Growth in Service Sector Jobs Slips : Area Had Been the Main Force in Fueling U.S. Economy
In early October, the head of the Bureau of Labor Statistics, Janet L. Norwood, gave Congress her monthly report on the nation’s unemployment statistics, reciting a familiar list of ills in manufacturing and oil industries.
But this time she administered another dose of ominous news: Job growth in the service sector, which has helped prop up the economy and prevented the unemployment rate from rising much above 7%, appeared to be ebbing.
In fact, the growth in services has been slowing for many months, while manufacturers have yet to regain half of the jobs lost during the last recession.
During the current economic recovery, the biggest job gains have been posted in finance, insurance and real estate, wholesale and retail trade, and other areas, such as health and business services, household services, automotive repair and motion pictures, according to Data Resources. Those service areas accounted for 50% of total employment in 1982, and contributed 8.1 million of the 10.3 million new jobs added since then, Data Resources said.
But Data Resources said growth in employment for wholesale and retail trade would drop to 2.5% in 1988 from a recent peak rate of 5.8% in 1984, and that finance, insurance and real estate would drop to 3.6% in 1988 from a 6% rate this year.
Growth in other services will decline to 3.5% in 1988 from a peak of 5.7% last year, Data Resources said.
Manufacturing employment has dropped almost steadily since the middle of 1984. Only 44% of the factory jobs lost during the 1981-82 recession have been regained, and 200,000 have disappeared just since the beginning of this year.
Data Resources said that after declining 0.7% this year, factory jobs would start growing by 0.2% next year and 0.8% in 1988.
The problem some economists see is that unless manufacturing revives, the service sector will face an even harder time, and the economy will be even more sluggish.
For example, David Hale, an economist with Kemper Financial Services, wrote recently that a recovery in manufacturing is essential, “because the economy is running out of locomotives in the service and construction sectors powerful enough to offset the recessionary effects of the trade deficit on total output.”
“My conclusion is that service employment has fallen off this year primarily because of the slowdown in economic growth,” said Jerry Jasinowski, chief economist for the National Assn. of Manufacturers.
“You can certainly make an argument that the slowdown in the economy caused by manufacturing, energy and agriculture has certainly depressed service employment growth.”
Economists said they did not expect growth in the services sector to stop, only to slow
Pace Has Slowed
Norwood noted in her report to the Joint Economic Committee that services employment grew at a decidedly slower pace in August and September.
“Job gains continued in the service-producing sector although, as was the case in August, the increases were not so strong as in earlier months,” Norwood told the committee last week.
Hale also said the decline in manufacturing was “spilling over in multiple effects throughout the economy. If you lose the benefits of spending to import penetration, then gradually the whole system slows down.”
According to Labor Department economists, growth in employment in retail trade, which was strong last year, has slowed recently. Business and health services had been adding about 100,000 jobs a month earlier this year, but that pace has slowed to about half that in the last two months.
Service-producing industries, consisting of transportation and public utilities, wholesale trade, retail trade, finance, insurance and real estate and business and health services, had been growing by more than 200,000 jobs a month. They grew by 139,000 in August and by 150,000 in September.
According to the National Assn. of Manufacturers, service employment growth was 4.3% in 1984, 4.1% in 1985 and 3.2% for the first six months of this year.
Many economists also note that the unemployment figures are lagging indicators: They don’t predict the future but reflect what has happened in the past.
“If it was a slowdown, it already occurred,” said Commerce Under Secretary Robert Ortner. “We don’t know, on the basis of the August and September changes, what’s really happening in the services sector.”
“I would doubt that the decline is very significant, since the overall thrust of employment over the year has been in an upward direction,” said Bill Dunkelberg, economist for the National Federation of Independent Business. “Most of those gains have been in the services sectors, which have been somewhat insulated from the problems in the balance of trade.”
Some economists have said for many months that the trade problem plaguing manufacturing for years would finally trickle down to services. They said that the loss of high-paying manufacturing jobs would result in lower income and less demand for services and, subsequently, a slowdown in services employment.
Economists said they were skeptical that manufacturing could make a swift turnaround soon, largely because the trade problem--despite the decline in the value of the dollar--will probably place a drag on manufacturers for some time.
Last month, economists thought that factory employment might finally have turned around when the Labor Department reported a 19,000 increase in factory jobs in August after months of declines. However, 10 days ago that figure was revised downward to an increase of only 1,000 jobs, and the hemorrhage resumed in September with the elimination of 38,000 manufacturing jobs, the Labor Department said.
“For quite a time the service sector has had a life of its own,” Hale said. “We have a risk now of the whole thing stalling at a relatively low level of growth. That’s why improvement of the trade deficit and manufacturing is so important.”
