Much Ado About Services
By Jungmin Charles Joo, Associate Research Analyst

There is no doubt that the services industry has been a driving force behind new job growth in Connecticut and the nation for several decades. In the last ten years alone, this dynamic sector created well over 100,000 jobs in the State, while all private industries netted a loss of 35,000 jobs between 1988 and 1998. This article will provide an overview of this dominant industry's output, employment, establishment, and wage trends, as well as its emerging occupations and job outlook. Data on establishments, employment and wages for selected subsectors of the services industry for 1992 and 1998 are presented on page 4.

Phenomenal Job Growth

Of the 1.4 million private industry jobs in 1998, services had the largest employment share among the major industries, with 35.5 percent. This compared with other large industries, manufacturing and retail trade, which comprised 19.4 and 19.1 percent of Connecticut's private industry jobs, respectively. Over time, employment in the State has shifted the most in the manufacturing and services industries. The job share for services has increased from 19.6 percent in 1975 to 25.6 percent in 1987, 30.6 percent in 1992, and 35.5 percent in 1998. In contrast, the employment share in manufacturing has decreased from 38.1 percent in 1975 to 26.8 percent in 1987, 23.3 percent in 1992, and 19.4 percent in 1998.

As the chart below shows, services employment in the State has grown more rapidly than total private industry employment. Since 1975, services industry employment more than doubled, while all private industries only added roughly 40 percent more jobs in the last 23 years. On the other hand, nearly one out of three manufacturing jobs in the State were lost over the two decades. The only year during the 1975-98 period with a decline in services employment was 1991(-4%), the worst year of the last recession.

Output

The services industry accounted for one fifth of Connecticut's gross state product (GSP) in 1997, or $29.2 billion of the total $134.6 billion. Since 1982, this industry's real output grew by 89 percent, while it increased 65 percent for all industries. Manufacturing's gross product rose at a slower pace, 26 percent over the last 15 years. The services industry's output increased every year since 1982, except in 1991 when it fell by 3.7 percent.

Looking at the subsectors (2-digit SIC level) from 1987, the amusement and recreation services industry's output rose a whopping 115 percent (mostly from the two casinos), which helped to boost the overall services industry output by 38 percent. Other major contributing services subsectors were business services (+94%, where most of the growth was from computer and computer-related services) and social services (+79%). On the other hand, miscellaneous repair services saw a major decline of 25 percent in output over the decade.

Employment

Between 1992 and 1998, private industries added over 113,000 jobs in Connecticut, a growth of nine percent. Almost all of these new jobs were from the services industry, which grew 26 percent during the same period. Nearly all of the 3-digit detailed industry sectors in the services industry experienced positive employment growth, with the major exceptions of hospitals and engineering & architectural services. The hospital sector alone, which has the largest number of employees within the total services industry, shed nearly 6,000 jobs (-10%) since 1992. Managed care and strong competition have caused a restructuring of the health industry and a reduction in inpatient hospital stays, resulting in a sharp decline in hospital employment. (For more on the health services industry, see the April 1997 issue of the Digest at www.ctdol.state.ct.us/lmi/.)

Employment in many sectors within the services industry, however, took off sharply in the past six years. For starters, the amusement & recreation services sector added the largest number of jobs (+16,831), primarily from the openings of the Foxwoods (1992) and Mohegan Sun (1996) casinos in southeastern Connecticut. This sector's employment also grew the fastest at 135 percent (see table on page 4) between 1992 and 1998.

Another significant growth sector was personnel supply services, adding almost 16,000 jobs (+85%), as the trends of outsourcing and hiring temporary workers exploded across the industries. Computer programming & computer related services also have benefited from today's "Information Age", reaping over 10,000 jobs in the last six years alone, a growth of 79 percent. (An in-depth analysis on the computer services industry trends appeared in the November 1997 issue of the Digest.) Unlike hospitals, home health care services added over 6,700 jobs, a 79 percent increase. The management and public relations industry experienced 68 percent job growth, fueled by many startups of consulting businesses during this decade. Other big job gainers included nursing & personal care facilities and offices & clinics of medical doctors.

Establishments

From 1992 to 1998, the number of business establishments increased by 12 percent in the services industry, while they rose by only one percent for the entire private sector. Establishments in computer programming & computer related services grew the fastest at 88 percent to almost 2,500 businesses throughout Connecticut. In 1998, private households had the largest number of establishments (4,209), followed by management and public relations with 2,578. The videotape rental sector, however, experienced the biggest drop in the number of establishments (-39%) between 1992 and 1998, during which many small local stores were driven out of business by the megastores.

Wages

Unlike with employment and establishments, the overall services industry's wage growth of 21 percent was slower than all private industries' 27 percent increase between 1992 and 1998. While the prevailing misperception is that most high-paying jobs are concentrated in manufacturing or construction industries, there are many jobs within the services industry that indeed pay well. Wages in 14 out of 54 sectors within the services industry were above the entire private industry average of $41,101 last year. In fact, the average pay in management and public relations services was the highest at $86,189 in 1998, far higher than the entire services industry average of $35,439. Computer programming & computer related services commanded the second highest average wage within the services industry, $74,802. The largest increases in wages from 1992 to 1998 occurred in civic & social associations and consumer credit reporting agencies at 147 and 74 percent, respectively.

