Chemical Engineering July 2023 - 44

PRODUCER PRICE INDICES
BLS is a U.S. federal agency that measures
labor-market activity, working conditions
and price changes in all sectors of
the economy. It collects and analyzes many
types of economic information to assist decision-making
in the public and private sectors.
One set of data published by the BLS
is the producer price indexes (PPIs). As the
BLS defines them, producer price indexes
" track the average change in net transaction
prices that domestic producers in the
mining,
manufacturing,
agriculture
and
forestry sectors, as well as certain service
industries, receive for the products they
make and sell. " To construct the PPIs that
it reports, BLS conducts voluntary, confidential,
respondent-based surveys each
month to collect information from manufacturers
about costs. BLS economists
and analysts review a statistically chosen
representative sample of price quotations
in business transactions to build the PPIs.
Overall, there are around 10,000 PPIs covering
more than 500 industries.
In order to publish values for PPIs, the
data collected by the agency must meet
certain criteria. In its normal operations,
BLS reports that some respondents will
fail to provide information to them. In cases
where a particular index lacks adequate
response for a given month, BLS will
withhold publication for that index in that
month. In that case, the best available data
are from the most recently published value
of that particular PPI. It can be the case
that data are not published for a particular
PPI for several months at a time. If, at a
later time, the criteria for publication for a
PPI are once again met, the BLS will resume
publishing data for that PPI.
A carefully selected group of 41 PPIs is
used as raw input to the CEPCI. The set
represents a diverse set of materials and
components that go into the construction
of a CPI facility, including steel products,
concrete pipe, tanks, fans, piping and
many others. In addition, the CEPCI uses
12 labor-cost indexes, which are also compiled
by BLS. Relevant PPI information reported
by the BLS is collected by Chemical
Engineering editors and used to calculate
the monthly change to the CEPCI.
❏
cording to BLS, the detailed indexes
under code 107201 " could not be
supported individually, so they were
deleted. " To follow production in this
area, " data users now must use the
higher-level code that rolls the detail
into a single, grouped index, " BLS
says. Generally, within a set of PPIs,
the nearest available substitute for a
discontinued or unpublished index is
the next higher level of aggregation,
explains BLS PPI economist Joseph
Kowal. Therefore, the nearest
44
available substitute for unpublished
eight-digit detailed indexes would be
the corresponding broader six-digit
aggregate indexes (next higher level
of aggregation).
It should be noted that all the detailed
information within the set of PPI
Series ID codes beginning with " 1072 "
was, and remains, product manufactured
from heavy-gauge metal, BLS'
Kowal says.
How CEPCI adjusts
Going forward, the CEPCI will track
the broader " metal tanks " PPI series
ID as a substitute for two individual,
more specific PPI Series IDs that had
been included in the CEPCI in the
past. Because the broader category
of metal storage tanks now being
tracked is an aggregation and combination
of the more specific former
Series IDs for different types of tanks,
there is good reason to believe that
future increases or decreases in the
producer prices for these assets will
be reflected in the data for the PPI
Series ID for metal tanks.
The graph shown in Figure 1 compares
PPI values for metal tanks
over time to some of the values for
the specific categories from the past.
The PPI series ID for the aggregated
tank data is shown alongside two of
the more specific storage-tank categories
- namely those for metal
storage tanks and non-pressure vessels
(WPU10720104) and for custom-made
vessels and tanks that
are factory-made and field-erected
(WPU10720135). Although the behavior
of the producer-price data do
not overlap completely, the overall
trends are generally similar. By tracking
the aggregate tank PPI series
ID, the CEPCI can take into account
the contributions that various types
of metal storage tanks and pressure
vessels make to construction costs
of capital projects.
To maintain the continuity of the
CEPCI and keep the number values
from the future tracking of the " all
metals tanks " category in line with the
formerly published numbers, we will
be calculating a percent change for
the new series ID and applying that
percent change (positive or negative)
to the last available numbers obtained
for the (now discontinued) series IDs.
This will result in a new value that reflects
the change in the PPI for storage
tanks, but that also maintains the
TABLE 2. CEPCI SUBINDEXES COMPRISING
THE CE PLANT COST INDEX (COMPOSITE)
Equipment subindex
* Heat exchangers and tanks
* Process machinery
* Pipes, valves and fittings
* Process instruments
* Pumps and compressors
* Electrical equipment
* Structural supports and miscellaneous
Construction Labor subindex
Buildings subindex
Engineering and supervision
continuity of the historical PPI values.
Over time, this process of updating
the inputs to the CEPCI based
on available data from the BLS will
improve the accuracy and timeliness
of the CEPCI subindexes as well as
the overall CEPCI.
The CE editorial team will continue
to monitor the data available from
BLS for calculation of the CEPCI and
will report any additional changes required
in the future.
n
Acknowledgements
The author would like to thank Joseph Kowal, an economist
with the BLS Producer Price Index Program, for the
extremely helpful information on PPIs he provided as this
article was being developed.
References
1. Jenkins, S., The CE Plant Cost Index: An Update, Chem.
Eng., April 2018, pp. 76-77.
2. Vatavuk, W.M., Updating the CE Plant Cost Index, Chem.
Eng., January 2002, pp. 62-70.
3. Ulrich, G.D. and Vasudevan, P.T., Capital Costs Quickly
Calculated, Chem. Eng., April 2009, pp. 46-52.
4. United States Census Bureau, North American Industry
Classification System (NAICS), www.census.gov/naics.
5. United States Bureau of Labor Statistics, Handbook of
Methods, BLS Office of Publications and Special Studies,
www.bls.gov/opub.
6. United States Bureau of Labor Statistics, Producer Price
Index Program, www.bls.gov/ppi.
Author
Scott Jenkins is a senior editor at
Chemical Engineering magazine,
where he writes and edits content
for the print magazine and website,
as well as develops audio content.
In addition, Jenkins is involved with
the Connnected Plant Conference.
Prior to joining Chemical Engineering
in 2009, Jenkins worked in
various capacities as a science
journalist and communications specialist, reporting and
writing on a variety of sectors, including chemical processing,
biotechnology, pharmaceutical manufacturing
and research policy. He also has industry experience as
a quality assurance chemist and research experience as
a synthetic organic chemist. Scott holds a B.A. degree
from Colgate University, and an M.S. in chemistry from
the University of North Carolina at Chapel Hill.
CHEMICAL ENGINEERING WWW.CHEMENGONLINE.COM
JULY 2023
http://www.census.gov/naics http://www.bls.gov/opub http://www.bls.gov/ppi http://WWW.CHEMENGONLINE.COM
Chemical Engineering July 2023

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