Monday , November 30 2020
Home / Wolf Richter /Financialization of the US Economy: Insurance & Finance Boom and Get Even Bigger

Financialization of the US Economy: Insurance & Finance Boom and Get Even Bigger

Summary:
We can all just sue each other to boost GDP. By Wolf Richter for WOLF STREET. Services-producing industries – not including government services – dominate the US economy, amounting to the equivalent of 70% of overall GDP by value added, and to 80% of the private sector economy. As long as the services-producing industries grow enough, it’s tough for the US economy to fall into a recession. And in the third quarter, according to the Commerce Department’s Quarterly Selected Services Estimates, revenues by the services-producing industries rose 4.9% from a year ago, to a record .11 trillion (not seasonally adjusted). For the first three quarters of the year, revenues rose 5.2% to .1 trillion: Four huge industries dominate the services sector and together generated .94 trillion

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

This could be interesting, too:

Wolf Richter writes No, Homes Did Not Sell Like Hotcakes: “Pending Home Sales” Plunged 34% in April, a Preview of “Closed Sales” in May

Wolf Richter writes Week 10 of the U.S. Labor Market Collapse: Still Getting Worse at Gut-Wrenching Pace, But Signs of Bottom Appear

Wolf Richter writes 4th-Largest US Rental Car Company, Advantage, Files for Bankruptcy: 3rd Time in Decade, Hertz & Private Equity Written All Over It

Wolf Richter writes College Enrollment in the Spring Fell for 9th Year in a Row, and Now Comes Covid

We can all just sue each other to boost GDP.

By Wolf Richter for WOLF STREET.

Services-producing industries – not including government services – dominate the US economy, amounting to the equivalent of 70% of overall GDP by value added, and to 80% of the private sector economy. As long as the services-producing industries grow enough, it’s tough for the US economy to fall into a recession. And in the third quarter, according to the Commerce Department’s Quarterly Selected Services Estimates, revenues by the services-producing industries rose 4.9% from a year ago, to a record $4.11 trillion (not seasonally adjusted). For the first three quarters of the year, revenues rose 5.2% to $12.1 trillion:

Financialization of the US Economy: Insurance & Finance Boom and Get Even Bigger

Four huge industries dominate the services sector and together generated $2.94 trillion in revenues in Q3, accounting for 71.5% of total service revenues (share of each compared to total services revenues):

  1. Finance and insurance: 31.6%.
  2. Healthcare: 16.7%
  3. Professional, scientific, and technical services: 12.6%
  4. Information services: 10.7%.

During the Financial Crisis, financial and insurance services were getting hit hard as banks were in the process of collapsing, and real estate, which is also hefty, was already collapsing. And it spread from there. That’s what it takes in the US to cause a deep recession – the biggies have to give and contagion has to spread.

But now services-producing industries are growing, and financial and insurance services are hopping, and insurance services alone are blowing them all away – as consumers have no doubt noticed, because someone has to pay for it when the US economy is becoming ever more financialized. So here we go, by sector.

#1 Finance and Insurance.

Finance-and-insurance revenues jumped 6.6% to a record $1.3 trillion in Q3. For the three quarters so far in 2019, revenues jumped 6.7% to $3.84 trillion:

Financialization of the US Economy: Insurance & Finance Boom and Get Even Bigger

Unlike government services, the Federal Reserve is included in finance and insurance revenues because its 12 regional Federal Reserve Banks are owned by the financial institutions in their districts and thus are part of the private sector. The Fed’s revenues are largely from interest earned on the $4 trillion in bonds it holds. In Q3, revenues fell 11.7% year-over-year, to $25 billion. But in terms of revenues, the Fed is a bit-player in the industry, accounting for just 1.9% of total finance and insurance revenues.

The giant in this group is the “insurance” category of finance and insurance. Insurance dominates the industry both in magnitude and growth, with revenues soaring 8.2% in the quarter to $733 billion. In other words, 18% of all services revenues are from insurance.

