The economy’s critical service sector comes into focus as data suggest softening

Scott Tong Feb 21, 2020
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Service jobs, like dog walking, may be shrinking. John Moore/Getty Images

The economy’s critical service sector comes into focus as data suggest softening

Scott Tong Feb 21, 2020
Service jobs, like dog walking, may be shrinking. John Moore/Getty Images
HTML EMBED:
COPY

For the first time in four years, service sector business is down, according to an index from IHS Markit. That includes everything from banking to legal services to dog walking and makes up the biggest part of the economy.

One soft spot in the service economy is logistics and transportation jobs that support exports. That’s because of trade tensions between the United States and China, according to customs broker Rosemary Coates at Blue Silk Consulting.

“We’ve damaged our relationship between the two countries,” Coates said. “It’s never going to go back to the way it was 10 years ago. You’re going to see all the players, the services surrounding it — transportation carriers, air freight, ocean freight — are going to suffer.”

Also down is the hospitality industry, as outbound Chinese tourists, who tend to spend big in the United States, are not flying because of the coronavirus outbreak. And these pieces of the service sector add up to the biggest slice of our economy, far bigger than manufacturing or farming.

“If we see deterioration in the services sector, you’re talking about the vast majority of the U.S. economy. And you don’t have a little red flag raised, you start flashing a big red button,” said Danielle DiMartino Booth, market strategist at Quill Intelligence.

Most jobs in the U.S. are service jobs — 6 to 1 compared to factory workers. Economist Christian Zimmermann at the Federal Reserve Bank of St. Louis explained how this happened: As machines replaced most farmers and factory workers over time, that freed people up to do service work and have spare time for vacations.

“Going on vacation requires a hotel industry, transportation industry. This is now possible because we are not working 12 hours a day in a factory or in the fields,” Zimmermann said.

To be clear, today’s shrinking service sector number is just one month’s number. We’ll need more time to divine whether it’s a trend or a blip.

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