Index of Net Business Formation

The index of net business formation measures the net number of new businesses formed each month and is compiled from data on new business incorporations, number of business failures, and confidential data on telephones installed.

The data on new business incorporations represent approximately the number of corporations to which charters were issued under the general business incorporation laws of the various states. The statistics include new businesses which are incorporated, existing businesses which have changed from a noncorporate to a corporate form, existing corporations which have been given certificates of authority to operate in another state, and transfers of existing corporations to new states. Also included are cases in which the promotion of a projected corporation was not completed and the charter, though issued, was never exercised.

Data on the number of business failures, compiled monthly by Dun and Bradstreet, Incorporated, include businesses that cease operations following assignment or bankruptcy; cease with loss to creditors after actions such as execution, foreclosure, or attachment; voluntarily withdraw leaving unpaid obligations; are involved in court actions such as receivership, reorganization, or arrangement; or voluntarily compromised with creditors out of court.

Manufacturers' New Orders

Manufacturers' new orders measure the dollar volume of net new orders received by all manufacturers. These orders are further classified by durable and nondurable goods and by industry.

A new order is a communication of an intention to buy for immediate or future delivery. Only orders supported by binding legal documents (such as signed contracts, letters of intent, or letters of award) are included. The monthly series includes all new orders received during the month less cancellations. Reporting companies are instructed to include (1) the sales value of orders for goods to be delivered at some future date (primarily this is for manufacturers who produce to specifications); (2) the sales value of orders for immediate delivery which have resulted in sales during the reporting period; and (3) the net sales value of contract change documents which increase or decrease the sales value of the orders to which they are related, if the parties are in substantial agreement on the amount involved. Reporting companies are instructed to deduct from the total of these items the sum of partial or complete cancellations of existing orders.

Manufacturers' New Orders for Export -Durable Goods Except Motor Vehicles and Parts

Manufacturers' new orders for export (durable goods) measure the estimated dollar value of new orders for durable manufactured goods (except motor vehicles and parts) received by U.S. durable goods manufacturers for delivery abroad.

Manufacturers' New Orders for Export -Durable Goods Except Motor Vehicles and Parts (Cont'd)

Included in the series are new export orders for primary metals, machinery, aircraft and parts, other transportation equipment, and other durable goods.

See also Manufacturers' new orders, p. 52.

Manufacturers' New Orders, Capital Goods Industries

Manufacturers' new orders, capital goods industries represent the value of new orders received by the following groups of durable goods manufacturers: (1) nonelectrical machinery (SIC 35, exc. 3522 and 3599)-including steam engines and turbines; internal combustion engines; construction, mining, and material handling equipment; metalworking machinery; special industrial equipment; general industry equipment; office and store machines; service industry machinery; and miscellaneous nonelectrical equipment (farm machinery and equipment and machine shops are excluded); (2) electrical machinery (SIC 36, exc. 363 and 367)-including electrical transmission and distribution equipment, electrical industrial apparatus, and other electrical machinery (household appliances and electronic components are excluded); and (3) shipbuilding, railroad equipment, aircraft and ordnance (SIC 19, 372, 3731, and 374).

Changes in the new orders received by these industries are regarded as important indications of the future direction of investment expenditures for capital goods.

See also Manufacturers' new orders, p. 52.

Manufacturers' Sales and Inventory Expectations

Manufacturers' sales and inventory expectations are the subject of a quarterly survey of manufacturing firms conducted by the Bureau of the Census. This survey collects data on sales and inventory expectations for the next two quarters and also actual sales during, and inventories held at the end of, the most recent quarter. The expectations data are particularly useful in forecasting the broad supply and demand relationships in the economy.

Manufacturers' sales (or shipments) include receipts, billings, or the value of the products shipped, less discounts, returns, and allowances. Shipments for export as well as those for domestic use are included.

Manufacturers' inventories refer to book values of stocks and include materials and supplies, goods in process, and finished goods. In general, inventories are reported as valued by the manufacturer.

