An Important Improvement in the Consumer Price Index

The Consumer Price Index (CPI) has measured price change in the U.S. economy for more than 100 years.

The index measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is one of the most widely used measures of inflation. Policymakers, government leaders, business executives, and others use the index as a guide in making and evaluating economic decisions.

As you might imagine, producing the CPI is a large and complex monthly undertaking that is subject to constant, careful review. We occasionally make minor changes to our process that are narrow in scope. However, we do not introduce any major changes without undertaking years of rigorous research and testing and informing stakeholders at each step of the process.

To underscore that point, we launched the first major improvement to the existing system in more than 25 years in February!

The new CPI estimation system changes are pretty technical. In short, the state-of-the-art processes we implemented give us key new flexibilities and efficiencies in how we calculate and measure price changes in the economy. It’s important to note the methodology underlying production of the CPI has not changed and the new system is not designed to produce a higher or lower estimate of price change.

As part of the redesign, we also eliminated paper completely in all review steps of producing the CPI. That’s not only good for the environment but also improves automation and accuracy in our work processes.

I’ve challenged my staff to get the best we can for the nation’s data dollar and to continually adapt our programs to meet the challenges of a changing economy. The redesigned CPI estimation system is a huge step toward those goals and provides us with the opportunity for more research and faster innovations in the future.

Measuring inflation is complicated but vitally important to support public and private decision making. Launching this estimation system was a huge undertaking, and I applaud the staff here at BLS who worked incredibly hard to make it a success.

Why This Counts: Tracking Labor Market Experience over a Lifetime

The U.S. Bureau of Labor Statistics is best known for our monthly job and inflation reports. We also publish data on many other topics, ranging from how Americans spend their time and money to workplace injuries and the growth of entrepreneurship. My blog series, “Why This Counts,” explains why we conduct our surveys and how people can use the data at work and home. I hope this series will take the mystery out of our data and make our work come to life for both new and advanced users.

Today I want to tell you about a fascinating group of surveys called the National Longitudinal Surveys. It’s especially timely to talk about these surveys for two reasons: 1) we published a news release this week with the latest data from one of the surveys, and 2) the program is one of the important legacies of former BLS Commissioner Janet Norwood, who passed away recently.

The National Longitudinal Surveys stand out because they are designed to answer key long-term questions about people’s paths through life. Most of our measures about the labor market and economy focus on current conditions. What’s the national unemployment rate? How rapidly is employment growing in California or North Dakota or Georgia? How many job openings are there in manufacturing? What are the trends in consumer prices for food, energy, clothing, and shelter? It’s important to have up-to-date answers for these and other economic questions. But some questions take longer to answer—years or even decades.

Some long-term questions we care about include: How many jobs do people hold over their lifetimes? How do earnings grow at different stages of workers’ careers? The surveys designed to answer these and other long-term questions are called “longitudinal” surveys. What’s that mean?

A longitudinal survey asks questions about the same people at different points in their lives. Longitudinal surveys are useful for studying changes that occur over long periods. These surveys are also useful for examining cause-and-effect relationships. For example, how do events that happened when a person was in high school affect labor market success as an adult? This week we published a new report that looks at the experiences of baby boomers from age 18 to age 48.

The survey follows a set of people born in the latter years of the post-World War II baby boom, 1957 to 1964, and living in the United States when the survey began in 1979. To answer my earlier questions—using just-released data—these baby boomers held an average of 11.7 jobs from age 18 to age 48. Their inflation-adjusted hourly earnings grew the most during their late teens and early twenties, and earnings generally grew faster for college graduates than for people with less education.

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The survey doesn’t just ask about labor market activity. It also asks about education, training, health, marriages and other relationships, children, use of government programs, juvenile crimes and arrests, drug and alcohol use, and much more. Why do we ask about these topics, some of which are pretty sensitive? In short, we’re trying to understand all the things that affect or are affected by labor market activity. That covers nearly every part of our lives.

Before this survey of baby boomers began in 1979, four other longitudinal surveys began in the 1960s of earlier generations. BLS began another survey in 1997 that represents people born in the years 1980 to 1984 and living in the United States at the start of the survey. We only still conduct the surveys of the two more recent generations, but we have learned so much from all the surveys. These surveys are some of the most analyzed in the social sciences. Researchers in economics, sociology, psychology, education, and health sciences have used the surveys to examine a broad range of topics. Here are just a few examples of what researchers have learned from the surveys:

  • Nobel Prize winner James Heckman and his colleagues found that noncognitive skills, such as motivation and perseverance, are as important to future labor market success as are skills such as reading and math.
  • People who obtain a GED or other exam-certified high school equivalent have labor market outcomes that are similar to those of high school dropouts, rather than to people who earn a regular high school diploma.
  • The labor market effects of a 4-year college degree are similar for those who start at a 4-year college and those who transfer from a 2-year college to a 4-year college.
  • Obesity is not only a health concern, but a labor market concern. Workers pay a price for obesity with lower wages and employment, and this price is higher for women than men.
  • Low birth weight is a better predictor than cognitive test scores of whether people either work or attend school at ages 24 to 27. Birth weight also is a better predictor of adult wages.

