Friday , April 19 2019
Home / Wolf Street / Finance & Insurance Hit it Out of the Ballpark, No Slowdown in the Huge Services Sector

Finance & Insurance Hit it Out of the Ballpark, No Slowdown in the Huge Services Sector

Summary:
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 .01 trillion, not seasonally adjusted, breaching for the first time the 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 .5 trillion. This is a massive part of the .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

Topics:
Wolf Richter considers the following as important: , ,

This could be interesting, too:

Wolf Richter writes Here Are Sears Holding’s Five “Fraudulent Transfers” and Why “Culpable Insiders” Lampert, Mnuchin, et. al Got Sued

Wolf Richter writes House Prices in 12 of California’s Most Expensive Coastal Counties Fell in March from a Year Ago. Here are the Charts

Wolf Richter writes What J.B. Hunt Just Said About the U-Turn in Trucking

Wolf Richter writes Who Bought the Huge .26 Trillion of New US Government Debt over the Past 12 Months?

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

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:

Finance & Insurance Hit it Out of the Ballpark, No Slowdown in the Huge Services Sector

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

Wolf Richter
Founder, Wolf Street Corp. In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China.

Leave a Reply

Your email address will not be published. Required fields are marked *