BLS Increases Coverage for Producer Price Index: Adds Construction Services

Economic Pulse
February 19, 2014
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The release of today’s Producer Price Indexes (PPI) represents the first methodological change in the series since 1978. Whereas the “old” index reflected the cost of goods at the producer level, the “new” index will reflect not only the cost of goods but also services, government purchases, exports and construction, and more than doubles the PPI coverage of the U.S. economy to over 75% of domestic production. While the Consumer Price Index (CPI) measures price changes from the purchaser’s perspective and is available on a regional basis, the PPI measures average changes in prices received by producers nationally (Chart 1), and now covers a much broader array of services.

Several index aggregates were formally released with today’s publication and now include the impact of construction. Construction at the final demand level includes construction for private capital investment and government, while construction at the intermediate demand level includes construction and repair work sold to businesses.

  • Within the “final demand for construction” category, five sub-indexes reflect the cost of new construction for 1) new warehouses, 2) new schools, 3) new offices, 4) new industrial buildings, and 5) new health care buildings. In addition, the overall final demand index includes sub-indexes such as “commercial furniture”and “office equipment” that office-users may find relevant.
  • Within “services for intermediate demand,” sub-indexes include non-residential real estate rents by property type, non-residential property sales and leases and janitorial services, while the overall “construction for intermediate demand” index includes largely reflects “maintenance and repair of non-residential buildings. Chart 2 shows an example of price changes from two commercial real estate-related series: new office building construction and maintenance and repair of non-residential buildings.