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Chart 4 Employment
in the Service Sector
Inde~x_·

150
140

Trends
~1

Total = total service sector
FIRE = finance, insurance, and
real estate
Trade = wholesale and
retail trade

130
120

'::J:;-::_

110

Trade

1975

1980

a. Index as percent of employment 1969:IVQ.
SOURCES: Ohio Bureau of Emloyment Services and
U.S. Bureau of Labor Statistics.

care employment declined 0.5 percent locally during the first year of
the current recovery, while growing over 2 percent nationwide. Cleveland's lagging population growth
might have begun to dampen demand
for local medical care and educational services.
A notable exception to the relatively poor performance of local
service-sector industries in this
recovery has been the performance
of producer services. On one hand,
we would expect to find sizable
employment gains in producer services locally, because expenditures
on producer services nationally have
expanded at over twice the rate of
total service-sector expenditures.
On the other hand, we might expect

Federal Reserve Bank of Cleveland
Research Department
P.O. Box 6387
Cleveland, OR 44101

-

Address Correction
Requested:
Please send
corrected mailing label to the Federal Reserve
Bank of Cleveland, Research Department,
P.O. Box 6387,
Cleveland, OH 44101.

local producer services to be somewhat depressed by the long-term
declines in local manufacturing,
given the complementary relationship between certain producer
service inputs and manufacturing output. As it turned out, some
producer services performed well.
Local business services (which
include advertising, mailing, and
data processing) experienced employment growth comparable to business
services nationwide. Using Cuyahoga County as a proxy for metropolitan Cleveland's economy, local
business service employment rose
15 percent between December 1982
and December 1983. On the other
hand, local finance, insurance,
and real estate employment, representing a major portion of producer services, remained at the
same employment level in the second quarter of 1984 as when the
recovery began. Nationwide, its
employment had already expanded
4.5 percent. Even though producer
services have not escaped the impact of structural decline, their
performance has been impressive
given the sharp declines in the
manufacturing sector.
Conclusion
A sustained national economic recovery may yet allow a healthy expansion of service-sector employment
in Cleveland. To be sure, some of the
sluggishness in local service-sector
employment may simply result from
the narrow base of the local recov-

ery within the manufacturing sector (mostly auto-related industries),
and service jobs will pick up as
the recovery spreads to more and
more industries. Nevertheless, when
Cleveland's current recovery is
placed in the context of long-term
employment trends, the influence of
structural change on the local service sector seems unmistakable.
Apparently, just as over the business
cycle, structural changes that are
taking place in the service sector
are intertwined with structural
changes taking place in the manufacturing sector. However, the
timing of the employment adjustment to these structural changes
differs for each sector. The persistence of service-sector employment
growth in Cleveland and elsewhere
within the Fourth District during
the 1970s may have created the
illusion that the local service sector could grow independently of the
performance of the manufacturing sector. More likely, the adverse
effects of a shrinking manufacturing sector on local service-sector
employment were overshadowed
by Cleveland's participation in
the nationwide growth in demand
for services associated with the
transition from manufacturing to
services. As the growth effect of the
transition eased in recent years,
the linkage effect has become
more prominent.

BULK RATE
Paid
Cleveland, OR
Permit No. 385

u.s. Postage

Federal Reserve Bank of Cleveland

ISSN 0428-1276

September 10, 1984

The Service-Sector
Recovery in
Cleveland
by Robert H. Schnorbus and
Lorie D. Jackson
A popular belief in urban development is that the service sector
provides a perpetual source of employment growth. Service-sector
industries include transportation
and public utilities, wholesale and
retail trade, government, finance,
insurance, real estate, and other
consumer and business services.
Except for an occasional quarter
or two of employment loss during
recessions, service-sector employment has increased steadily nationwide. Service-sector employment is
especially important to the Fourth
District to replace jobs lost in the
shrinking local manufacturing sector,' In many areas of the Fourth
District, however, rates of servicesector growth often have been
among the lowest in the nation.'
Moreover, in five of the first six
quarters of the current national
recovery, employment in Cleveland's service sector declined (see
chart 1). Indeed, service-sector
employment has been on a downward trend since 1980.