The “finance” category includes the banking sector, whose revenues grew by 5.1% year-over-year to $361 billion. This includes commercial banks (they take deposits) and nonbanks or shadow banks (they don’t take deposits). As the table below shows, in terms of revenues, they’re neck to neck. Both grew just over 5% in the quarter, and over 7% year-to-date (if your smartphone clips the five-column table, hold the device in landscape position):

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Finance & insurance  1,299 6.6% 3,836 6.7%
Finance & insurance (except the Fed) 1,275 7.0% 3,758 7.1%
The Fed 25 -11.7% 78 -8.4%
Banking
361 5.1% 1,074 7.1%
Deposit-taking banks 167 5.2% 492 7.1%
Nonbanks 167 5.1% 501 7.4%
Activities related to credit intermediation 28 4.3% 81 4.5%
Securities brokers, exchanges, investment activities
180 6.0% 527 3.0%
Securities and commodity contracts,  intermediation and brokerage 82 7.7% 242 4.1%
Securities and commodity exchanges 3 24.9% 10 11.4%
Other financial investment activities 95 4.1% 276 1.8%
Insurance 733 8.2% 2,157 8.2%
Insurance carriers 631 8.5% 1,858 8.7%
Agencies, brokerages, and other insurance related 103 6.9% 299 4.8%

#2. Healthcare and Social Assistance

Healthcare and social assistance revenues rose 4.4% year-over-year to $690 billion in Q3 and 4.8% year-to-date to $2.1 trillion. However, these are services only and do not include the goods-portion of healthcare, such as pharmaceutical products, medical devices, supplies, etc.

The largest of the four categories, “ambulatory health care,” generated $271 billion in revenue in Q3, of which $133 billion was generated by doctors’ offices. Note that the growth rates vary, with revenues at medical and diagnostic labs growing only 0.9% year-to-date but revenues at hospitals overall growing 5.5% and at specialty hospitals soaring 7.1%:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Health care and social assistance 690 4.4% 2,064 4.8%
Ambulatory health care (doctors, diagnostics, outpatient, home health care) 271 3.6% 802 3.2%
Offices of physicians 133 3.1% 392 2.5%
Outpatient care centers 37 7.5% 111 6.1%
Medical and diagnostic laboratories 13 1.0% 39 0.9%
Home health care services 22 1.3% 65 2.8%
Other ambulatory health care services 10 5.8% 29 3.8%
Hospitals 302 4.5% 912 5.5%
General medical and surgical hospitals 281 4.3% 849 5.4%
Psychiatric and substance abuse hospitals 7 4.4% 21 3.7%
Specialty (except psychiatric and substance abuse) hospitals 14 7.8% 42 7.1%
Nursing and residential care facilities 67 6.0% 199 6.6%
Social assistance 50 5.9% 151 6.6%
Individual and family services 26 3.7% 80 6.5%
Community food and housing, and emergency and other relief services 9 10.8% 26 7.2%
Vocational rehabilitation services 4 3.1% 11 5.7%
Childcare services 11 8.8% 34 6.5%

#3. Professional services

Professional services revenues jumped 6.0% in Q3 to $516 billion; and rose 4.7% year-to-date to nearly $1.51 trillion. The largest category, “computer systems design and related services,” generated $117 billion in revenues in Q3, up 5.8% year-over-year. The second largest category is lawyering, which is booming, of course, with revenues growing 6.6% in Q3 to $88 billion. Year-to-date the sector is close to a quarter-trillion bucks. We can all just sue each other to boost GDP.

Advertising services had declining revenues. However, these services (NAICS code 5418) do not include the amounts of running the actual ads, which fall under various other revenue categories, such as in publishing, broadcasting, etc. This category here only includes revenues at ad agencies and the like that create ad campaigns and place them in the media.

