WWW.IBISWORLD.COM January May 2015 2014 1 The Follow Evolution on head of on US Master Industry page A May 2015 By Will McKitterick, Maksim Soshkin and Darryle Ulama Using industry value added and employment, IBISWorld has analyzed and systematized the relative importance of US industries. A multitude of factors have motivated the changing fabric of the US economy across the decades. The economy s shift over the past two decades is familiar to most Americans. Much of the country s manufacturing sector has experienced a seemingly irreversible decline, while the service sectors of finance, real estate and healthcare have accounted for a greater share of economic activity. A multitude of factors, both internal and external, Value Added Share of GDP 100 80 60 have motivated the changing fabric of the US economy across the decades, as illustrated by the chart below. This article focuses on the relative importance of our major industries through the NAICS divisions that house the 700 individual industries on which IBISWorld gathers information. We do this using two different measures: Other Services (except government) Accomodation and Food Services Arts, Entertainment and Recreation Health Care and Social Assistance Administrative and Waste Management Services Professional Scientific and Technical Services Real Estate Rental and Leasing % 40 20 0 1950 1960 1970 1980 1990 2000 2010 2020(f) Transportation and Warehousing Manufacturing Construction Agriculture, Forestry, Fishing and Hunting SOURCE: BUREAU OF ECONOMIC ANALYSIS AND IBISWORLD www.ibisworld.com 1-800-330-3772 info@ibisworld.com
WWW.IBISWORLD.COM May 2015 2 value added (i.e. wealth created by labor, depreciation and profit) and employment. These measures are both calculated based on their forecast positions as of May 2015. Postwar boom The postwar economy of the 1950s heralded a new era of prosperity for Americans, marked by an expansion of the middle class, a rise in suburban construction and the emergence of largescale consumerism. After the Second World War, the United States benefited from a strong industrial base and almost no competition from an economically devastated Europe. Combined with a stable macroeconomic environment and a postwar population boom, the United States secured its place as the world s preeminent manufacturing power during this decade. By 1950, manufacturing represented the core of the US economy, accounting for 30.8% of industry value added, led by automotive, steel and construction materials manufacturing. Production of consumer durables was supported by advertising and a conservative social climate, which promoted conspicuous consumption. Rise of the service sector Over the next 60 years, the United States went through a period of transformation, achieving its postindustrial status through the growth of service sectors. From 1970s onward, the country s manufacturing base atrophied as a result of deregulation, foreign competition and outsourcing. Demonstrating this, between 1960 and 2010, the manufacturing sector s share of the economy fell from 29.7% to 13.5%. However, this drop signifies a relative rather than a nominal decline in economic significance that coincided with an expansion of the service-based economy. Productivity in the manufacturing sector has increased in both absolute terms and relative to other sectors of the US economy. Nevertheless, automation, the Change in Sector IVA as a Share of the Total Economy Administrative and Support Services Professional Scientific and Technical Services Health Care and Social Assistance Arts, Entertainment and Recreation Real Estate Rental and Leasing Accomodation and Food Services Construction Other Services (except Public Administration Transportation and Warehousing Manufacturing Agriculture, Forestry, Fishing and Hunting -3-2 -1 0 1 2 3 Annualized Growth Rate 1950-2015 (%) SOURCE: BUREAU OF ECONOMIC ANALYSIS AND IBISWORLD
WWW.IBISWORLD.COM May 2015 3 rise of technical and tertiary education and a realignment of global production chains all contributed to the economy s gradual transition toward service industries. The chart above illustrates the radical transformation the US economy has undergone since the 1950s. The postindustrial economy supported a dynamic shift in the country s labor makeup, giving rise to white collar professions and technocrats. For instance, the professional, scientific, and technical services sector, which includes lawyers, engineers and accountants, had one of the fastest relative expansions, increasing its share of the economy from 2.3% in 1960 to 8.1% in 2010. Moreover, the information sector surged as innovation in computing and information technology ballooned. Our current state Today, propelled by financial deregulation, innovation and growing use of credit by both consumers and businesses, the finance and insurance sector accounts for the greatest share of the economy. In part, this is indicative of a developed, asset-rich economy that relies on large financial intermediaries and liquid markets to grow. However, while finance, professional and tech-related sectors have increased their share of the economy, they have yielded little in terms of employment, relying on relatively few well-educated, highly paid workers. As the chart below demonstrates, the retail, healthcare, hospitality and educational services segments of the economy dominate today s employment distribution. These are the main sectors that replaced manufacturing jobs that moved overseas or were lost to greater productivity over the past 60 years. In particular, the healthcare sector is one of the fastest-growing portions of the economy supported by an aging population, longer lifespans and increased government social welfare. United States Industry Mix Shares of Employment, 2014-15 38.0% Secondary 0.6% Construction 7.1% Manufacturing 7.1% 11.0% Primary Agriculture, Forestry, Fishing and Hunting 3.2% 0.5% 52.0% Tertiary Other Services (except Public Administration Accomodation and Food Services Arts, Entertainment and Recreation Health Care and Social Assistance Administrative and Support Services 5.3% 7.9% 2.7% 13.7% 7.7% 7.6% Professional Scientific and Technical Services 7.6% Real Estate Rental and Leasing 2.9% 4.7% 2.5% Transportation and Warehousing 4.1% 11.2% 3.8% SOURCE: IBISWORLD
WWW.IBISWORLD.COM May 2015 4 About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit www.ibisworld.com or call 1-800-330-3772. It is important to note that the United States is anticipated to create about 11.0 million new private sector jobs between 2010 and 2015. The vast majority of these new positions have been generated in service-related sectors of the economy, including the information, finance and insurance, and professional, scientific and technical services segments. Conversely, the agricultural, utilities, retail, educational arts and entertainment sectors are either expected to stagnate or shed jobs during the period. All told, the service sector is estimated to generate 9.3 million, or about 85.0%, of new positions over the period, compared with 14.0% from the secondary (i.e. manufacturing, construction and utilities) and 1.0% from the primary (i.e. agricultural and extractive industries) sectors of the economy. Looking forward Over the next five years, services will continue to gain a greater share of the economy. Science, tech and finance will play an important role in this expansions, as the knowledge economy grows. However, the service sectors, the backbone of job growth, will revolve around the retail, hospitality and social assistance sectors. Most notably, as more baby boomers retire, the healthcare sector will account for one of the fastest growing segments of economic activity and job growth in the United States. What remains to be seen is whether or not the largest segments of employment (i.e. those related to retail, healthcare and hospitality), which are generally low-skilled positions, will be able to support a robust middle class as the manufacturing base once did. Contact: Media Relations media@ibisworld.com IBISWorld Sales & Subscriptions Phone: 1-917-267-0351 www.ibisworld.com
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