Topic Archives: Consumer Spending

Ice Cream versus Bacon

Editor’s note: The following has been cross-posted from the U.S. Department of Labor blog. The writer is Steve Henderson. When not relaxing with a bowl of ice cream, Steve is a supervisory economist at the U.S. Bureau of Labor Statistics. He’s spent half of his government career working on the Consumer Price Index and half on the Consumer Expenditure Survey.

How much did you spend on ice cream last year? According to the BLS Consumer Expenditure Survey, the average U.S. household spent around $54. But why does BLS need to know that?

Let’s take a deep dive into that ice cream. That’s just one of thousands of data we collect to calculate the Consumer Price Index, a monthly assessment of price changes for goods and services in the United States. The CPI has separate inflation indexes for just about everything people purchase. For example, the CPI has an index for “Bacon and related products,” and lots of other itemized food categories, including “Ice cream and related products.”

(Curious about what else we measure? Here’s the CPI’s online table generator tool. You can drill down to the most detailed CPI categories in step 2. Note: You’ll need to enable Java to see the chart.)

Why so many indexes? The CPI needs to carefully track how the prices of food, and just about everything else, change because not every item’s price goes up or down at the same rate. For example, bacon has increased in price almost 32 percent over the past 10 years, while ice cream went up 21 percent over the same time period.

A graphic showing trends in ice cream prices and bacon prices from 2007 to 2017.

Looking at how prices have moved over the last year, bacon is slightly less expensive than it was in January 2016, while the price of ice cream has gone up slightly. This information is helpful for families looking to see where their food budget money went, as well as researchers investigating changing food prices and other indicators of inflation.

Most importantly, the CPI needs to know how much the average U.S. household spends on both of those two food items in order to measure the impact different inflation rates have on total inflation. If everybody spent the same number of dollars on ice cream as they do on bacon, then you could just use a simple average of the two inflation rates to get a total. Here is where BLS’s Consumer Expenditure Survey comes in. It measures, in great detail, all the different goods and services consumers purchase in a year, and passes these numbers to the CPI to form a “market basket” — that is, a list of everything people buy and what percentage of their total spending goes to each item.

The latest spending numbers showed that the average dollar amount per year that all U.S. households spent on ice cream was $54.04, while the average amount on bacon was $39.07. That means that ice cream has a greater importance than bacon when tracking inflation, not only in the Henderson household, but in the CPI. In other words, the more people spend on an item, the more inflationary changes to its cost will affect the total inflation rate.

Policymakers, researchers, journalists, government bodies, and others use the CPI to make important decisions that directly affect American citizens. U.S. Census Bureau analysts use CPI data to adjust the official poverty thresholds for inflation, and it’s one of several factors the Federal Reserve Board considers when deciding whether to raise or lower interest rates. Employers may use it to determine whether to give cost-of-living increases, and policymakers use the CPI when considering changes to allotments for things like Social Security, military benefits, or school lunch programs.

I hope this deep dive into ice cream spending helps you understand why the Consumer Expenditure Survey is so detailed.

Prestigious Award for BLS and U.S. Census Bureau Researchers

There are so many things I love about being Commissioner of Labor Statistics. The part of the job I enjoy the most is working every day with so many talented, dedicated, hard-working people. I am especially pleased when BLS staff members receive recognition for their good work. We recently celebrated one of those occasions.

Thesia Garner and Kathleen Short holding their Roger Herriot Award certificates.

Thesia Garner and Kathleen Short

Thesia Garner of the Office of Prices and Living Conditions and Kathleen Short of the U.S. Census Bureau received the 2016 Roger Herriot Award for Innovation in Federal Statistics at the 2016 Joint Statistical Meetings. The award recognizes the important and extensive research Thesia and Kathleen have done together over more than 20 years to develop better measures of poverty in the United States. Their most recent work focused on producing the Supplemental Poverty Measure. This measure provides insight about the effects of public policies and programs on reducing poverty. Herriot Award winners are chosen by a committee of the American Statistical Association and the Washington Statistical Society. Please join me in congratulating Thesia and Kathleen for this recognition and for their research into improving the ways we measure economic hardship.