••

Economist Robert H. Schnorbus and analyst Lorie D.
Jackson research regional economic issues for the
Federal Reserve Bank of Cleveland.
The views stated herein are those of the authors
and not necessarily those of the Federal Reserve
Bank of Cleveland or of the Board of Governors of
the Federal Reserve System.

Service -Sector RecoveriesPast and Present
Since World War II, the service
sector nationwide has rarely experienced employment declines. Over
the business cycle, service-sector
employment typically slows its rate
of growth during recession and
accelerates during recovery. In the
1981-82 recession (the deepest in
postwar experience), however, nationwide service-sector employment
declined 0.3 percent (or 174,000jobs),
mostly in 1982:IIIQ. In the current
recovery, service-sector employment
expanded 4.6 percent (or 3.1 million jobs) between the cycle trough
in 1982:IVQ and 1984:IIQ. This
performance was generally consistent with the 1971-72 and 1975-76
recovery experiences nationwide.
In contrast, Cleveland's service
sector frequently loses employment,
both in recessions and in the early
stages of recovery. Over the current
business cycle Cleveland's servicesector employment declined throughout the 1981-82 recession, losing
over 1.7 percent of its employment
(or 10,400 jobs) and continuing
to lose employment in nearly every
quarter since the recovery began
nationwide. Indeed, local servicesector employment in 1984:IIQ, six
quarters into the recovery, was
0.3 percent (or 1,600 jobs) below
its level when the recovery began
nationally (see chart 2).
In many ways, the current local
recovery has been similar to recent
recoveries. In both the 1970-71 and

••

1. The Fourth Federal Reserve District includes
the entire state of Ohio, northern and eastern
Kentucky, western Pennsylvania, and the northern panhandle of West Virginia.

Chart 1 Manufacturing
and
Service-Sector
Employment
Index"

r---------------------~

Cleveland manufacturing

~~4~---~2~--0~~~2~~-4~~~6
Quarters from trough
a. Index as percent of trough quarter
(1982:IVQ).

employment

SOURCES: Ohio Bureau of Employment Services and
U.S. Bureau of Labor Statistics.

Chart 2
Index·

Local Service-Sector

Recoveries

~----------------------~

105
104
103
102

o

4

Quarters from trough

8

12

a. Index as percent of trough quarter employment1982:IVQ, 1975:IQ, and 1970:IVQ.
SOURCE: Ohio Bureau of Employment Services.

1975-76 recoveries, local servicesector employment dropped about

••

2. See Roger H. Hinderliter and Robert H. Schnorbus, "Income Growth and Industrial Change in
the Fourth District;' 1978 Annual Report, Federal
Reserve Bank of Cleveland.

1 percent (or roughly 2,500 jobs)
over six quarters before resuming
an expansionary trend. In national
recoveries, however, these declines
lasted only two quarters. Moreover, by the sixth quarter in both
the 1970-71 and 1975-76 recoveries,
employment rose about 1 percent
above the trough employment level.
In the 1975-76 recovery, which also
experienced a strong expansion in
manufacturing employment, local
service-sector employment rose
0.9 percent (or 4,900 jobs) between
its trough and the sixth quarter
of its recovery. If Cleveland were
experiencing service-sector employment gains comparable with those
in the 1975-76 recovery, it would
have gained 7,000 more service-sector
jobs by the sixth quarter of the current recovery than it actually did.
Trends in Service-Sector
Expenditures
Several underlying trends, both
nationally and locally, might explain
the current weakness in the local
service-sector recovery. To begin
with, the rapid growth in servicesector expenditures nationwide
appears to be slowing. If this slowing trend were to continue, servicesector expenditures in each successive recovery would be weaker
than in the last. Since the beginning of the current recovery, growth
rates for service-sector expenditures have been even weaker than
the postwar trend rate.'
The slowing trend in service expenditures can be explained partly by
income and price effects. As incomes
rise, generally both consumers and
producers use an increasing share
of services compared with goods.
Much of the postwar growth in
service expenditures is associated
with rising income. To the extent
that income growth has slowed
since 1980 because of back-to-back
recessions, some temporary slowdown in service-demand growth
would be expected.

