Wolf Richter wolfstreet.com, http://www.amazon.com/author/wolfrichter
There cannot be a recession without a pullback in services.
Revenues in the major private-sector services categories rose 6.3% in Q4 2018, compared to the same quarter a year earlier, to $4.01 trillion, not seasonally adjusted, breaching for the first time the $4 trillion mark, according to the Commerce Department’s detailed Quarterly Selected Services Estimates released this morning. For the year 2018, these selected services rose 6.0% to $15.5 trillion. This is a massive part of the $20.5 trillion US economy.
But this 6.3% growth is not adjusted for inflation. The CPI for services in 2018 rose by 2.8%. Even that does not do justice to the price increases seen in some service sectors, such as trucking, some of which have not yet made their way to the consumer, and thus to the consumer price index.
This service data shows why the slowdown in the goods-based sector – which includes retail sales – from the red-hot boom for most of 2018 cannot by itself lead to a recession. Services matter the most.
So here are the biggies. This does not include all services, just the biggest segments and subsegments. None of the numbers have been seasonally or inflation adjusted.
Finance and Insurance, Biggie of the Biggies
This is the biggie among biggies. In Q4, revenues rose 8.0% year-over-year to $1.24 trillion. For the year 2018, revenues rose 7.6% to $4.84 trillion. This amounts to a whopping 24% of GDP – and 31% of all services.
When we talk about a “financialized economy,” this is why. It’s a huge and diverse industry. It makes a lot of things possible, but it is also a leech on the rest of the economy.
The overall category of finance and insurance includes the Federal Reserve (“monetary authorities/central bank”), whose 12 regional reserve banks are privately owned institutions. But with its $113 billion in revenues in 2018, it’s just a small line item. And its revenues declined by 3.1%.
Without the Fed, finance and insurance revenues rose 8.4% to $1.22 trillion in Q4; and 7.9% for the year to $4.73 trillion.
The largest segment is banking. This includes deposit-taking lenders (commercial banks, credit unions, and the like) and nonbanks (lenders that don’t take deposits): revenues in that segment rose 10.3% in Q4 to to $352 billion, and 9.7% for the year to $1.35 trillion.
In the table below, note that nonbanks have produced greater revenues than deposit-taking lenders. They did so in 2017 as well (if your smartphone clips the table, hold your device in landscape position):
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Finance & insurance | 1,244 | 8.0% | 4,839 | 7.6% |
| Finance & insurance (except the Fed) | 1,217 | 8.4% | 4,726 | 7.9% |
| The Fed | 28 | -4.9% | 113 | -3.1% |
| Banks & Nonbanks | 352 | 10.3% | 1,355 | 9.7% |
| Deposit-taking banks | 160 | 10.5% | 620 | 11.2% |
| Nonbanks | 165 | 11.4% | 631 | 9.3% |
| Activities related to credit intermediation | 27 | 2.8% | 105 | 4.2% |
| Securities, commodity contracts, and other financial investments | 172 | 5.4% | 684 | 7.7% |
| Securities and commodity contracts, intermediation and brokerage | 74 | 8.8% | 306 | 11.3% |
| Securities and commodity exchanges | 3 | 28.5% | 12 | 10.6% |
| Other financial investment activities | 94 | 2.3% | 365 | 4.8% |
| Insurance carriers and related activities | 693 | 8.2% | 2,687 | 7.0% |
| Insurance carriers | 596 | 9.0% | 2,304 | 7.1% |
| Agencies, brokerages, and other insurance related | 97 | 3.6% | 383 | 6.0% |
Healthcare and social assistance services.
The number two biggie of the biggies. But it does not include the goods-based portion of healthcare, such as pharmaceutical products, medical devices, supplies, etc. This is just services. Revenues rose 3.8% in Q4 to $678 billion; and 4.2% in 2018 to $2.65 trillion.
Healthcare services fall into four broad categories, as seen in the table below. The largest, “ambulatory services,” generated ($1.05 trillion for the year, up 4.5%), half of which are generated by offices of physicians. Ambulatory services also include dentists, other “health practitioners,” outpatient centers, medical and diagnostic services.
