Producer Price Index U'S' Wholesale Trade NAICS Sector 42

1
Producer Price Index U.S. Wholesale Trade
NAICS Sector 42

• Author James J. Gorko
• US Bureau of Labor Statistics

2
Wholesale Trade Definition

• Efficient transfer of goods from manufacturer to
  another party for the strict intention of resale
• The creation of utility (or efficiency)
• Channeling function

3
Creation of Utility

• Time and place utility
• Making products available when and where
  customers are likely to find them
• Possession utility
• Allowing customers to take ownership of products
  as needed
• Information utility
• Providing details about the products sold

4
Channeling Function

• Selling and promoting
• Buying and assortment building
• Bulk breaking
• Warehousing
• Transportation
• Risk bearing
• Market information
• Management services and advice

5
Types of Wholesalers

• Merchant Wholesalers
• Generally take title to goods
• Sales Branches and Offices of Manufacturing
  Operations
• Title generally stays with manufacturer until
  sale is complete
• Agents and Brokers
• Generally do not take title to goods

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Classification Issues

• NAICS versus ISIC
• Conceptual difference
• ISIC uses class of customer definition
• NAICS using method of selling
• General concordance at sector level
• Only two one-to-one industries (out of 17 4-digit
  ISIC and 71 6-digit NAICS)
• Motor Vehicle ISIC combines wholesale and
  retail

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Classification Issues

• Wholesale versus retail
• NAICS classifies units as retail if they have any
  retail selling space
• Majority of turnover could be wholesale but still
  in retail if they have retail selling space

8
Classification Issues

• Wholesale versus manufacturing
• Manufacturers transform materials into new
  products
• Wholesalers generally engage in breaking bulk and
  redistribution producing a new version of same
  product
• Contract manufacturers are not included in
  wholesale
• Manufacturer sales offices are in wholesale even
  if prices are set by manufacturer and title held
  by manufacturer

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Classification Issues

• Wholesale versus Manufacturing
• Examples
• Bottling all bottling except soft drinks are in
  wholesale trade soft drinks manufacturing
• Metal service centers saw, shear, bend, level,
  clean, or edge on a custom basis and are
  considered wholesalers
• Cheese grating wholesale if they cut, grate and
  mix cheese. If aging or moisture reduction is
  included, then manufacturing

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Classification Issues

• Scrap/Recyclable material merchant wholesales

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Wholesale Trade Pricing

• No direct fee for service price exist
• Gross margin is used to quantify the value of the
  trade services provided to the consumer of those
  same services
• Gross margin is defined in national accounts as
  the selling price of a good less the cost of
  replacing the good sold
• Excludes clearance prices

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Wholesale Trade Pricing

• Margin prices are most prevalent prices for
  merchant wholesalers who generally take title to
  the goods (also used by manufacturers sales
  branch offices)
• Dollar value of commission prices are most
  prevalent prices for agents and brokers who do
  not take title to the goods (also used by
  manufacturers sales branch offices)

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Wholesale Trade Pricing

• For merchant wholesalers, the margin price is
  calculated using the incoming acquisition price
  and the selling price
• For agents and brokers, the dollar value of
  commission is calculated by multiplying sales
  dollars by the commission percentage

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Wholesale Trade Pricing

• Margin Pricing
• 1. Average gross margin per unit for a comparable
  customer class and/or supplier class for all
  sales within a comparable product line.
• 2. Average gross margin per unit for all
  customers and/or suppliers for a comparable
  product line.
• 3. Average gross margin per unit for a particular
  customer class and/or supplier class for all
  sales of a particular product.
• 4. Average gross margin per unit for all
  customers and/or suppliers for all sales of a
  particular product.
• 5. Gross margin for a single specific product
  transaction

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Wholesale Trade Pricing

• Dollar Value of Commission Prices
• 1. Average dollar value of commission per unit
  for a comparable customer class for all sales
  within a comparable product line.
• 2. Average dollar value of commission per unit
  for all customers for a comparable product line.
• 3. Average dollar value of commission per unit
  for a particular customer class for all sales of
  a particular product.
• 4. Average dollar value of commission per unit
  for all customers for all sales of a particular
  product.
• 5. Dollar value of commission for a single
  specific product transaction

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Wholesale Trade Pricing

• Prices as defined in SPPI Thesaurus
• Margin Price
• ??? Direct use of prices of repeated services
  ????
• Dollar Value of Commission
• ???? Percentage fees ????

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Wholesale Trade Pricing

• Average Margin Pricing
• Homogeneous groupings of products with same
  marketing strategy
• 65 of wholesale trade respondents
• Particularly useful for wholesalers with rapid
  product change/seasonal products
• Caution if product groups are not homogeneous
  enough or too broad, an unknown degree of error
  is introduced

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Quality adjustment

• Necessary when marketing characteristics change
  not when product features change
• Marketing characteristics are difficult to
  quantify without hedonic model
• Currently only able to quality adjust if
  respondent identifies a marketing change and
  provides a quality adjustment value for that
  change

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Comparability to Turnover Data

• Turnover data in greater detail than in PPI in
  5-year economic census collections
• Annual and monthly turnover data is not as
  comprehensive as 5-year data

20
National Accounts

• Currently, U.S. national accounts publish at the
  three digit NAICS level only but deflate at lower
  levels
• U.S. national accounts requesting PPIs at the 4-5
  digit NAICS level to use as deflators
• Without PPIs for wholesale, then PPI goods prices
  are used assuming that margin data will equate
  with gross sales price data (bad assumption)

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Summary

• Growing sector in U.S. economy
• Manufacturing units are outsourcing production so
  former manufacturing unit becomes a wholesale
  trade unit
• Important for national accounts to have accurate
  margin data for deflators