well as inventories of and orders for goods is measured. The Census Bureau also collects information on the sales of these goods to ultimate consumers. It provides the profile of how, what, and where these goods and services flow through the economy. The input-output table (described in the chapter on national accounts) is based in very large part on the economic censuses.

These measures of the basic economy, combined with profits, social insurance and other transfer payments (described in other chapters), and imports and exports show a relatively complete picture of the supply and demand and flows of the economy. The economic censuses also provide benchmarks or weights for many measures of the economy tabulated by other agencies.

In addition to providing basic overall measures of the economy, the economic censuses provide a separate profile of each industry. The Census Bureau tabulations show geographic dispersion, concentration, and the scale of the operation for all manufacturing industries and some of these measures for most of the nonmanufacturing industries.

The retail sales figures are an important measure of the basic strength of the economy and consumer confidence and are a major input to the GNP estimates. These weekly and monthly series of sales by various groupings of stores are a major indicator of demand in the rest of the economy.

Inventory data are collected monthly from manufacturers, wholesalers, and retailers. They are key economic indicators (particularly when combined with sales figures) and are essential data items for the GNP estimates. Inventories are difficult to measure because of the absence or inadequacy of company records of stocks, differences in valuation methods, determination of the ownership of inventories to avoid missing or double coverage of goods on consignment or returned or goods received but not invoiced or paid, inconsistent reporting between shipments and inventories in the manufacture of military hardware, and "in transit" considerations. New orders and backlogs of orders are also collected in many sectors of manufacturing on a monthly basis.

In the manufacturing area, a series of Current Industrial Reports provide intercensal figures on the production of about half of the 11,000 different commodities collected in the census of manufactures. These reports are monthly, quarterly, or annual depending on the frequency of the need for such data. The Current Industrial Reports series provide data for industrial mobilization needs, basic data for evaluation of the impact of imports on U. S. industry, basic production data for the Industrial Production Index, international trade negotiations, as well as data to measure the labor productivity of the nation.

The enterprise statistics program of the Bureau of the Census is a basic source of data to analyze the interrelationship of corporations across industries as well as the relationships to other corporations, subsidiaries, joint ventures, and so forth.

The Bureau of Mines collects annual and some monthly production, inventory, consumption and foreign trade data on most minerals. They use data on world totals to evaluate future world production and trade. They also are concerned with competing items such as scrap, and further processed goods such as refined petroleum products and cement. Some reconciliation is made with the censuses of manufactures and mineral industries data, but additional work is necessary to reconcile the definitions and concepts. These data serve similar purposes for mining as the Current Industrial Reports mentioned previously serve for manufacturing. They also are an important measure of energy production (see chapter on energy statistics).

The Interstate Commerce Commission collects data on the movement of broad classes of commodities (see the chapter on transportation for additional comment) as well as statistics on the number and types of equipment in use. Similar data are collected by agencies with responsiblities for air and water carriers. The Department of Transportation sponsors the collection and publication by the Census Bureau and State governments of urban origindestination data. Other Federal agencies including the Civil Aeronautics Board, Department of Agriculture, Bureau of Mines, and Corps of Engineers also collect data on the movement of goods.

The U.S. International Trade Commission collects detailed production and external trade data on synthetic organic and related chemicals on a continuing basis and many other commodities on an as needed basis. This collection is for the analysis of goods to recommend possible changes in the tariff rates or quotas. Other agencies, including the Census Bureau, Agriculture, and Environmental Protection