Every year since 1984, PNC Advisors, the advisory arm of Pittsburgh-based regional bank PNC Financial (NYSE:PNC), has released a Christmas Price Index, based only partially tongue-in-cheek on the cost of all of the goods that the true love buys in the song "The Twelve Days of Christmas." Since the gifts come in various forms, from different industries -- agriculture, services, jewelry, poultry -- the Christmas Index, while in no way scientific, actually manages to provide an educational and informative look at the U.S. economy.
The 2003 version (available here) notes that the costs for the gifts rose more than 16% over 2002, with the largest gains coming in the services component -- the skilled and heavily unionized musicians (pipers and drummers) and dancers -- while many of the goods stayed stable or dropped in price. Most shocking were the 28% drop in the cost of the pear tree and -- somewhat surprising given the rise in base gold prices -- the 5% drop in price for the gold rings. I'm certain the folks at Tiffany & Co. (NYSE:TIF) will agree that, since plain gold bands are out of style, the prices of these versus other jewelry items have dropped.
The rise in costs is tabulated two ways -- first in serial, with the price of each good summed. This method resulted in a total cost of $16,800, a rise of more than 16% over 2002. The second tabulation keeps in spirit with the song. Remember, each day the true love buys the new gift and duplicates all of the ones given during the previous days. The total cost using this methodology was a whopping $65,000, or 19% higher than last year. As PNC spokesman Jeff Kleintop notes, that's about the same cost as a fully loaded SUV.
While the concept of the Christmas Price Index is quite funny, some interesting trends can be observed since PNC has been doing this since 1984. Most notably, the percentage of the total cost of the goods versus the services components has changed substantially in the last 19 years, mirroring a move away from basic manufacturing in the U.S. economy. In 1984, goods accounted for around 60% of total cost, whereas this year they amounted to less than 35%, reflecting the effect that overseas manufacturing has had upon pricing. The skills needed to perform most of the services, on the other hand, have allowed for price increases over time.
The largest price swings each year have come from swans, with their price rising more than 66% this year. Thus, PNC also figures a normalized "Core Christmas Price Index (excluding swans)."
Kleintop's take on what the CPI means is interesting: "We have seen a record increase in the 2003 Index, possibly indicating that the fears over deflation that we saw last year may begin to recede, as general price levels begin to pick up and the outlook returns to one suggesting the economic recovery may be sustainable." I don't know about the sustainability component -- seems to be a bit of rearview-mirror extrapolation -- but the results do suggest something many consumers already suspect: Things have definitely gotten more expensive. Especially swans.
Be sure to watch the flash presentation, linked from the PNC site.
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