You can find information about thousands of other research studies in the National Longitudinal Surveys bibliography.

Although we learn a lot each time we update our monthly and quarterly data on employment, compensation, prices, and productivity, there is so much we could not learn without these longitudinal surveys.

This is all possible thanks to Janet Norwood—and to the people who have agreed to participate in the surveys for so long—so that we can understand people’s paths over time!

Statement by BLS Commissioner Erica L. Groshen on the Passing of Former Commissioner Janet Norwood

NorwoodJanet Norwood was an icon here at BLS, and my colleagues and I are all deeply saddened by her passing.

Janet’s 28-year career at BLS was capped by serving as BLS Commissioner for 12 years, spanning three Presidential administrations. During her tenure, she rightly earned a reputation for integrity, professionalism, and impartiality.

She set the standard for BLS Commissioners for generations to come, and these attributes are ones that BLS leaders today strive to emulate. I know Janet will continue to inspire all who follow in her footsteps here at BLS.

Janet successfully ushered BLS through a time of tremendous change and modernization. As a consequence of her visionary leadership, the agency emerged as a model workplace. We are stronger and more dynamic, and the statistics we produce rose to new heights of prominence as a result of her efforts.

Her legacy lives on here in the halls of BLS—and on our website—where the tangible results of her many accomplishments can still be seen.‎ Simply put, all U.S. policymakers, businesses, and families‎ can make better decisions every day because of Janet Norwood’s work at BLS.

Whether we work in our regional field offices or our headquarters in Washington, we all owe Janet a debt of gratitude for her unflinching leadership and service to this agency and the nation. My thoughts and prayers are with her family during this difficult time.

You can learn more about Commissioner Norwood’s life and career in these obituaries.

The New York Times

The Washington Post

C-SPAN program features BLS union membership data

Mike Horrigan, the BLS Associate Commissioner for Employment and Unemployment Statistics, appeared on the “America by the Numbers” segment of C-SPAN’s Washington Journal program on Friday, March 27. Dr. Horrigan spoke about data on union membership.

Watch the video: C-SPAN Washington Journal (March 27, 2015)

Why This Counts: Medical Care Services in the CPI

The U.S. Bureau of Labor Statistics is best known for our monthly job and inflation reports. We also publish data on many other topics, ranging from how Americans spend their time and money to workplace injuries and the growth of entrepreneurship. My new blog series, “Why This Counts,” will explain why we conduct our surveys and how people can use the data at work and home. I hope this series will take the mystery out of our data and make our work come to life for both new and advanced users.

In Tuesday’s Consumer Price Index release, one interesting item caught my eye. The seasonally adjusted index for medical care services declined 0.2 percent in February 2015, its first decline since November 1975. That’s a long time ago—I was still in college then! Historically, the medical care services index has tended to increase more sharply than the overall price level.

This seems like the perfect time to define “medical care services” in more detail and explain why we measure this index.

First, the basics. The Consumer Price Index (CPI) measures the average change over time in prices paid by consumers for a market basket of goods and services. The CPI affects nearly all Americans because of the many ways it is used, from making changes in the federal income tax structure to cost-of-living wage adjustments for millions of American workers.

One important part of the CPI market basket (that is, the set of goods and services we price for the CPI) is medical care. Reflecting actual spending patterns, medical care now accounts for about 8 percent of the market basket for the CPI for all urban consumers (CPI-U). We call this share of the market basket its “relative importance,” and we use these shares to weight price changes as we calculate the average price change. Medical care in the CPI is broken down into medical care commodities (mostly prescription and nonprescription drugs) and medical care services.

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Medical care services is the larger of the two components, representing over three-fourths of the medical care weight and about 6 percent of the entire CPI market basket.

Exactly what does the CPI price in medical care services? The largest components are hospital services and physicians’ services. Also included are dental services, services by other medical professionals, eyeglasses and eye care, and nursing homes.

In other words, the medical care services index in the CPI reflects the cost to consumers not only of trips to the doctor’s office or to the hospital, but also of trips to the dentist, psychologist, or chiropractor, or even buying a new pair of glasses or staying in a nursing home.

Not surprisingly, medical care has a long history in the CPI, although the composition of the index has changed over time. In the 1930s, when medical care represented only about half the weight it does now, the medical care part of the CPI included specific entries like castor oil, tonsillectomies and, quaintly, “house visits” by doctors.

Like other CPI data, prices for medical care services are collected monthly in a sample of metropolitan areas across the country. Of course, collecting medical care prices isn’t as simple a matter as collecting prices for some other goods in the CPI, such as bananas or gasoline.

Collecting these medical care prices allows us to accurately track medical care spending patterns.

What should we make of this month’s decline in the medical care services index? My staff often says that “one month does not make a trend.” Nevertheless, even with the recent slowdown in the pace of medical care services inflation this number is clearly unusual. So, we need to keep watching over the coming months to see if this is the start of a new trend or a one-time occurrence.