U.S. Producer Price Index for Commercial and Industrial Machinery and Equipment Maintenance and Repair

NAICS 811310

Bonnie MurphyChief, Branch of Industry Pricing

Division of Industrial Prices & Price Indexes

U.S. Bureau of Labor Statistics27th Voorburg Group Meeting

Warsaw, Poland2 October 2012

Agenda Definition of the service being priced Pricing unit of the service Market size Classification structures National accounts concepts Pricing methods Quality adjustment Evaluation of comparability with

turnover/output measures Summary

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Definition of the Service

Primary output is the repair and/or maintenance of commercial and industrial machinery and equipment.

Inspection and testing services when performed in conjunction with repair or maintenance services are also considered primary to this industry.

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Pricing unit of measure

For most service items: per repair or maintenance job

For maintenance contracts: per month or per year

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NAICS 811, Repair and Maintenance

Turnover by NAICS 4-digit codeSource: 2007 Economic Census

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The U.S. PPI currently only produces indexes for NAICS 8113.

NAICS 811, Repair and Maintenance

Employment by NAICS 4-digit codeSource: 2007 Economic Census

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Classification Structures

NAICS 811310, Commercial Machinery Repair and Maintenance, includes repairs classified in all 4-digit classes in ISIC 331, Repair of fabricated metal products, machinery and equipment

NAPCS codes for 8113 are based on the industry where the repaired product is used. For example, NAPCS 1.1.1 is Maintenance and repair

services for agricultural machinery and equipment

CPC classes and subclasses are based on the type machinery being repaired 7

National Accounts Concepts

Commercial and industrial machinery repair and maintenance are considered intermediate services in the U.S. accounts and are not included in estimates of final demand

The U.S. PPI for NAICS 811310 is not used by BEA as these intermediate services are not deflated in the U.S. National Accounts

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Pricing Methods

As most services in this industry are customized, the U.S. PPI uses model pricing to fix the inputs used to produce the service. The model prices incorporate aspects of the

component pricing method as fees are derived based upon labor charges, charges for parts and any surcharges or discounts.

Short term maintenance contracts are priced with the direct use of prices for repeated services method.

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Pricing Methods (continued)

Long term maintenance contracts (those more than two years in duration) typically include escalator clauses as more maintenance is needed as equipment ages. The U.S. PPI sums the yearly prices as the

escalator clauses can produce price increases that are not necessarily inflationary.

The summed price represents prices that are received from both old and new contracts.

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Example - Long term maintenance contract

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Year Monthly Rate

Year 1 $100

Year 2 $150

Year 3 $300Calculated Summed Rate

for Year 3$550

Year Monthly Rate

Year 2 (old contract) $150

Year 3 (old contract) $300

Year 4 (new contract) $125Calculated Summed Rate

for Year 4

$575

Quality Adjustment

When item substitution is necessary, cost data and previous pricing information is often available. This allows the U.S. PPI to use the overlap

method frequently.

When previous pricing information is not available, the items are not compared and the differences in prices are not shown in the index.

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Evaluation of comparability with turnover/output measures

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U.S. Census Bureau publishes a large amount of turnover data for this industry every five years.

The U.S. PPI currently only publishes data at the six-digit NAICS level.

Summary

The U.S. PPI has limited coverage in the Repair and Maintenance sub-sector – only ~19% of turnover.

Classification comparisons between NAICS 811310 and ISIC is not straightforward as this industry contains repair services that are included within all Classes of ISIC group 331.

Long term maintenance contracts present price measurement challenges.

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Contact Information

Bonnie MurphyProducer Price Index Program

murphy.bonnie@bls.gov