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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 from which companies are identified for inclusion in the survey panel are the quinquennial economic censuses (manufacturing sector) and the Annual Survey of Manufactures (ASM). 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 that 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 large diversified reporting companies to provide additional industry categories not previously provided.
Another method used for improving response was contacting nonreporting companies by letter. Staff sent 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 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 the survey panel represents approximately 60 percent of the shipments estimates at the total manufacturing level.
In January 2007, approximately 380 nonreporting companies were added to the survey. These companies were selected because of low response rates in their respective industries. The response rate was about 69 percent for the ‘‘M3 Augmentation Project,’’ but again, due to respondent dropouts, the overall survey panel represents approximately 60 percent of the shipments estimates at the total manufacturing level.
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 three-digit NAICS subsector 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 three-digit NAICS level using the ratio estimation procedure. The differences between the sum of the stage of fabrication detail and total inventories at the three-digit NAICS 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.
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 M3 data series. For many industries, these irregularities can be identified approximately and removed so that the underlying trend cycle stands out clearly.
All of the M3 shipments data series, except for Tobacco Manufacturing and Turbine and Generator Manufacturing, are adjusted for calendar month variations, both length of month and number of trading days per month. The selection of these adjustment factors is based primarily on recognition of patterns contained in the data using the regression and spectral analysis capabilities of the X-13ARIMA-SEATS seasonal adjustment software. Factors are considered optimal when the daily weights assigned to the industry eliminate or diminish the peaks in the spectral plots, which are based on calendar frequencies, and lower the absolute value of the month-to-month change in the residual irregular component of the data series.
Monthly M3 stock series, such as inventories and unfilled orders data, may be treated as accumulations of monthly flow series. Therefore, it is also possible to adjust these series for trading day effects. Using diagnostics similar to those described above, particular inventory, stage-of-fabrication inventory, and unfilled orders series are adjusted for stock trading day effects.
New orders data in the M3 survey are implicitly trading day adjusted by using the trading day adjusted shipments as input to their derivation. The difference in unfilled orders is typically not trading day adjusted.
The monthly data are adjusted for seasonality at the most detailed level tabulated in the survey, using the X-13ARIMA-SEATS 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-13ARIMA-SEATS 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 three-digit NAICS subsector 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. For information on specific measures used in the seasonal adjustment analysis, selection of options within the X-13ARIMA-SEATS 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 301-763-7630.
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 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 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.
If you have additional questions about the quality of the data please contact the Manufacturing and Construction Division Call Center at 301-763-4673.
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