Census Recognizes Growth of Service Industry

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Last Monday, the U.S. Census Bureau made the inaugural release of the Quarterly Services Survey, making it the first new economic indicator to be introduced in nearly 40 years. The survey is intended to provide a better understanding of the American service sector, as well as its scope and impact on the U.S. economy.

The first release was a measure of three main sectors of the service industry; the Census plans to expand the survey to about 10 sectors in total. The initial three include information services (media including publishing and advertising); professional, scientific and technical services (including things like tax preparation and drug research); and administrative, support, and waste management and remediation services. The Census Bureau has received praise from high ranking economists and public officials for the creation of this indicator, as the service industry has developed into one of the most important and rapidly growing contributors to the U.S. gross domestic product and the well-being of the American economy as whole.

Using the Current Population Survey data, American Demographics estimates that the three new sectors have averaged about 3 percent annual growth in jobs since 1975. Together, this means that these three industries have more than doubled in size (growth of 111 percent) since 1975. The Census estimates that they account for 15 percent of the U.S. GDP and, as a whole, the service sector accounts for 55 percent of all economic activity if retail and wholesale trade are excluded. Clearly, it has already become an important sector.

The indicator will be released 75 days after the end of every calendar quarter, so the next release will be on December 14th. During the first survey, there was an 80 percent voluntary response rate for those who were contacted for participation. While these response rates sound good, the service sector, possibly more than any other industry, may be difficult for the Census Bureau to keep tabs on, mainly because much of it is kept off the books. Not surprisingly, many businesses do not report all of their profits for fear of receiving a higher tax rate or losing access to government benefits.

This presented a problem for the Bureau of Labor when it recently forecasted the self-employment market, which it suggests will experience flat growth over the next 10 years.

The problem with this predication, according to a June 2004 American Demographics article called "A New Era of Cold Hard Cash," by Peter Francese, is that because many of these businesses operate off the books the Bureau has a limited view of the economic activity in the self-employment market. Additionally, one might even argue that the self-employment market would likely grow, as Baby Boomers approaching retirement may be looking for additional sources of income.

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