DS280 - Intro to Statistics

Homework #4 - Readings on Index Numbers

In this assignment you will explore some "real world" uses of index numbers. The assignment is due at the beginning of class on Wednesday, February 24. Late papers are not accepted. The assignment is worth 30 points toward the homework/quiz grade.

In class we will examine three commonly used index numbers: the Consumer Price Index, the ACCRI inter-city cost-of-living index, and the Dow Jones Industrial Average. In this assignment you will be reading about two other widely used economic indicators: the Producer Price Index and the Consumer Confidence Index. You will also read some additional information about the Consumer Price Index. For each index, summarize your findings. Your overall writeup should run three to five pages (typed, single spaced, with double spacing between paragraphs).

The Consumer Price Index
This index is maintained by the Bureau of Labor Statistics (BLS). You can go to the BLS homepage, at http://www.bls.gov/. Browsing through this site will be a profitable activity. For this assignment, I will direct you to two particular webpages.

The first is the current news release regarding the Consumer Price Index. Information on the CPI for each month is released on the 15th day of the following month (or the Monday thereafter, if the 15th falls on a weekend). The easiest way to access the current news release is from the BLS homepage, mentioned above. The right-hand column of the page has links to "Latest Numbers," and the CPI is the first entry on that list. Follow the "News Release" link to a page of links, and access the first one, "Consumer Price Index Summary." Read through the information contained on that page.

The second assigned CPI webpage is one of "Frequently Asked Questions". Its URL is http://www.bls.gov/cpi/cpifaq.htm. Read through the information contained on that page.

The Producer Price Index
This index is also maintained by the Bureau of Labor Statistics (BLS). There are some similarities to the Consumer Price Index – and some significant differences as well. The BLS maintains a "Frequently Asked Questions" page about this index on their website. Read it at http://www.bls.gov/ppi/ppifaq.htm.

The Consumer Confidence Index
This index is widely reported in the economic news. It is not maintained by the U.S. government, however. Instead, it is the creation of the Conference Board, a private business enterprise. Go to their website at

http://www.consumerresearchcenter.org/.

From this main page, select the "Consumer Confidence" link. Read the current news release about the index.

The Conference Board website does NOT do a good job explaining where this number comes from. (It used to, and I’m sure the pages are still there, but the links have disappeared.) So to get that information, as well as some discussion on the strengths and weaknesses of the index, let’s use a couple of investing-related websites:

http://www.investopedia.com/university/releases/consumerconfidence.asp

http://www.investopedia.com/university/conferenceboard/conferenceboard7.asp

Ignore the portions of those sites trying to sell you investment advice (some of which is of dubious value). Focus on the discussion on the methodology underlying the Consumer Confidence Index.