Manufacturers' Shipments

Manufacturers' shipments measure the dollar value of products sold by manufacturing establishments. The data are classified by durable and nondurable goods and by industry and are based on net selling values, f.o.b. plant, after discounts and allowances are excluded. Freight charges and excise taxes also are excluded. Where the products of an industry are customarily delivered to distributors c: con

Manufacturers' Shipments (Cont'd)

sumers by the manufacturing establishment (such as in certain foods industries-fluid milk, bakery, soft drinks), the value is based on delivered price rather than the f.o.b. plant price. Multi-establishment companies report value information for each plant as if it were a separate economic unit. Thus, products transferred from one plant to another are valued at their full economic value-i.e., include, in addition to the cost of production, a reasonable proportion of company overhead and profits.

Manufacturers' Unfilled Orders

Manufacturers' unfilled orders measure the dollar value of orders received by all manufacturers which have not yet passed through their sales accounts at the end of each month. Thus, 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 during the period, minus net sales.

The data are classified by durability and by industry, although durable goods account for approximately 95 percent of the total.

Manufacturing and Trade Sales

Manufacturing and trade sales measure the monthly dollar volume of total sales by manufacturing, merchant wholesale and retail trade establishments.

Data for the manufacturing sector are for "shipments" of manufacturing establishments. Shipments data represent receipts, billings, or value of products shipped, less discounts, returns, and allowances. Both domestic and export shipments are included in the data. Shipments to a foreign subsidiary by a domestic firm are included; however, the shipments of foreign subsidiaries are excluded.

Data from the wholesale trade segment are limited to merchant wholesalers. The figures include sales of merchandise (after deducting returns, allowances, and discounts) and receipts from repairs or other services to customers.

Data from the retail trade sector include sales of all establishments primarily engaged in selling merchandise for household consumption. Sales are net of discounts, returns, and allowances and include all business receipts of the reporting establishment, as well as sales and excise taxes. See also Merchant wholesaler, p. 77.

Merchandise Exports, Excluding Military Aid Shipments

Merchandise exports represent shipments of domestic and foreign merchandise out of the United States customs area. The valuation definition used for this series is the dollar value at the seaport, border point, or airport of exportation. It is based on the selling price (or cost if not sold) and includes inland freight, insurance, and other charges to the port of exportation. This method of accounting is frequently referred to as f.a.s. (free alongside ship).

Merchandise Exports, Excluding Military Aid Shipments (Cont'd)

This series excludes all Department of Defense export shipments, whether designated for the use of the U.S. Armed Forces, for the purposes of the Military Assistance Program, or grant-aid program. Merchandise exports also exclude such shipments as: merchandise shipped in-transit through the United States from one foreign country to another, when documented as such through U.S. Customs; bunker fuel and other supplies and equipment for vessels and air planes engaged in foreign trade; issued monetary coins of all component metals; gold in the form of ore, concentrates, waste and scrap, and refined bullion (although silver in these forms which was previously excluded is now included). Some types of shipments of relatively small significance are also excluded, such as low-valued or noncommercial exports by mail, temporary exports and the return of temporary imports, household and personal effects of travelers, and goods for the personal use of U.S. Government employees abroad.

See also Exports of goods and services, Merchandise, adjusted, excluding military, p. 27.

Merchandise Trade Balance

The merchandise trade balance measures the difference between the value of U.S. goods exported to other countries and foreign goods imported into this country. The trade balance is generally regarded as "favorable" when exports exceed imports-a trade surplus-and "unfavorable" when imports exceed exports—a trade deficit.

See also Merchandise exports, excluding military aid shipments, total, p. 54, and General imports, p. 50.

Months for Cyclical Dominance

Months for cyclical dominance (MCD) is an estimate of the appropriate time span required to identify significant cyclical movements in a monthly economic time series. Many time series, even after seasonal adjustment, are quite erratic. Because of this, single month-to-month changes are usually not indicative of the underlying movement of the series. MCD indicates the shortest span of months over which changes in the series are dominated by cyclical rather than irregular or erratic movements. For most series the MCD ranges between 1 and 6. It is small for smooth series and large for irregular series. For quarterly series, a similar measure-quarters for cyclical dominance (QCD)-is used.

Ratio of Production of Business Equipment to Production of Consumer Goods

The ratio of production of business equipment to production of consumer goods is the ratio of indexes of production in these two market categories of final products in the Federal Reserve Board's Index of Industrial Production.

The business equipment production index includes production of commercial, industrial, freight and passenger, and farm equipment. This component is a secondary classification under the major market category "equipment" which includes defense equipment as well as business equipment.