BLS Daily Report

[Richardson_D <Richardson_D@xxxxxxx>]

BUREAU OF LABOR STATISTICS, DAILY REPORT, THURSDAY, JANUARY 27, 2001:

In 1997, a commission appointed by the Senate Finance Commission concluded
that the annual Consumer Price Index computed by the Bureau of Labor
Statistics was probably 1.1 percent too high, and perhaps even more.  The
Boskin Commission's findings, named after its chairman, Michael Boskin, a
Stanford economist who served as President George Bush's chief economic
adviser, made headlines in the financial news media and many took its
conclusions as gospel, writes Jeff Medrick in "Economic Scene" of The New
York Times (page C2). "But perhaps they shouldn't have," contends Medrick.
A new comprehensive study sponsored by the National Academy of Sciences and
partly commissioned by the Bureau of Labor Statistics raises serious
questions about just how much the Boskin Commission or anyone else knows
about the true rate of inflation.  The study, undertaken by a panel of 13
economists from a wide variety of institutions and led by Charles Schultze
of the Brookings Institution restores one's faith in cool-headed economic
analysis and measured use of economic theory.  "It is the report that the
Boskin Commission should have done," says Joel Popkin, a Washington economic
consultant. The main contention of the Boskin report was that the Labor
Department's statistical experts did not fully take into account the
improved quality of many products.  Jack Triplett, a former BLS economist
now with Brookings, says the Boskin Commission analysts of quality increases
for cars was simply misinformed.  Two government economists, Brent Moulton
and Karen Moses, seriously criticize the work on housing and medical care.
One of the striking oversights of the Buskin report, I believe, was that it
paid almost no attention to areas in which product quality deteriorated,
like airline service and education.  The most important contribution of the
panel, however, was to clarify the central assumptions about the uses of the
CPI and other price indexes. But in the early 1960s, a government commission
urged BLS to adopt the concept that the index should reflect the cost of
maintaining a given "standard of living".  Thus, if products improve, the
standard of living improves, or it costs less to maintain the old standard
of living.  The Schultze panel therefore recommends a conditional cost of
living index that is relatively unambiguous, including quality adjustments
but deliberately leaving out issues like congestion, environmental
degradation and consumer expectations.  The panel makes no precise estimate
of whether the CPI overstates or understates the true rate of inflation.
But given the questions the panel raises about the commission's central
assumptions and its analysis of specific product areas, the claim that the
CPI has been and may remain seriously overstated is not nearly as clear cut
as many economists have assumed.

The Consumer Price Index, the main gauge of inflation and a bedrock
statistics of the Federal Government, announced each month by the Bureau of
Labor Statistics, is a surprisingly frail number, says Jolie Solomon,
writing in The New York Times of December 23, page 4 of the "Money &
Business" section. The calculations behind it are as much art as they are
science. But that has begun to change. Starting next month, the Bureau of
Labor Statistics will use some of the freshest data it has ever collected.
It will readjust the weight of importance of goods and services in the index
market basket, and the stores were they are sampled, far more often than it
did in the past.  Whether these changes will change the official inflation
rate significantly is unclear.  But it is hard to underestimate the
potential impact.  The CPI is not just a measure of living costs, it is used
to help determine the size of social security checks, veterans benefits, and
other federal payments to about 80 million people.  It affects how the
Federal Reserve sets interest rates and how the Internal Revenue Service
adjusts tax brackets.  It can even change the size of alimony checks.  The
changes are meant to better reflect consumer behavior and, in turn, to give
policy makers, businesses, and consumers a better tool to gauge how social
and technological changes affect inflation.  Two income households, for
example, mean more spending on takeout food and day care  New attitudes
toward health may mean less spending on cigarettes and soft drinks.  The
shift toward work outside the office means more purchases of products like
laptop computers and pagers.  The rapid growth of grocery warehouses means
that consumers are buying more food in bulk and at lower prices. In the
past, such trends took years to affect the index because the bureau's market
basket was based on consumer buying patterns surveyed 5, 10, or even more
years earlier.  The current index, for example, is based on consumer
behavior in 1993-95.  When the bureau releases its January report on the
index it will use new "relative weights" for products and services based on
consumer choices in 1999 and 2000. Taken together, the changes should make
the index more timely.  Patrick C/ Jackman, a bureau economist who is
considered its top authority on the index, offered one example:  Viagra, the
male impotence drug introduced in 1998, was moved into the index in 2000.
Starting next year, the bureau will measure experimentally a more subtle
variable: what happens when consumers buy one product instead of another
that has risen in price.  The bureau began accounting for substitution in a
rudimentary way in 1999.  This might mean switching from Golden Delicious to
Granny Smith apples.  As an experiment, in 2002, the bureau will do this
kind of calculation across categories -- measuring what happens when a
shopper buys chicken, for example, because the price of lamb has increased.