••

3. A simple model was constructed to test the
statistical significance of the ratio of change in
expenditure growth. Service expenditure data in
log form were correlated with a time trend (the
direction of the expenditure growth), the square
of the time trend (its rate of change), GNP (the

Another factor in the slowdown
could be the rising prices of services compared with goods+ If productivity in services has grown at
a slower rate than in manufacturing,
as is generally assumed, the price
of services should be rising faster
than the price of goods. If the demand for services is now highly
responsive to price changes, continued increases in service prices
would reduce the quantity of services demanded by more than the
price increase. In producer services
with emerging economies of scale,
the price effect might be overshadowed by productivity improvements
associated with the introduction
of new technologies.
Linkages between Manufacturing
and Services
Although service-sector expenditures have grown faster than manufacturing expenditures over the
postwar period, service-sector performance has not been completely
independent of the manufacturing sector. The demand for services
is linked directly and indirectly to
manufacturing activity. A direct
link is created by producers' demand
for services, essentially "invisible"
inputs into the manufacturing process. An indirect link is created by
consumers' demand for services
in that many consumers' incomes
depend on employment in the manufacturing sector. Thus, in metropolitan economies with manufacturing employment that typically lags
the nation during economic recoveries, the local service sector would
also be expected to lag the servicesector recovery nationwide. However, Cleveland's current manufacturing recovery has been somewhat
stronger than past recoveries. The
fact that the service-sector recovery
is weaker than in the past suggests
that long-term, or structural, problems are exerting a greater influence on Cleveland's service-sector
recoveries than in the past.
The slowdown of expenditure
business cycle control variable), and a dummy
variable for the current recovery. The first three
independent variables were statistically significant at the 1 percent confidence level, and the
last variable at the 10percent confidence level.

c:::Jpersonal, auto repair,
Consumer services:
hotel,

motion picture, amusement, and private household.
Nonprofit services:
health, private education, and social.
Producer services:
finance, insurance, and real estate; business, legal,
and membership organizations.
_
Government services:
public education,
and federal, state, and local
governments.
_
Distributive services:
transportation,
public utilities, and wholesale and
retail trade.

c:::J
c::J

SOURCES: Ohio Bureau of Employment Services and
U.S. Bureau of Labor Statistics.

growth in the service sector has been
concentrated in mature economies,
such as Cleveland's, where economic growth has been below the
national averagef There are several reasons, related to structural
changes in the local economy, why
Cleveland might have experienced
disproportionately slow service
employment growth over the postwar periodf First, the link between
manufacturing and services has
long-term as well as cyclical effects.
Structural decline within the local
manufacturing sector is likely to
spill over into the service sector.
Second, the loss of local population
and income would be expected to
slow the growth of services demanded by consumers. Third, to
the extent that structural decline
has occurred throughout the Fourth
District, there may also have been
a decline in the portion of servicesector employment in Cleveland
devoted to the export of services to
surrounding metropolitan areas.

-

4. For an extended discussion of the price elasticity of demand for services, see Jonathan I. Gershung and Ian D. Miles, The New Service Economy,
New York: Praeger Publishers, 1983.

Shifts in Composition
Over the years, a new service sector
has been emerging, fostered by new
technologies, most notably computers. New producer services (e.g.,
computerization of assembly lines)
and nonprofit services (e.g., technological advances in diagnostic
medicine) have accounted for a growing share of total services, while
the more traditional government and
distributive services have made
up a declining share. This shift is
readily apparent in the changing
distribution of service-sector employment (see chart 3). In 1973,
for example, 68 percent of all service employees in the nation were
involved in either state or local
governments or in the distribution
of goods; 26 percent worked in producer and nonprofit services. By
1983,64 percent of service jobs
were in government and distributive services, and 30 percent were in
producer and nonprofit services.
(Consumer services, which include
the stereotype of the ham burger
stands and laundromats most commonly viewed as the service sector,
have not been a major factor in the
emergence of the new service sector.)
The shift to new services has a
cyclical impact to the extent that distributive and government services
have been more affected by the business cycle than producer and nonprofit services. Producer services
are more closely tied with manufacturing, and hence are relatively
more cyclically sensitive than nonprofit services; both types of services have experienced strong longterm growth trends with only minor
cyclical fluctuations compared with
distributive and government services. As the cyclical sensitivity of
the service sector diminishes, each
successive recovery would be expected to provide less service
employment growth.
Over the last decade, Cleveland
experienced a greater decline in
the cyclical sensitivity of its service
sector than the nation, largely be-