The lowest annual pay occurred in motion picture theaters and videotape rental businesses at $10,689 and $11,731 each, where many jobs are part time and pay minimum wage. The only sector within the services industry to experience a decline in wages was commercial sports, down by 15 percent from 1992.

Future Services

As of October 1999, the services industry added 13,500 jobs, or 2.6 percent, over the year. The Connecticut Department of Labor projects that the services sector will account for nearly two-thirds of the State's total forecasted employment increase in the next decade. Much of the job growth within the services industries will be in health services, particularly in nursing and personal care facilities and home health care services industries, as our population ages. The second largest job increase will occur in the business services sector, mostly in computer and data processing services

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Industry Clusters
Software/IT Announced

A new Software and Information Technology (IT) Cluster became official last month. Governor Rowland, joined by Laura Kent, President of the Connecticut Technology Council (CTC), as well as software executives, DECD, and other economic development officials announced the launching at TSI International Software in Wilton.

The Information Technology industries in Connecticut include 4,453 businesses and employ almost 72,000 at average salaries above $50,000. Information Technology is already the fastest growing sector of our economy.

Connecticut's Industry Cluster Initiative centers on the idea that nurturing the state's key industries improves the competitiveness of companies within these industries, in turn boosting Connecticut's economy. Companies involved with clustering share market knowledge and expertise and work with government, education, and economic development organizations to identify the overall needs of their industry.

Legislation sponsored by Connecticut's Industry Cluster Initiative has already increased the State's research and development  tax credit, increased the net loss carry-forward period from 5 to 20 years, and initiated a new tax credit exchange.

The CTC will house and manage the new Software and Information Technology Cluster. It is the second officially organized cluster in Connecticut, joining the BioScience Cluster, which was activated in October 1998.

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Housing Update
October Permits Down Slightly

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 747 new housing units in October 1999. The year-to-date permits are down 4.9 percent, from 9,595 through October 1998, to 9,123 through October 1999.

Reports from municipal officials throughout the state indicate that Windham County with 42.9 percent showed the greatest percentage increase in October compared to the same month a year ago. Middlesex County followed with a 5.7 percent increase.

Fairfield County documented the largest number of new, authorized units in October with 161. Hartford County followed with 142 units and New Haven County had 139 units. Hamden led all Connecticut communities with 37 units, followed by Danbury with 31 and Groton with 16.

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Does the Leading Index Portend Future Change?

The Connecticut coincident employment index dropped from its August peak in the current expansion with the release of (preliminary) September 1999 data. The Connecticut leading employment index also dropped for the second month in a row. The current expansion's length now exceeds all post- World War II expansions. Fed watchers continue to monitor closely Federal Reserve actions, including the state of Greenspan's briefcase, as Fed actions will affect the future of the national and thus Connecticut economies.

The coincident index, a gauge of current employment activity, fell primarily because of the increase in the unemployment rate from 2.1 to 2.7 percent. The other three components experienced small positive movements between August and September.

The leading index, a barometer of future employment activity, has bounced around considerably during the last several years. Since late 1996, however, it has remained in the neighborhood of its current level. This month's release generated a substantial month-to-month decline. (See the accompanying chart.) Similar substantial onemonth declines in the leading index have occurred on several occasions during the current expansion - January 1996, September 1997, and August 1998. In each case, the next month experienced a substantial rebound from the prior month's decrease. Compared to September 1998, the average workweek is up and the initial claims are down; but, the average workweek is lower and the initial claims are higher than any other month since last September. We continue to monitor closely the leading index.

The September release continues the unusual event noted in the last three columns - total employment is below nonfarm employment, although the gap narrowed significantly with nonfarm employment now only 2,100 jobs higher than total employment.

In summary, the coincident employment index rose from 96.8 in September 1998 to 101.1 in September 1999. All four components of the index point in a positive direction on a year-overyear basis with higher nonfarm employment, higher total employment, a lower total unemployment rate, and a lower insured unemployment rate.

The leading employment index rose from 86.8 in September 1998 to 87.7 in September 1999. Three index components sent positive signals on a yearover- year basis with lower initial claims for unemployment insurance, a higher average workweek of manufacturing production workers, and a lower shortduration (less than 15 weeks) unemployment rate. Two components sent negative signals on a year-over-year basis with lower Hartford help wanted advertising and higher total housing permits.

SOURCE: Connecticut Center for or Economic Analysis, University of Connecticut. Developed by Pami Dua [Economic Cycle Research Institute; NY,NY] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Stan McMillen and Jingqui Zhu [(860) 486-3022, Storrs Campus] provided research support.

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