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1 Beginning in 1982, inventories are stated at current cost and are not comparable to the book value estimates for prior years.
2 Ratio based on December seasonally adjusted inventory data, and the monthly average of the unadjusted annual shipments.
Source: U.S. Census Bureau, Current Industrial Reports, series M3, Manufacturers' Shipments, Inventories, and Orders: 1987-1997; earlier reports;
MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS (M3) SURVEY
DESCRIPTION OF SURVEY
The Manufacturers' Shipments, Inventories, and Orders (M3) survey provides broad-based, monthly statistical data on economic conditions in the domestic manufacturing sector. The survey measures current industrial activity and provides an indication of future business trends. Data are used by the Executive Branch of the Government for developing economic, fiscal, and monetary policy; the Bureau of Economic Analysis as components of the gross domestic product estimates; and trade associations, corporate economists, and other members of the business community as an analytical tool for assessing the current and future economic condition of the country.
COMPOSITION OF INDUSTRY CATEGORIES
There are 80 separately tabulated industry categories in the M3 survey. These categories are groupings of the 459 manufacturing industries as defined in the 1987 Standard Industrial Classification (SIC) Manual. Because companies provide data on a voluntary basis, reporting in many of these 80 categories is not sufficient to warrant separate publication of the data. Consolidated reporting by some large companies also limits the quality of the data in some categories. A company which reports on a consolidated basis (entire company or a division) is included in the M3 category in which the reporting unit as a whole is classified and has no influence on the movement of the other industries which may be included in its combined report. As a result, it has been necessary to combine the 80 industry categories into 45 publication levels for shipments and total inventories. For new and unfilled orders and inventories by stage of fabrication, it has been necessary to introduce further combinations because of the lower response rates for those items.
COMPOSITION OF THE SURVEY PANEL
The monthly M3 estimates are based on information obtained from most manufacturing companies with $500 million or more in annual shipments. In order to strengthen the sample coverage in individual industry categories, the survey includes selected smaller companies. The sources of the companies for the survey are the quinquennial censuses of manufactures and the annual surveys of manufactures in the interim years. For firms that operate in a single M3 industry category, the reporting unit typically comprises all operations of the company. Most large, diversified companies, however, file separate reports for divisions with significant activity in different industrial areas. The composition of each company or reporting unit of a company in the survey usually includes more than one plant or establishment and frequently includes industry activities outside the M3 category in which it is classified. The survey methodology described later in this chapter assumes that the month-to-month changes of the total operations of the reporting units classified in each industry category effectively represent the month-to-month movements of all establishments which make up the category. In 1962, the initially selected sample for this survey included all companies with more than 1,000 employees and smaller companies selected with probabilities proportional to their employment size within each industry category. As there was some deterioration in response rates for companies with between 100 and 1,000 employees, in January 1975, the staff selected a supplemental sample of approximately 1,000 companies from the universe of companies in this size range in order to strengthen the estimates. Although the response rate was only about 60 percent for this group, beginning in January 1978 these data were added to the panel and included in the calculations of the monthly estimates. Because of poor response rates, the survey no longer included companies with less than 100 employees; instead, data for these companies were estimated by using overall industry month-to-month movements based on data reported by the larger companies. In recent years, the size of the value of shipments of the company or reporting unit rather than the employment size has influenced the selection of companies to increase response rates. Using this criterion, census staff visit or otherwise contact large companies that did not report in the survey to request their participation or reconsideration of a previous decision not to participate. Also, staff request data for large diversified reporting companies to provide additional industry categories not previously provided. Another method used for improving response has been contacting nonreporting companies by letter. Staff send letters on an ongoing basis to companies in industry categories with low response rates. In 1990, staff selected a probability sample and mailed requests to about 400 midsize companies in the plastics industry. The purpose was to test the viability of probability sampling, especially in industries comprised primarily of smaller, less diversified companies. As a result of these efforts, we increased response by adding about 45 to 55 percent of the companies contacted to the panel. However, respondent dropouts frequently offset these increases. The current coverage levels in the survey show that reported data represent approximately 55 percent of the shipments estimates at the total manufacturing level, while the individual coverage rates for the 20 two-digit major SIC industries vary from about 20 to 99 percent.
LIMITATIONS OF THE DATA
The monthly data presented in this publication are subject to both sampling and nonsampling errors. Sampling errors occur because reports are received from a sample rather than from the complete universe of manufacturing companies. Because the present composition of the panel is not based on a probability sample, the amount of sampling error cannot be quantified. Nonsampling errors, on the other hand, are attributable to many sources. The use of company or divisional reports to estimate the monthly change for establishments is one source of nonsampling error. The use primarily of large companies to represent the month-to-month movement of all companies is another potential source. In addition, response and processing errors may be present, although computer edits and analytical review of the data detect the most significant errors of this kind prior to tabulation.
