A New Measuring Stick

A fast, timely method of tracking the U.S. service industry's economic health has arrived.

September 09, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The fundamental shift of the American economy the past generation - one that changed Baltimore's largest employer from Bethlehem Steel's mammoth factory to Johns Hopkins' medical and university campuses - is the reason for the U.S. Census Bureau's first new economic indicator in 40 years.

The federal government is acknowledging the transformation next week - better late than never - with a new survey meant to better measure parts of the service sector, which is poorly tracked even though it has been a powerhouse of the national economy for years.

"We know that there's a big part of the economy that we'd like to have more real-time measures of," said Lee Price, research director at the Economic Policy Institute in Washington, who was involved in the survey development while a Commerce Department deputy undersecretary. "We're just looking at platonic shadows right now."

A steady stream of monthly and quarterly data exists on everything from jobs to home construction to manufacturing output. But the government has had a hard time getting a handle on the service sector - now 70 percent of the economy, including retail.

Until now, the Census Bureau, the government's primary data collection agency, has produced only an annual survey. That doesn't get at the ups and downs that can happen in service industries from season to season, a problematic prospect for the statisticians who must estimate gross domestic product every three months.

The new services survey gets the information out more quickly - on a quarterly basis. The first estimates will appear on Monday. Commerce Secretary Donald L. Evans told reporters yesterday that the new numbers are meant to help close "a critical measurement gap in the U.S. economy."

The survey will estimate revenues for select industries, starting with the information sector, including software publishing and broadcasting; professional, scientific and technical services, such as engineering and accounting; and administrative and support and waste management and remediation services.

Those three sectors together account for about 15 percent of the nation's economy.

"It's going to greatly reduce the amount of guesswork and estimation that goes into how each service industry sector is recently performing," said Andrew Hodge, group managing director for North American economics at the international forecasting company Global Insight. "More detail ... and timeliness is a good thing since the service sector is most of our economy."

While manufacturing jobs moved overseas, the service sector has expanded steadily, jumping from just under 60 percent of the U.S. economy in 1970 to its present 70 percent.

Baltimore is typical

Businesses in Baltimore reflect the nationwide trend: The Johns Hopkins Institutions now employs more than 46,000, while the former Bethlehem Steel plant in Sparrows Point - which employed about the same number at its World War II peak - is down to a tiny fraction of that number after being sold last year to International Steel Group Inc.

Bob Marske, a Census Bureau spokesman, said the reason the services industries haven't been measured more fully before "is a budget question."

"Anytime you want to initiate a new program, you need to have funding," he said.

The agency focused on improving its coverage of service-sector industries in the past two decades but realized in 2000, as the technology boom began waning, that more frequently collected statistics were critical. It has been developing this survey since 2001. There are attempts by private groups to paint regular portraits of the sector, including the Institute for Supply Management's monthly nonmanufacturing index.

Price compares the government's delay to the story of a frog in a pot on the stove: It doesn't realize it must jump out to save itself because the water heats up gradually.

"The service sector has grown over time," he said. "The recognition that a big part of it can be quite volatile has grown over time."

Assessment not easy

It's not simple to measure, either. "So many service businesses are very small," said Steven Cochrane, senior economist at Economy.com in West Chester, Pa.

The Census Bureau is trying to get the most bang for its buck by focusing on industries that are likely to be volatile and could be mined for reliable data, Price said.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, said the Commerce Department has until now relied on "very crude" data - for instance, algorithms based on employment and profit numbers - that often had to be revised drastically later on.

"They were still very oriented toward the manufacturing economy," he said.

Service-sector businesses are relatively unused to being measured, but Price said the industries that have had regular numbers for years - such as auto manufacturers - are completely dependent on them. He's convinced that the new service statistics will at least once a year "move markets," just as durable goods orders and job creation numbers influence investors now.

"It will come to be very important information," he said.

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