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Business AN EIGHTH DISTRICT PERSPECTIVE Spring 1985 Manufacturing vs. Services: A Dramatic Shift in the District Economy? Contribution of Manufacturing and Service Sectors to Total Employment in the 8th District A great deal has been written about the shift in the com position of the domestic economy away from manufactur ing and toward services. Some analysts have suggested that this shift has been a recent, dramatic phenomenon. Several studies, however, have disputed this belief, indicating that the shift away from manufacturing toward services has been going on for a long time and has not accelerated dramatical ly. This issue compares wage and salary disbursement and employment trends in the manufacturing and service sec tors to determine the extent of this shift in the Eighth Federal Reserve District. Ckorf I 8th District Manufacturing and Service Employment exceeded the growth of total employment at 2.3 percent. In the 1970s, growth in total employment was a more rapid 2 percent. Over the same period, the growth rate of manufacturing employment fell to 0.7 percent, while the growth in service employment increased to 3.1 percent. In the more recent 1981-83 period, though total employment has fallen at a 0.6 percent rate and manufacturing employ ment at a more rapid 2.7 percent rate, service employment has increased at a rate of 2.3 percent. Manufacturing’s contribution to total employment also has declined since 1967, while the service sector’s contribu tion has increased. As chart 2 indicates, while District manufacturing averaged 27 percent of total employment from 1967 to 1970, its share declined to 25.2 percent in A comparison of manufacturing and service employment from 1967 to 1983 shows that the number the 1970s and again to 22.6 percent in the of jobs has risen in both sectors, though 1981-83 period. This is similar to the nation manufacturing employment has increased wide trend. Manufacturing in the United only slightly — much less rapidly than ser States accounted for 26.4 percent of employ THE vice sector employment (see chart 1). In the ment in 1967. That share fell steadily to 23.6 FEDERAL RESERM late 1960s, total employment in the District percent in 1972, 22.1 percent in 1977 and RANK of grew at a 1.7 percent rate.1 Manufacturing 19.7 percent in 1982. ST. LO US employment, however, grew at a slower 1.4 In contrast, the District service sector, percent rate, while service employment which accounted for an average of 16.5 per'All growth rates are compounded annual rates of change. Data were obtained from Wharton Econometric Forecasting Associates. Chart 4 ck.rt i 8th District Manufacturing and Service W age Bill Contribution of Manufacturing and Service Sectors to the Total W age Bill in the 8th District cent of total employment in the late 1960s, increased its contribution to 17.5 percent in the 1970s and to 19.7 per cent in the early 1980s. The data clearly show that District manufacturing employ ment, in fact, has declined relative to employment in ser vices. The decline, however, has been going on since at least 1967 and is similar to the national trend. There is some evidence that the decline has accelerated slightly, but this acceleration does not appear to have been dramatic. It is not possible to conclude on the basis of these data that growth in manufacturing output has declined. To the extent that manufacturing industries have experienced labor productivity increases, declines in employment growth would have been possible without subsequent reductions in the growth of output. Several studies that looked at national data found that manufacturing output as a percen tage of GNP has been quite stable over the past several decades. Whether this is also true for the District remains uncertain, however, since data are not available on manufac turing output by state. Wage and Salary Disbursements The trends in employment in manufacturing and services are reflected in the growth in wage and salary disbursements in each sector and its relative contribution to total wage and salary disbursements (the total wage bill) over time. Chart 3 displays Eighth District total manufacturing and total ser vice wage disbursements. The total wage bill grew at a 7.7 percent rate from 1961 to 1970. Total wages paid to manufacturing workers (the manufacturing wage bill) grew at a comparable 7.6 percent rate over the same period, whereas total wages paid to service sector workers (the ser vice wage bill) grew more rapidly at 8.8 percent. In the decade of the 1970s, the service wage bill continued to grow more rapidly than either the total or the manufacturing wage bill, climbing an average of 11.8 percent per year, while the total and manufacturing wage bills increased at 9.8 and 8.7 percent rates, respectively. In the recent past, there has been a slowdown in the growth of all wage disbursements. The slowdown has been 2 only slight in the service sector, from the 11.8 percent rate of the 1970s to 11.3 percent in the early 1980s. The reduc tion in growth has been more substantive in the total and the manufacturing wage bills, however, where the growth rates fell to 6.1 percent and 4.7 