ca use of the emergence of the new
service sector. (Because of limited
data, Cuyahoga County is used
here as a proxy for metropolitan
Cleveland's economy.) For example,
the employment share of distributive services, an industry that is cyclically sensitive, was almost 5 percent higher locally than nationally
in 1973, but had become roughly
equal to the national average by
1983. Even though producer services have increased their share of
employment in Cleveland's service
sector, the gains made locally were
less than those made nationally.
In 1973, for example, the local share
of producer-services employment
was 7 percent greater than in the
nation; by 1983, the local share had
dropped to only 2 percent greater
than in the nation. Because Cleveland has become less specialized in
producer services relative to the
nation than it was ten years ago,
the cyclical contribution of this
industry to the total service sector
has become more like the nationwide contribution. The net effect of
less specialization in producer services has most likely been a dampening of cyclical sensitivity, because
even less cyclically sensitive services (i.e., nonprofit services) have
taken their place.
Among other types of services,
nonprofit services increased their
share of Cleveland's service-sector
employment from 6 percent greater
than the national share in 1973 to
nearly 30 percent greater in 1983.
While reflecting long-term growth,
this dramatic increase in local specialization provides little additional
employment gain that could be associated purely with the business
cycle recovery. While these shifts
would suggest an improvement in
Cleveland's cyclical stability, they
also would tend to produce a slower
cyclical recovery than in the past
(assuming service-sector industries
follow a typical recovery pattern).

5. Since expenditure data are not available on
a regional basis, we cannot look specifically at
Cleveland's expenditure trends.

6. For further discussion of factors that relate
to the declining performance of Cleveland's
economy, see Roger H. Hinderliter, "Sources of
Regional Growth Disparity: The Case of Ohio's
Industries;' Economic Commentary, Federal
Reserve Bank of Cleveland, December 19, 1983.

••

••

Service-Sector Trends
While there has been a steady decline
in employment in Cleveland's service sector since 1980, employment
nationwide has been accelerating
in the current recovery in accordance with past behavior. A partial
explanation for the poor performance of Cleveland's service sector
since 1980 is that the last two recessions (1980 and 1981-82) were particularly severe for Cleveland's
manufacturing industries. Manufacturing employment dropped
roughly 100,000 jobs between 1970
and 1982, with about one-third of
the job losses occurring between
1980 and 1982. Adjustments in the
local sector to manufacturing losses
appear to have continued into the
current recovery. As a result, these
structural adjustments have detracted from the employment gains
in the service sector that normally
would be expected to come with
recovery in the business cycle.
Although there are a few bright
spots, each of the service-sector
groups bears some evidence of the
local impact of structural decline
(see chart 4). In contrast to past
recoveries, cyclically sensitive government and distributive services
have performed poorly in the current recovery, with employment
declines between 1982:IVQ and
1984:IIQ of 1.3 percent (3,000 jobs)
and 4.1 percent (4,800 jobs), respectively. In fact, since 1980, employment declines in these two groups
have accounted for much of the
total loss in service-sector employment. In wholesale and retail trade,
which represent a large part of
Cleveland's distributive services,
employment declines since 1980
were much sharper than in overall
service-sector employment. Employment gains in these industries did
not occur until 1984:IQ-a full year
into the national recovery. Even
nonprofit services, which previously
had shown a strong employment
trend, have been struggling in this
recovery. For example, medical-

