The Measurement of Durable Goods Prices

Abstract

1.The following PPI indexes for household appliances are used within the "service industry machinery" subcomponent of PDE.The following are the PPI indexes used and their percentage weights within the service industry machinery component in 1967 and 1981 (the source of the table is unpublished BEA worksheets):Chapter Seven attention here (refrigerators, air conditioners, washers, and dryers) made up 72 percent of the value of major appliances in 1949 and 53 percent in 1983.Refngerators alone constituted 45 percent of the value of major appliances in 1949, but only 25 percent in 1983.In the major appliance category, the only important product not covered in this chapter is the kitchen range.In turn, major appliances accounted for 39.8 percent of all products listed in 1949 and for 32.9 percent in 1983, with the decline largely due to the growing importance of "brown goods," particularly TV sets and VCRs, both of which are covered here.The very rapidly declining price indexes for electronic computers developed in the last chapter and by other investigators suggest that quality changes may have been more pervasive in consumer electronic goods than in major appliances.This fact, and the growing importance of electronic goods evident in table 7.1, from 20.6 percent of the total in 1949 to 45.4 percent in 1983, suggests that some attention must be paid to electronic products in this chapter.This task is inherently difficult, however, since many of the dimensions over which quality has improved, for example, picture quality, are difficult to quantify within the context of the hedonic regression technique.Although most of the space in this chapter is devoted to appliances, considerable attention is devoted to the development of a CR index for TV sets, and a briefer treatment of VCRs is included as well.3The right-hand two columns in table 7.1 exhibit unit values for each major product category in 1949 and 1983.Changes in these unit values can be compared with changes in the PPI for the same products over the same period.If both the unit value and the PPI doubled, this would imply that quality per unit remained unchanged, while if the unit value doubled and the PPI remained fixed, the quality per unit implied by the PPI would have doubled.The following are the (logarithmic) annual rates of change of unit values, the PPI for each product, and the implied PPI quality per unit over the 1949-83 interval: Unit Value PPI Quality per Unit Refrigerators 2.95 1.36 1.59 Air conditioners (PPI used 1953-63) 0.31 0.35 -0.05Home laundry (used PPI for washing machines) 2.69 1.73 0.96 Video (used CPI for TV sets, 1950-83) -0.05 -1.40 1.35These implied growth rates of quality per unit raise intriguing questions.Could video equipment really have increased in quality at a slower rate than 3. Another reason for devoting less attention to electronic goods is that they are primarily manufactured abroad, and thus, while entering the deflators for consumer and producers durable expenditures, are netted out of the GNP deflator.Thus, any bias in official price indexes for consumer electronic goods would have little effect on aggregate measures of the growth rates of output and productivity.1 1 .The January 1952 CR evaluation estimates that the presence of refrigerator defrost added $50 in that year.This is 16 percent of the mean price of $306.91 for the models not equipped with automatic refrigerator defrost evaluated in the October 195 1 issue.'Indicates significance at the 5 percent level.**Indicates significance at the 1 percent level.