The combined Cost-Variance Index (CVI) of 18 electrical product groups lost 0.06% during the fourth quarter of 1998, finishing at 191.22. On the year, the index registered a very modest 1.06% increase. While not a record annual low, only 1989, at 0.06%, and 1996, at 0.58%, logged smaller annual increases in the 22 years of the CVI report.

FOURTH QUARTER 1998 REVIEW The fourth-quarter CVI dipped despite 12 commodity groups that finished with gains and four that were unchanged. Only two groups lost ground, and these were large enough to offset gainers. The leaders included Industrial Controls up 2.86%; Cast Bodies up 1.18%; and Distribution Equipment up 0.46%. The two groups that dropped in value were Conduit & Raceways down 0.37%, and Wire, Cord & Cable off 2.71%. The weighted average for these commodities will vary among distributors based on individual stocking levels. An explanation follows on how distributors may calculate their own weighted averages.

1998 ANNUAL REVIEW Wire, Cord & Cable again proved to have a moderating effect on the CVI. There have now been six straight quarterly losses in value in this group. If we factored out this group's influence, the index would have gained 2.98% compared to the overall increase of 1.06%. The cost of spot copper (as reported on the COMEX) again was a precursor to this group. Spot copper began 1998 at $0.7690 a pound, reaching its high on April 15, of $0.8550 a pound, and gradually declining to a low of $0.6465 a pound on Dec. 23, and finished the year at $0.6635. A year-end U.S. Commerce Department report suggests that a side effect of the Asian economic crisis was the lowest domestic mortgage rates since the 1960s. This appears to have pushed record home sales and big gains in building supply purchases. Taking into account weighted average values, the Distribution Equipment commodity group led the annual gainers, followed by Industrial Controls.

The table above records index changes for all 18 commodities through the last five quarters, the 1997 and 1998 annual variances, and the 1998 annual weightings. We expect the traditional volume of first-quarter price change activity to continue in 1999. Changes have already been announced that will affect many categories, including Lighting-Industrial and Commercial, Lamps, Wiring Devices, and Industrial Controls.

COST VARIANCE INDEX "WEIGHTING"

The overall CVI change reflects the shift in the inventory investment of a "typical" distributor. The figures for each quarter are obtained by reviewing the price movement of more than 27,000 electrical products, each weighted according to its relative importance according to actual inventories and on-hand quantities obtained from distributors throughout the country.

If a distributor's product mix does not conform to the "typical" distributor's base that has been provided, the Commodity Classifications can be re-weighed to reflect its particular stocking pattern and then compared against the CVI. The weighted average is developed by dividing the dollar value of a particular commodity class by the dollar value of the overall index. For example, Ballasts represented a dollar value of $80,873.05. When divided by the total index value of $9,633,864.64, the weighted average for this commodity equals 0.084%. A distributor's own inventory dollar value may be substituted to arrive at that company's own weighted average.

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