percent, respectively, from 1981 through 1983. In addition, there has been a simultaneous decline in the percent contribution of manufacturing to the total wage bill in the Eighth District. While the manufacturing sector con tributed 31.7 percent of total wage and salary disbursements from 1961 through 1970, that share dropped to an average of 29.5 percent in the 1970s and to 27.3 percent for the 1981-83 period (see chart 4). In contrast, the service sec tor’s contribution to the total wage bill in the District has increased steadily, from an average of 11.1 percent in the 1961-70 period to 12.8 percent in the 1970s and to 15.8 percent in the most recent period. These trends are similar but slightly less substantial than those that have occurred at the national level. The U.S. manufacturing wage bill declined from an average of 31.6 percent of the total U.S. wage bill from 1961 through 1970, to 27.1 percent in the 1970s and 24.8 percent in the 1981-83 period. The service sector’s share rose from an average of 12.1 percent in the 1960s to 14.8 percent in the 1970s and 17.7 percent in the early 1980s. Conclusion It is clear that the Eighth District has indeed participated in the nationwide shift in employment away from manufac turing toward services. These trends, however, have been no more marked in the District than in the nation, and in the case of each sector’s contribution to the total wage bill, the trend has been less substantial in the District. Rather than indicating a sudden and dramatic shift, the data show that manufacturing’s contribution to both employment and total wage disbursements in the District has declined steadily since the 1960s. Moreover, any recent acceleration in the changing composition of District employment has been slight. —Catherine Axtell Bieber F E D E R A L R E S E R V E BAN K O F S T . L O U IS S P R IN G 1985 EIGHTH DISTRICT BUSINESS DATA G ro w th R a te s ’ Current Period General Business Indexes2 Y ear-to-D ate 1985 1984 7.5% 3.8 4.6 6.4 2.6% 4.7 3.6 6.4 7.8% 2.4 0.1 9.4 9.9 11.0% 11.2 8.7 9.4 13.8 9.9% 11.2 10.3 13.4 9.6 12.1 7.5% 6.9 8.2 4.2 7.6 7.4 3.6% 12.9 10.9 77.6 14.3 -0 .9 17.5 14.5 8.0 3.8 4.1% 3.6 3.7 11.8 4.0 9.2 2.9 4.5 4.0 7.0 5.3% -2 .9 -2 2 .0 1.3 0.5 1.0 3.6 7.8 9.3 3.7% 3.3 -0 .4 3.5 3.6 5.6 6.1 5.6 5.2 Nov-Jan Arkansas Kentucky Missouri Tennessee 3.8% 4.9 3.4 6.5 Retail Sales Oct-Dec United States A rkansas3 K entucky3 Missouri Tennessee 8.6% 6.2 -1 6 .6 8.9 18.9 Personal Incom e 3rd quarter ’84 United States D istrict Arkansas Kentucky Missouri Tennessee 8.6% 9.7 13.3 11.3 7.1 10.0 Payroll Em ploym ent Nov-Jan United States D istrict Arkansas Little Rock Kentucky Louisville Missouri St. Louis Tennessee M em phis 3.8% 8.9 7.6 82.3 10.5 18.4 12.1 13.9 5.1 16.5 A verage Hourly Earnings-Mfg. Nov-Jan United States Arkansas Little Rock Kentucky Louisville Missouri St. Louis Tennessee M em phis 5.8% -2 .3 -1 9 .8 2.8 3.9 4.6 1.7 11.8 10.4 P rices1 E m p lo ym en t1 Y ear-to-Date 1985 Same Period 1984 4 1 .2 % -1 0 .0 10.6 13.7 -5 .3 1.5 24.1 -4 2 .8 -3 8 .4 0 .9 % 9.8 16.6 5.5 -4 .6 - 1 1 .1 5.4 0.8 -4 0 .3 Y ear-to-D ate 1985 Sam e Period 1984 K ey In d u stries F a b rica te d M etal P ro d u cts E le ctrica l a nd E le c tro n ic E q u ip m e n t N o n e le c tric a l M a c h in e ry T ra n s p o rta tio n E q u ip m e n t Food a nd K in d re d P ro d u cts T e x tile a nd A p p a re l P rin tin g and P u b lis h in g C h e m ic a ls a nd A llie d P ro d u cts C o n s tru c tio n -1 .5 % 2.9 2.3 4.8 2.8 1.5 9.9 0.9 1.8 3 .1 % 3.5 3.0 1.4 9.7 2.3 10.5 3.6 2 .7 3 EIGHTH DISTRICT BUSINESS DATA C urrent P erio d *12 3 U n e m p lo y m e n t R ate U n ite d S ta te s D is tric t A rk a n s a s L ittle R ock K e n tu c k y L o u isville M isso u ri St. Louis T e n n e sse e M e m p h is C o n s tru c tio n C o n tra c ts 4 (m illio n s o f d o lla rs) D is tric t A rka n sa s K e n tu cky M isso u ri T e n n e sse e P revious 3 M onths A verag e Y earto -D ate 1985 A verage 1984 7 .4 % 8.5 9.1 6.8 9.6 8.9 6.7 7.6 9.3 7.3 7 .4 % 7.8 8.2 6.3 8.4 8.1 7.0 7.5 8.0 6.6 7 .5 % 8.6 9.0 6.9 9.5 8.9 7.4 8.3 8.9 7.6 $8 8 2 .5 130.5 205 .4 241.5 305.1 $6 1 5 .8 81.9 123.2 149.3 2 6 1 .4 $ 830.4 115.7 167.5 251.4 295.7 N ov-Jan 7 .2 % 8.1 8.7 6.6 9.1 8.4 6.9 7.6 8.4 6.7 Nov-Jan $675.9 84.1 111.5 210.8 269.5 NOTE: With the exception of construction contracts and employment and prices in key industries, all data are seasonally adjusted. 1Data are presented as three-month averages to minimize distortions due to the large variability of monthly data. The current period growth rate is a comparison of the average of the current three months to the average of the previous three months. The year-to-date growth rate is from the average of the three months ended in December 1983. All growth rates are compounded annual rates of change. 2Sources: Arkansas and Missouri from Southwestern Bell, Kentucky and Tennessee from South Central Bell. 3Sources: Arkansas from Southwestern Bell and Kentucky from Kentucky Revenue Department; Missouri and Tennessee are seasonally adjusted by this Bank. 4Source: F.W. Dodge, Construction Potentials, McGraw-Hill Information Systems Company, proprietary data provided by special permission.