MONTHLY ESTIMATION PROCEDURE
A link relative procedure derives the monthly universe estimates of shipments, unfilled orders, and total inventories for each industry category. The universe estimate for the previous month is multiplied by the monthly ratio of change tabulated for reporting companies in the current month to arrive at a universe estimate for current month. When an individual company reports unusually large changes from the previous month, or when a particular company has unique data patterns differing substantially from the movement shown by the rest of the reporting panel in a particular industry category, the company is excluded from the ratio of change calculation but included in the universe estimate of level. The effect of this procedure is to restrict the estimation for nonrespondents and firms not in the survey panel to the general trend of the industry. The universe estimate of new orders is derived from the monthly estimate of shipments plus the change in unfilled orders between the current and prior period. The estimate includes orders that are received and filled in the same month as well as orders that have not yet been filled. It also includes the effects of cancellations and modifications of previously reported orders. The standard ratio estimate procedure is not followed for new orders because not all companies report new orders, and some that do report this item limit their reporting to specific products for which long lead times are required in the production cycle. These companies, in effect, exclude new orders received for products that are shipped from inventory. A modified procedure also is used to estimate the stage of fabrication inventory data. In this procedure, the total inventory data estimated for each tabulated industry category are retabulated to the appropriate two-digit SIC major group levels and serve as control totals for the stage of fabrication data. Initial estimates are made for each of the stages of fabrication at the two-digit SIC level using the ratio estimation procedure. The differences between the sum of the stage of fabrication detail and total inventories at the two-digit SIC level are then allocated proportionally to the stage of fabrication figures to form the estimates. The reasoning behind this procedure is that a significant number of companies report total inventories but cannot report inventories by stage of fabrication.
TRADING DAY ADJUSTMENT
Variations in the rate of manufacturing activity resulting from different numbers of trading days in the same month for different years and variations in the length of months can be an important cause of month-to-month fluctuations in the shipments data. For many industries, these irregularities can be identified approximately and removed so that the underlying trend cycle stands out clearly. Recent software and data processing improvements have facilitated research and implementation of unique trading day adjustment factors for each series. These improvements include refinements to the trading day analysis in the X-11 seasonal adjustment program, additions to diagnostic software that identifies progressively unstable data patterns, and redesign of the monthly survey data processing system. Most of the shipments series have trading day factors calculated in the trading day regression analysis routine of the X-11 software. The adjustment from
1987 forward used these new factors. Table FN1 of M3-1(90) shows the factors used before 1987. However, eight of the shipment series did not have identifiable trading day patterns and are only being adjusted for length of month variations.
SEASONAL ADJUSTMENT METHODOLOGY
The monthly data are adjusted for seasonality at the most detailed level tabulated in the survey, using the X-11 ARIMA version of the Census Bureau's seasonal adjustment program. The seasonally adjusted estimates for shipments, unfilled orders, and total inventories for M3 industry categories are calculated by dividing the unadjusted estimates by seasonal adjustment factors computed by the X-11 ARIMA seasonal adjustment program. Seasonally adjusted new orders are computed by adding the changes between current and prior period seasonally adjusted unfilled orders to the current month's seasonally adjusted shipments. The inventory by stage of fabrication data are seasonally adjusted at the two-digit SIC major group level for each stage. If the sum of the adjusted stage of fabrication does not equal the major group totals resulting from summing the seasonally adjusted total inventories for the individual industries, the difference is proportionally allocated to the stage of fabrication detail. Staff calculate seasonal factors concurrently and include the current period observation in the calculation of the seasonal factor for that month. The factors reflected in this report are based on using data from January 1982 through December 1996 for shipments, unfilled orders, and inventories. For information on specific measures used in the seasonal adjustment analysis, selection of options within the X-11 program for the individual industry series, and tests for the presence of seasonality, contact the Manufacturing and Construction Division, U.S. Census Bureau, Washington, DC 20233, or call 301-457-4749.
