Full text of Pieces of Eight : Business : An Eighth District Perspective, Spring 1985

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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.