1 percent (or roughly 2,500 jobs)
over six quarters before resuming
an expansionary trend. In national
recoveries, however, these declines
lasted only two quarters. Moreover, by the sixth quarter in both
the 1970-71 and 1975-76 recoveries,
employment rose about 1 percent
above the trough employment level.
In the 1975-76 recovery, which also
experienced a strong expansion in
manufacturing employment, local
service-sector employment rose
0.9 percent (or 4,900 jobs) between
its trough and the sixth quarter
of its recovery. If Cleveland were
experiencing service-sector employment gains comparable with those
in the 1975-76 recovery, it would
have gained 7,000 more service-sector
jobs by the sixth quarter of the current recovery than it actually did.
Trends in Service-Sector
Expenditures
Several underlying trends, both
nationally and locally, might explain
the current weakness in the local
service-sector recovery. To begin
with, the rapid growth in servicesector expenditures nationwide
appears to be slowing. If this slowing trend were to continue, servicesector expenditures in each successive recovery would be weaker
than in the last. Since the beginning of the current recovery, growth
rates for service-sector expenditures have been even weaker than
the postwar trend rate.'
The slowing trend in service expenditures can be explained partly by
income and price effects. As incomes
rise, generally both consumers and
producers use an increasing share
of services compared with goods.
Much of the postwar growth in
service expenditures is associated
with rising income. To the extent
that income growth has slowed
since 1980 because of back-to-back
recessions, some temporary slowdown in service-demand growth
would be expected.

••

3. A simple model was constructed to test the
statistical significance of the ratio of change in
expenditure growth. Service expenditure data in
log form were correlated with a time trend (the
direction of the expenditure growth), the square
of the time trend (its rate of change), GNP (the

Another factor in the slowdown
could be the rising prices of services compared with goods+ If productivity in services has grown at
a slower rate than in manufacturing,
as is generally assumed, the price
of services should be rising faster
than the price of goods. If the demand for services is now highly
responsive to price changes, continued increases in service prices
would reduce the quantity of services demanded by more than the
price increase. In producer services
with emerging economies of scale,
the price effect might be overshadowed by productivity improvements
associated with the introduction
of new technologies.
Linkages between Manufacturing
and Services
Although service-sector expenditures have grown faster than manufacturing expenditures over the
postwar period, service-sector performance has not been completely
independent of the manufacturing sector. The demand for services
is linked directly and indirectly to
manufacturing activity. A direct
link is created by producers' demand
for services, essentially "invisible"
inputs into the manufacturing process. An indirect link is created by
consumers' demand for services
in that many consumers' incomes
depend on employment in the manufacturing sector. Thus, in metropolitan economies with manufacturing employment that typically lags
the nation during economic recoveries, the local service sector would
also be expected to lag the servicesector recovery nationwide. However, Cleveland's current manufacturing recovery has been somewhat
stronger than past recoveries. The
fact that the service-sector recovery
is weaker than in the past suggests
that long-term, or structural, problems are exerting a greater influence on Cleveland's service-sector
recoveries than in the past.
The slowdown of expenditure
business cycle control variable), and a dummy
variable for the current recovery. The first three
independent variables were statistically significant at the 1 percent confidence level, and the
last variable at the 10percent confidence level.

c:::Jpersonal, auto repair,
Consumer services:
hotel,

motion picture, amusement, and private household.
Nonprofit services:
health, private education, and social.
Producer services:
finance, insurance, and real estate; business, legal,
and membership organizations.
_
Government services:
public education,
and federal, state, and local
governments.
_
Distributive services:
transportation,
public utilities, and wholesale and
retail trade.

c:::J
c::J

SOURCES: Ohio Bureau of Employment Services and
U.S. Bureau of Labor Statistics.

growth in the service sector has been
concentrated in mature economies,
such as Cleveland's, where economic growth has been below the
national averagef There are several reasons, related to structural
changes in the local economy, why
Cleveland might have experienced
disproportionately slow service
employment growth over the postwar periodf First, the link between
manufacturing and services has
long-term as well as cyclical effects.
Structural decline within the local
manufacturing sector is likely to
spill over into the service sector.
Second, the loss of local population
and income would be expected to
slow the growth of services demanded by consumers. Third, to
the extent that structural decline
has occurred throughout the Fourth
District, there may also have been
a decline in the portion of servicesector employment in Cleveland
devoted to the export of services to
surrounding metropolitan areas.