The M3 survey data are benchmarked to reduce both sampling and nonsampling errors. The relatively small monthly sample size as well as the differences that result from collecting the monthly data on a divisional basis as compared to the benchmark data on an establishment basis account for most of the revision. Also, some monthly reports received too late to be included in the monthly publications are added to improve the revised estimates of change of the historical monthly data. The benchmarking process for this report included comparing monthly data reported by large companies with their annual data submitted in the 1994 and 1995 Annual Survey of Manufactures (ASM). Estimates of annual shipments and end-of-year total and stage of fabrication inventories calculated in the monthly survey were benchmarked directly to the data compiled in the quinquennial censuses of manufactures and the interim ASM's. The unfilled orders levels were adjusted based on changes in the ratio of unfilled orders to shipments of companies reporting in the monthly survey and the ratio of the ASM shipments estimate to the summed monthly survey data. Since new orders are defined as the change in unfilled orders between the current and prior periods plus the current period shipments, implicit benchmark estimates for new orders were derived. * DEFINITION OF TERMS
VALUE OF SHIPMENTS
The value of shipments data in the M3 survey represents net selling values, f.o.b. plant, after discounts and allowances and excluding freight charges and excise taxes. The ASM uses the same definition. However, the data reported in the two surveys frequently are not equal because of differences, discussed earlier, in the reporting unit. For multiestablishment companies, the M3 reports typically are company- or divisional-level reports that encompass groups of plants or products. The data reported are usually net sales and receipts from customers and do not include the value of interplant transfers. The reported sales are used to calculate month-to-month changes which bring forward the universe estimates developed from the ASM. The value of products made elsewhere under contract from materials owned by the plant is also included in shipments as well as receipts for contract work performed for others, resales, miscellaneous activities such as the sale of scrap and refuse, installation and repair work performed by employees of the plant, and the receipts for research and development performed at the plant. In the shipbuilding industry, the value of work done in a given year varies considerably from the value of shipments because of the long lead time between the start and completion of a large vessel. In both the annual survey and the M3, the value of work done during the year, rather than the value of shipments, is requested. The same procedure is followed for aircraft produced on a cost-plus contract. Aircraft produced on a fixed-price contract are reported in the usual manner when the products are shipped. Where value of work done is reported in place of shipments, the work-in-process inventories are normally charged to the customer as costs are incurred and are not accumulated as finished goods inventories by the shipyard or the aircraft producer. The value of shipments figures developed from the ASM contain duplication at the M3 industry category and higher level aggregates, since the products of some four-digit SIC industries are used as materials by other industries within the same M3 industry aggregate. The significance of the duplication within the specific M3 industry categories varies depending on their four-digit industry composition. It is most pronounced in a few highly integrated industry areas, such as primary metals and motor vehicles and parts.
Inventories in the M3 survey are collected on a current cost or pre-LIFO (last in, first out) basis. Because different inventory valuation methods are reflected in the reported data, the estimates differ slightly from replacement cost estimates. Companies using the LIFO method for valuing inventories report their pre-LIFO value; that is, the adjustment to their base-period prices is excluded. In the ASM, inventories are collected according to this same definition. However, there are discontinuities in the historical data in both surveys. Until 1982, respondents were asked in the ASM to report their inventories at book values; that is, according to whatever method they used for tax purposes (LIFO, FIFO, and so forth.) Because of this, the value of aggregate inventories for an industry was not precise. Effective with the 1982 Census of Manufactures, instructions for reporting inventories changed. LIFO users were asked to report inventories prior to the LIFO adjustment, as well as the LIFO reserve and the LIFO value after adjustment for the reserve. Because of this change, the 1982 census data for inventories were published on both bases. Inventory data in subsequent ASM's are available only on a pre-LIFO basis, with no book value estimates comparable to the earlier data. This change in instructions for reporting current cost inventories was carried to the monthly survey beginning in January 1987. The data for 1982 to 1987 were previously redefined (but not recollected) on a pre-LIFO or current cost basis. As described in the section on benchmarking methodology, the procedure used in adjusting these monthly estimates from a book-value basis to the pre-LIFO levels used the pre-LIFO end-of-year levels from the ASM as constraints and the same general procedure for minimizing revisions to the month-to-month change in the monthly book-value data . Inventory data are requested from respondents by stage of fabrication; that is, finished goods, work in process, and raw materials and supplies. There are several limitations to the quality of these data for two reasons. First, response to the stage of fabrication inquiries is lower than for total inventories because all companies do not keep their data monthly at this level of detail; those companies which do maintain monthly detailed records frequently do not have data for all three stages of fabrication or have quantity (physical volume) data only. Second, a product considered to be a finished good in one industry, such as steel mills shapes, may be reported as a raw material in another industry, such as stamping plants. Therefore, within the two-digit SIC major groups the same type of inventory may be included under different stage of fabrication categories. Like total inventories, stage of fabrication inventories are also benchmarked to the ASM pre-LIFO data, but the stage of fabrication data are benchmarked at the two-digit major group level.
NEW ORDERS RECEIVED AND UNFILLED ORDERS
New orders, as reported in the monthly survey, are net of order cancellations and include orders received and filled during the month as well as orders received for future delivery. They also include the value of contract changes which increase or decrease the value of the unfilled orders to which they relate. Orders are defined to include those supported by binding legal documents such as signed contracts, letters of award, or letters of intent, although in some industries this definition may not be strictly applicable. In the case of letters of intent, the full amount of the sales value is included if the parties are in substantial agreement on the amount; otherwise, only the funds specifically authorized to be expended are included. Unfilled orders include orders (as defined above) that have not been reflected as shipments. Generally, unfilled orders at the end of the reporting period are equal to unfilled orders at the beginning of the period plus net new orders received less net shipments.
These tables are based on figures supplied by the United States Census Bureau, U.S. Department of Commerce and are subject to revision by the Census Bureau.
Copyright © 2006 Photius Coutsoukis and Information Technology Associates, all rights reserved.