The United States is on pace to record more job losses in 2001 than it has
in at least 9 years, the job placement firm Challenger, Gray & Christmas
said.  Since the terrorist attacks on September 11, U.S. companies have
announced 624,411 cuts, more than the 12-month totals for every year from
1993 to 1997, the placement firm said.  Through the end of November,
companies had announced close to 1.8 million job cuts in 2001, nearly 3
times as many as were announced in 2000, and the largest number since
Challenger began tabulating figures in 1993 (The Washington Post, page E2;
http://www.nandotimes.com/business/story/202867p-1970267c.html)..

Retailers slashed prices as much as 75 percent off goods that were passed
over earlier in what is expected to be the worse holiday sales season in 16
years.  Shoppers reduced their spending because of the recession, leaving
stores with as much as 20 percent more inventory at the end of this month
than a year ago, said Britt Beemer, chairman of America's Research Group, a
retail consulting firm. Chains may sacrifice profits this quarter with
discounts on old goods to make room for new ones they can try to sell at
full price.  The clearance markdowns will reduce fourth-quarter profit
margins analysts say (Associated Press, The Washington Post, page E3).

The weighted average first-year wage increase in newly negotiated labor
contracts was 4.2 percent in the year 2001, compared with 3.8 percent in
2000, according to data compiled by the Bureau of National Affairs in 2001.
The median first-year wage increase for these settlements was 3.5 percent,
compared with 3.4 percent the prior year.  The manufacturing industry
weighted average increase was 3.1 percent, compared with 3.2 percent, while
nonmanufacturing contracts, excluding construction agreements, showed a
weighted average gain of 4.3 percent in 2001, compared with 4 percent in
2000 (Daily Labor Report, pages D-1, D-2).

While private-sector technology spending sinks, federal spending on
information technology is budgeted to increase by $1.3 billion in this
fiscal year to $46.3 billion, according to Federal Sources, Inc., a McLean,
Va. research firm.  And that was before the September terrorist attacks.
The Government Electronics and Information Technology Association predicts
that federal spending on information technology will jump 15 percent this
year, growing from $42.7 billion in fiscal 2001 to $49 billion in 2002 and
reaching $65 billion in fiscal 2007.  Federal Sources estimates that between
$750 million and $1 billion of the $40 billion requested by President Bush
for emergency spending related to the attacks will go to information
technology. State and local governments are also clamoring to create their
own homeland security programs (The Washington Post, page E1).

The bulk of those without health insurance are working adults who aren't old
enough for Medicare.  About 75 percent of the Americans between 18 and 65
who didn't have health insurance during 2000 worked during the year,
according to the page 1 feature "Capital" by David Wessel in The Wall Street
Journal. In 2000, 14 percent of all Americans went the whole year without
health insurance, according to Census Bureau data.

Employees in the United States have fewer vacation days than employees in
most other countries, according to a page D1 graph in USA Today.  The United
States has only 13 vacation days, while Italy has 42, France 37, Germany 35,
Brazil 34, United Kingdom 28, Canada 26, and Korea and Japan 25.  Source of
the data is given as AAA World and World Trade Organization.

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