-

4. For an extended discussion of the price elasticity of demand for services, see Jonathan I. Gershung and Ian D. Miles, The New Service Economy,
New York: Praeger Publishers, 1983.

Shifts in Composition
Over the years, a new service sector
has been emerging, fostered by new
technologies, most notably computers. New producer services (e.g.,
computerization of assembly lines)
and nonprofit services (e.g., technological advances in diagnostic
medicine) have accounted for a growing share of total services, while
the more traditional government and
distributive services have made
up a declining share. This shift is
readily apparent in the changing
distribution of service-sector employment (see chart 3). In 1973,
for example, 68 percent of all service employees in the nation were
involved in either state or local
governments or in the distribution
of goods; 26 percent worked in producer and nonprofit services. By
1983,64 percent of service jobs
were in government and distributive services, and 30 percent were in
producer and nonprofit services.
(Consumer services, which include
the stereotype of the ham burger
stands and laundromats most commonly viewed as the service sector,
have not been a major factor in the
emergence of the new service sector.)
The shift to new services has a
cyclical impact to the extent that distributive and government services
have been more affected by the business cycle than producer and nonprofit services. Producer services
are more closely tied with manufacturing, and hence are relatively
more cyclically sensitive than nonprofit services; both types of services have experienced strong longterm growth trends with only minor
cyclical fluctuations compared with
distributive and government services. As the cyclical sensitivity of
the service sector diminishes, each
successive recovery would be expected to provide less service
employment growth.
Over the last decade, Cleveland
experienced a greater decline in
the cyclical sensitivity of its service
sector than the nation, largely be-

ca use of the emergence of the new
service sector. (Because of limited
data, Cuyahoga County is used
here as a proxy for metropolitan
Cleveland's economy.) For example,
the employment share of distributive services, an industry that is cyclically sensitive, was almost 5 percent higher locally than nationally
in 1973, but had become roughly
equal to the national average by
1983. Even though producer services have increased their share of
employment in Cleveland's service
sector, the gains made locally were
less than those made nationally.
In 1973, for example, the local share
of producer-services employment
was 7 percent greater than in the
nation; by 1983, the local share had
dropped to only 2 percent greater
than in the nation. Because Cleveland has become less specialized in
producer services relative to the
nation than it was ten years ago,
the cyclical contribution of this
industry to the total service sector
has become more like the nationwide contribution. The net effect of
less specialization in producer services has most likely been a dampening of cyclical sensitivity, because
even less cyclically sensitive services (i.e., nonprofit services) have
taken their place.
Among other types of services,
nonprofit services increased their
share of Cleveland's service-sector
employment from 6 percent greater
than the national share in 1973 to
nearly 30 percent greater in 1983.
While reflecting long-term growth,
this dramatic increase in local specialization provides little additional
employment gain that could be associated purely with the business
cycle recovery. While these shifts
would suggest an improvement in
Cleveland's cyclical stability, they
also would tend to produce a slower
cyclical recovery than in the past
(assuming service-sector industries
follow a typical recovery pattern).

5. Since expenditure data are not available on
a regional basis, we cannot look specifically at
Cleveland's expenditure trends.

6. For further discussion of factors that relate
to the declining performance of Cleveland's
economy, see Roger H. Hinderliter, "Sources of
Regional Growth Disparity: The Case of Ohio's
Industries;' Economic Commentary, Federal
Reserve Bank of Cleveland, December 19, 1983.