A History and Culture of Efficiency at BLS

We’re always looking for ways to improve our programs and surveys at BLS to provide what I call “gold standard” data. Good data help the American public make better decisions.

BLS has a strong history and culture of looking for ways to provide our data in the most timely, accurate, relevant, and cost-effective manner. I’m incredibly proud of what BLS has achieved through innovation and resourcefulness. Our focus on improving our programs and methods means we can produce better data and provide better service for you.

I am excited the President’s 2016 budget request contains several items to help us meet the needs of our data users. One innovative proposal is to improve the timeliness and detail of the Job Openings and Labor Turnover Survey. The new funding would allow us to release each month’s data much sooner, when we publish The Employment Situation. Data users then would be able to analyze net changes in jobs each month alongside information about job openings, hires, and separations for the same month. Having more information more quickly can give policymakers, employers, and workers an earlier warning about downturns or signal an improving economy.

The President’s 2016 budget also proposes funding to measure poverty more accurately. Other agencies use these measures to improve conditions for the poor. BLS would improve the Consumer Expenditure Survey to get more information about school breakfasts and lunches and programs that help pay for home heating and other household expenses. The improved data will help the U.S. Census Bureau develop alternative poverty measures.

At BLS, we work hard every day to improve efficiency. I want to highlight a few notable efficiencies we have made over the past few years.

  • In 2012 we began closing 36 Consumer Price Index data collection offices, allowing those data collectors to work from their homes using smart phones and tablets.
  • This year, we began applying a design change to the Consumer Expenditure Survey that will reduce the number of respondent interviews from five to four; we will use the savings from that change to support a small-scale redesign of the survey.
  • We have reduced mailing costs by redesigning survey mailings and increasing the use of our Internet Data Collection Facility.

Of course, saving money by improving efficiency cannot fund all the work we do, but it can make a big difference.

In sum, we are constantly working to improve the way we do business. We strive to make our work as efficient, relevant, timely, and cost-effective as possible, to deliver “gold standard” data to our customers.

Experimental disease-based price indexes now available

I am extremely pleased to announce that BLS has released a new data product, experimental disease-based price indexes.

These indexes will give data users better ongoing information about the evolution of the nation’s healthcare system. Because healthcare is such a large part of our economy, it is incredibly important we produce timely, accurate, and reliable medical statistics.

Currently, all federal statistical agencies report healthcare data by what’s called the “medical goods and services categories.” However, this approach doesn’t tell us one important thing: Which diseases have the greatest effect on healthcare spending over time?

After identifying the diseases that affect spending the most, we can drill down to learn the reasons for their growth. With disease-based price indexes, we can break down the growth into categories, such as the parts that come from inflation, population growth, growth in disease prevalence, and real per capita output growth. We can’t do any of this with our traditional medical goods and services categories, such as physician services, pharmaceuticals, and hospitals.

The Bureau of Economic Analysis now reports spending by disease in their national healthcare satellite accounts, so we also need disease-based price indexes to adjust for inflation. Disease-based price indexes measure healthcare inflation differently and capture the effects of innovations that our traditional medical goods and services price indexes do not. For example, better surgical procedures have enabled doctors to perform many types of surgery using a less expensive outpatient setting, instead of an expensive inpatient hospital. The disease-based price indexes allow us to measure the effect of this shift.

I am incredibly proud of the team who produced these experimental disease-based price indexes. These indexes fulfill our BLS mission to continuously improve our products and provide timely, accurate, and relevant data to our users. These indexes also come at no additional cost because of the team’s innovative use of existing data, such as the freely available Medical Expenditure Panel Survey. We at BLS strive every day to provide the best value for your taxpayer dollars, and this is a shining example of that effort!

We also could not provide gold-standard data such as these indexes without the help of our survey respondents. I deeply appreciate all the medical providers who voluntarily participate in our survey. Their cooperation is essential for generating our medical price indexes and ensures our healthcare data are accurate.

Disease-based price indexes are still in their infancy, and we have much to learn, including the best way to incorporate them into overall price indexes. That’s why we describe them as experimental. We hope data users will find them helpful. We invite you to share your thoughts and ideas to help us continue to develop these indexes. And, as Commissioner, I hope you can see why I am so proud of this key contribution BLS has made to ensuring better medical statistics now and in the future.

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.