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Health care and social assistance | 678 | 3.8% | 2,648 | 4.2% |
| Ambulatory health care (doctors, diagnostics, outpatient, home health care) | 268 | 4.7% | 1,046 | 4.5% |
| Offices of physicians | 134 | 5.3% | 516 | 5.0% |
| Outpatient care centers | 37 | 5.0% | 142 | 5.0% |
| Medical and diagnostic laboratories | 13 | -2.3% | 51 | -0.2% |
| Home health care services | 22 | 7.5% | 86 | 6.9% |
| Other ambulatory health care services | 9 | 2.1% | 37 | 4.6% |
| Hospitals | 291 | 2.0% | 1,156 | 3.7% |
| General medical and surgical hospitals | 271 | 1.8% | 1,077 | 3.6% |
| Psychiatric and substance abuse hospitals | 7 | 2.6% | 27 | 5.3% |
| Specialty (except psychiatric and substance abuse) hospitals | 13 | 4.9% | 52 | 5.8% |
| Nursing and residential care facilities | 65 | 4.3% | 251 | 4.9% |
| Social assistance | 54 | 8.6% | 195 | 4.3% |
| Individual and family services | 28 | 13.0% | 103 | 7.2% |
| Community food and housing, and emergency and other relief services | 10 | 5.0% | 34 | -3.7% |
| Vocational rehabilitation services | 4 | 4.7% | 15 | 3.5% |
Professional services
Revenues in the third-largest services segment — professional services — grew 5.6% in Q4 to $505 billion; and 6.4% in 2018 to $1.95 trillion. This sector is dominated by “computer systems design and related services,” which generated $115 billion in Q4, up 10.9% year-over-year; and $436 billion in 2018, up 9.1%.
And “legal services” in the world’s most litigious society, rose 4.5% in Q4 to $93 billion, and 7.1% for the year to $328 billion:
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Professional, scientific, and technical services | 505 | 5.6% | 1,950 | 6.4% |
| Legal services | 93 | 4.5% | 328 | 7.1% |
| Accounting, tax preparation, bookkeeping, payroll services | 40 | 5.1% | 179 | 3.3% |
| Architectural, engineering, and related services | 83 | 1.6% | 339 | 5.5% |
| Computer systems design and related services | 115 | 10.9% | 436 | 9.1% |
| Management, scientific, technical consulting services | 70 | 3.3% | 272 | 4.2% |
| Scientific research and development services | 47 | 10.2% | 174 | 12.5% |
| Advertising, public relations, related services | 28 | 1.5% | 105 | 0.4% |
Information Services
Revenues in this industry rose 7.9% in Q4 to $440 billion, and 7.3% for the year to $1.65 trillion. Telecommunication services dominate, with $625 billion for the year (up 1.3%). But the fastest growing segments were software publishers, with revenues of $258 billion for the year (+15.0%); and data processing services, $183 billion for the year (+17.5%):
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Information services | 440 | 7.9% | 1,646 | 7.3% |
| Publishing industries (except Internet) | 95 | 10.9% | 350 | 10.2% |
| Newspaper publishers | 7 | -4.6% | 25 | -1.8% |
| Periodical publishers | 7 | -4.0% | 27 | -4.0% |
| Book, directory and mailing list, other publishers | 10 | -5.2% | 40 | 1.0% |
| Software publishers | 72 | 17.3% | 258 | 15.0% |
| Motion picture & sound recording industries | 29 | 6.2% | 111 | 7.2% |
| Broadcasting (except Internet) | 47 | 7.2% | 171 | 6.6% |
| Radio and TV broadcasting | 24 | 12.3% | 85 | 9.3% |
| Cable and other subscription programming | 22 | 2.2% | 87 | 4.0% |
| Telecommunications | 161 | 2.1% | 625 | 1.3% |
| Wired carriers | 79 | 0.6% | 312 | -1.1% |
| Wireless carriers (except satellite) | 70 | 2.5% | 265 | 2.9% |
| Other telecommunications | 12 | 9.8% | 48 | 9.8% |
| Data processing, hosting, related services | 49 | 14.4% | 183 | 17.5% |
| Other information services | 59 | 17.2% | 205 | 14.9% |
Administrative, support, waste management, and remediation
Revenues in this category jumped 8.8% in the quarter to $262 billion, and 7.4% for the year to $998 billion. The category is mostly composed of administrative and support services, employment services, travel arrangement and reservation services. A small and somewhat incongruous sliver is the sub-category of waste management and remedial services.
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Administrative, support, waste management, remediation | 262 | 9.3% | 998 | 7.4% |
| Administrative, support, employment, and travel reservation services | 236 | 9.6% | 897 | 7.7% |
| Waste management and remediation services | 26 | 6.3% | 101 | 4.6% |
Transportation services
This broad and complex category ranges from transporting passengers by air to transporting crude oil by pipeline. Revenues in this sector rose 8.3% in the quarter to $253 billion; and 7.1% for the year to $983 billion.