••

••

Service-Sector Trends
While there has been a steady decline
in employment in Cleveland's service sector since 1980, employment
nationwide has been accelerating
in the current recovery in accordance with past behavior. A partial
explanation for the poor performance of Cleveland's service sector
since 1980 is that the last two recessions (1980 and 1981-82) were particularly severe for Cleveland's
manufacturing industries. Manufacturing employment dropped
roughly 100,000 jobs between 1970
and 1982, with about one-third of
the job losses occurring between
1980 and 1982. Adjustments in the
local sector to manufacturing losses
appear to have continued into the
current recovery. As a result, these
structural adjustments have detracted from the employment gains
in the service sector that normally
would be expected to come with
recovery in the business cycle.
Although there are a few bright
spots, each of the service-sector
groups bears some evidence of the
local impact of structural decline
(see chart 4). In contrast to past
recoveries, cyclically sensitive government and distributive services
have performed poorly in the current recovery, with employment
declines between 1982:IVQ and
1984:IIQ of 1.3 percent (3,000 jobs)
and 4.1 percent (4,800 jobs), respectively. In fact, since 1980, employment declines in these two groups
have accounted for much of the
total loss in service-sector employment. In wholesale and retail trade,
which represent a large part of
Cleveland's distributive services,
employment declines since 1980
were much sharper than in overall
service-sector employment. Employment gains in these industries did
not occur until 1984:IQ-a full year
into the national recovery. Even
nonprofit services, which previously
had shown a strong employment
trend, have been struggling in this
recovery. For example, medical-

Chart 4 Employment
in the Service Sector
Inde~x_·

150
140

Trends
~1

Total = total service sector
FIRE = finance, insurance, and
real estate
Trade = wholesale and
retail trade

130
120

'::J:;-::_

110

Trade

1975

1980

a. Index as percent of employment 1969:IVQ.
SOURCES: Ohio Bureau of Emloyment Services and
U.S. Bureau of Labor Statistics.

care employment declined 0.5 percent locally during the first year of
the current recovery, while growing over 2 percent nationwide. Cleveland's lagging population growth
might have begun to dampen demand
for local medical care and educational services.
A notable exception to the relatively poor performance of local
service-sector industries in this
recovery has been the performance
of producer services. On one hand,
we would expect to find sizable
employment gains in producer services locally, because expenditures
on producer services nationally have
expanded at over twice the rate of
total service-sector expenditures.
On the other hand, we might expect

Federal Reserve Bank of Cleveland
Research Department
P.O. Box 6387
Cleveland, OR 44101

-

Address Correction
Requested:
Please send
corrected mailing label to the Federal Reserve
Bank of Cleveland, Research Department,
P.O. Box 6387,
Cleveland, OH 44101.

local producer services to be somewhat depressed by the long-term
declines in local manufacturing,
given the complementary relationship between certain producer
service inputs and manufacturing output. As it turned out, some
producer services performed well.
Local business services (which
include advertising, mailing, and
data processing) experienced employment growth comparable to business
services nationwide. Using Cuyahoga County as a proxy for metropolitan Cleveland's economy, local
business service employment rose
15 percent between December 1982
and December 1983. On the other
hand, local finance, insurance,
and real estate employment, representing a major portion of producer services, remained at the
same employment level in the second quarter of 1984 as when the
recovery began. Nationwide, its
employment had already expanded
4.5 percent. Even though producer
services have not escaped the impact of structural decline, their
performance has been impressive
given the sharp declines in the
manufacturing sector.
Conclusion
A sustained national economic recovery may yet allow a healthy expansion of service-sector employment
in Cleveland. To be sure, some of the
sluggishness in local service-sector
employment may simply result from
the narrow base of the local recov-

ery within the manufacturing sector (mostly auto-related industries),
and service jobs will pick up as
the recovery spreads to more and
more industries. Nevertheless, when
Cleveland's current recovery is
placed in the context of long-term
employment trends, the influence of
structural change on the local service sector seems unmistakable.
Apparently, just as over the business
cycle, structural changes that are
taking place in the service sector
are intertwined with structural
changes taking place in the manufacturing sector. However, the
timing of the employment adjustment to these structural changes
differs for each sector. The persistence of service-sector employment
growth in Cleveland and elsewhere
within the Fourth District during
the 1970s may have created the
illusion that the local service sector could grow independently of the
performance of the manufacturing sector. More likely, the adverse
effects of a shrinking manufacturing sector on local service-sector
employment were overshadowed
by Cleveland's participation in
the nationwide growth in demand
for services associated with the
transition from manufacturing to
services. As the growth effect of the
transition eased in recent years,
the linkage effect has become
more prominent.

BULK RATE
Paid
Cleveland, OR
Permit No. 385

u.s. Postage

Federal Reserve Bank of Cleveland

ISSN 0428-1276

September 10, 1984

The Service-Sector
Recovery in
Cleveland
by Robert H. Schnorbus and
Lorie D. Jackson
A popular belief in urban development is that the service sector
provides a perpetual source of employment growth. Service-sector
industries include transportation
and public utilities, wholesale and
retail trade, government, finance,
insurance, real estate, and other
consumer and business services.
Except for an occasional quarter
or two of employment loss during
recessions, service-sector employment has increased steadily nationwide. Service-sector employment is
especially important to the Fourth
District to replace jobs lost in the
shrinking local manufacturing sector,' In many areas of the Fourth
District, however, rates of servicesector growth often have been
among the lowest in the nation.'
Moreover, in five of the first six
quarters of the current national
recovery, employment in Cleveland's service sector declined (see
chart 1). Indeed, service-sector
employment has been on a downward trend since 1980.

••

Economist Robert H. Schnorbus and analyst Lorie D.
Jackson research regional economic issues for the
Federal Reserve Bank of Cleveland.
The views stated herein are those of the authors
and not necessarily those of the Federal Reserve
Bank of Cleveland or of the Board of Governors of
the Federal Reserve System.

Service -Sector RecoveriesPast and Present
Since World War II, the service
sector nationwide has rarely experienced employment declines. Over
the business cycle, service-sector
employment typically slows its rate
of growth during recession and
accelerates during recovery. In the
1981-82 recession (the deepest in
postwar experience), however, nationwide service-sector employment
declined 0.3 percent (or 174,000jobs),
mostly in 1982:IIIQ. In the current
recovery, service-sector employment
expanded 4.6 percent (or 3.1 million jobs) between the cycle trough
in 1982:IVQ and 1984:IIQ. This
performance was generally consistent with the 1971-72 and 1975-76
recovery experiences nationwide.
In contrast, Cleveland's service
sector frequently loses employment,
both in recessions and in the early
stages of recovery. Over the current
business cycle Cleveland's servicesector employment declined throughout the 1981-82 recession, losing
over 1.7 percent of its employment
(or 10,400 jobs) and continuing
to lose employment in nearly every
quarter since the recovery began
nationwide. Indeed, local servicesector employment in 1984:IIQ, six
quarters into the recovery, was
0.3 percent (or 1,600 jobs) below
its level when the recovery began
nationally (see chart 2).
In many ways, the current local
recovery has been similar to recent
recoveries. In both the 1970-71 and

••

1. The Fourth Federal Reserve District includes
the entire state of Ohio, northern and eastern
Kentucky, western Pennsylvania, and the northern panhandle of West Virginia.

Chart 1 Manufacturing
and
Service-Sector
Employment
Index"

r---------------------~

Cleveland manufacturing

~~4~---~2~--0~~~2~~-4~~~6
Quarters from trough
a. Index as percent of trough quarter
(1982:IVQ).

employment

SOURCES: Ohio Bureau of Employment Services and
U.S. Bureau of Labor Statistics.

Chart 2
Index·

Local Service-Sector

Recoveries

~----------------------~

105
104
103
102

o

4

Quarters from trough

8

12

a. Index as percent of trough quarter employment1982:IVQ, 1975:IQ, and 1970:IVQ.
SOURCE: Ohio Bureau of Employment Services.

1975-76 recoveries, local servicesector employment dropped about

••

2. See Roger H. Hinderliter and Robert H. Schnorbus, "Income Growth and Industrial Change in
the Fourth District;' 1978 Annual Report, Federal
Reserve Bank of Cleveland.