The fastest-growing category was truck transportation, surging 9.0% in the year to $295 billion, with the subcategory of “general freight trucking” up 11.9%. The phenomenal trucking boom through most of last year was fired up by sharply rising shipments; and freight rates surged by the double-digits. Growth in shipments started to taper off late last year, but freight rates remained in surge-mode throughout the year (see my reporting on trucking and freight). And this is reflected in the table of industry revenues below:
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Transportation and warehousing | 253 | 8.3% | 983 | 7.1% |
| Air transportation | 56 | 7.3% | 223 | 6.5% |
| Water transportation | 11 | 7.8% | 45 | 7.0% |
| Truck transportation | 75 | 8.8% | 296 | 9.0% |
| Transit and ground passenger | 10 | 2.6% | 39 | 1.9% |
| Pipelines | 14 | 9.3% | 51 | 9.1% |
| Scenic, sightseeing transportation | 1 | -1.1% | 3 | -3.7% |
| Support activities for transportation | 50 | 8.8% | 193 | 5.5% |
| Couriers and messengers | 26 | 9.6% | 97 | 8.8% |
| Warehousing and storage | 10 | 11.2% | 37 | 5.8% |
Rental and leasing services
This category is dominated by services related to renting and leasing real estate. But it also includes services related to renting and leasing cars and trucks of all sizes, equipment across the spectrum, and consumer goods (the rent-a-couch). Revenues rose 7.3% in the quarter to $184 billion; and 5.9% for the year to $703 billion.
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Rental and leasing, real estate, auto, etc. | 184 | 7.3% | 703 | 5.9% |
| Real estate | 127 | 7.9% | 483 | 5.2% |
| Lessors of real estate | 72 | 7.2% | 274 | 5.6% |
| Offices of real estate agents and brokers | 29 | 5.1% | 109 | 0.8% |
| Rental and leasing services | 45 | 7.8% | 172 | 7.7% |
| Auto, truck, equipment rental & leasing | 17 | 8.9% | 65 | 7.6% |
| Consumer goods rental | 6 | 3.7% | 23 | 0.4% |
| Commercial, industrial machinery, equipment | 22 | 8.1% | 82 | 10.0% |
| Lessors of nonfinancial intangible assets (except copyrighted works) | 13 | 0.1% | 47 | 5.7% |
Utilities
This measure of utilities does not include government-owned utilities. The measure accounts for services such as line charges for distribution, etc., but not revenues from the actual products (such as natural gas) which are goods. Services revenue in this sector rose 4.0% in the quarter to $146 billion; and 3.1% for the year to $597 billion:
| Utilities | 147 | 4.0% | 597 | 3.1% |
| Electric power generation, transmission and distribution | 111 | 2.2% | 474 | 2.0% |
| Natural gas distribution | 32 | 11.2% | 108 | 7.9% |
| Water, sewage and other systems | 4 | 0.7% | 15 | 2.8% |
Arts, entertainment, and recreation:
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Arts, entertainment, and recreation | 72 | 6.2% | 277 | 4.2% |
| Performing arts, spectator sports, & related | 35 | 8.4% | 125 | 5.7% |
| Performing arts companies | 5 | 13.0% | 19 | 9.3% |
| Spectator sports | 14 | 4.5% | 45 | -0.1% |
| Promoters of performing arts, sports, and similar events | 8 | 4.9% | 30 | 5.7% |
| Agents, managers for artists, athletes, entertainers, and other public figures | 3 | 26.2% | 10 | 17.6% |
| Museums, historical sites, and similar | 4 | -16.0% | 16 | -5.3% |
| Amusement, gambling, and recreation industries | 33 | 7.3% | 135 | 4.1% |
Accommodation services
This the only category here that booked a revenue decline for the year 2018, though Q4 showed some year-over-year growth:
| Q4 2018, $ billions | Change fr. Q4 2017 | Year 2018, $ billions | Change fr. 2017 | |
| Accommodation, traveler and RVs | 60 | 2.5% | 246 | -1.7% |
There are other services in the US that are not included here. Government services are also not included either. These are just the biggies in the private sector. And most of these categories, except accommodation services, had strong growth rates in 2018. Finance and insurance came out on top, not only with by far the most revenues ($4.8 trillion), but also with the highest growth rate (7.6%); and some sub-segments had double-digit growth rates, as is befitting for an increasingly financialized economy.
The goods-based sector is smaller and much more volatile. It went into a recession in 2016, but this massive apparatus of service businesses kept growing, though at a slower rate, and overall the economy eked out 1.6% GDP growth that year. Only when the services sector gets close to stalling can a deep recession in the goods-based sectors drag the overall economy into a recession.
The Fed has a new plan for its balance sheet; and in relationship to GDP, it will continue to shrink until some magic unknown point is reached. Read… Fed’s New Balance Sheet Plan: Get Rid of MBS