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Professional, scientific, and technical services 516 6.0% 1,513 4.7%
Legal services 88 6.6% 246 4.8%
Accounting, tax preparation, bookkeeping, payroll services 42 5.6% 144 3.4%
Architectural, engineering, and related services 92 6.5% 264 3.0%
Computer systems design and related services 117 5.8% 343 7.0%
Management, scientific, technical consulting services 75 8.5% 213 5.5%
Scientific research and development services 46 6.0% 139 8.6%
Advertising, public relations, related services 26 -1.4% 76 -2.0%

#4. Information Services

Revenues rose 5.8% to $434 billion in Q3, and 6.2% year-to-date to $1.28 trillion. But this growth was very unequally distributed. A number of categories have declining revenues, particularly in the paper publishing segments. Telecommunications, the biggie, was stagnant at $158 billion in Q3.

But revenues at software publishers soared 13.2% in Q3 to $70 billion, revenues at firms that provide data processing and hosting services (think “the cloud”) skyrocketed by 17.9%, and other information services soared by 15.6%:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Information 434 5.8% 1,281 6.2%
Publishing industries (except Internet) 93 8.4% 277 8.6%
Newspaper publishers 6 -4.9% 18 -3.3%
Periodical publishers 6 -4.7% 19 -4.1%
Book, directory and mailing list, other publishers 11 -3.6% 29 -4.4%
Software publishers 70 13.2% 211 13.3%
Motion picture and sound recording industries 27 -1.4% 83 0.2%
Broadcasting (except Internet) 42 0.7% 127 1.8%
Radio and TV broadcasting 21 1.9% 63 4.4%
Cable and other subscription programming 21 -0.4% 64 -0.6%
Telecommunications 158 0.4% 471 1.6%
Wired carriers 78 -0.2% 234 0.4%
Wireless carriers (except satellite) 67 0.2% 200 2.0%
Other telecommunications 13 5.0% 38 6.7%
Data processing, hosting, related services 55 17.9% 155 15.5%
Other information services 59 15.6% 168 15.2%

#5: Transportation services

Revenues in this sector — from transporting regular folks by aircraft to pumping natural gas through pipelines — barely ticked up 1% in the quarter to $255 billion and 2.3% year-to-date to $746 billion. Overall growth was dragged down the by the decline in trucking.

Revenues at trucking and delivery companies, the sector’s largest category, fell 2.9% in the quarter and 1.4% year-do-date, in line with the downturn in the trucking industry:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Transportation and warehousing 255 1.0% 746 2.3%
Air transportation 60 2.8% 173 3.6%
Water transportation 13 1.5% 36 5.5%
Truck transportation 75 -2.9% 218 -1.4%
Transit and ground passenger 9 2.0% 30 3.8%
Pipelines 13 3.6% 39 4.5%
Scenic, sightseeing transportation 1 11.4% 3 11.6%
Support activities for transportation 48 -0.3% 145 1.6%
Couriers and messengers 25 7.6% 75 6.5%
Warehousing and storage 10 4.0% 29 7.0%

#6: Administrative & Support Services.

Revenues ticked up just 0.8% in the quarter to $231 billion, but grew 3.0% year-to-date to $681 billion:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Administrative and support 231 0.8% 681 3.0%
Employment, and travel reservation servies 105 -0.3% 313 4.4%
Travel arrangement and reservation services 13 -2.3% 38 -0.1%
Other administrative and support services 113 2.2% 330 2.1%

#7: Rental and leasing services

These are the services involved in renting and leasing, not the actual rent payments and lease payments. Total revenues grew 6.8% to $195 billion in the quarter. Real-estate renting and leasing activities dominate this sector, growing at 8.0% in the quarter, to $136 billion:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Rental and leasing, real estate, auto, etc. 195 6.8% 552 6.5%
Real estate 136 8.0% 382 7.3%
Lessors of real estate 74 4.3% 215 6.0%
Offices of real estate agents and brokers 32 11.2% 85 6.1%
Activities related to real estate 30 0.0% 82 0.0%
Rental and leasing services 46 2.3% 133 4.1%
Auto, truck, equipment rental & leasing 18 3.7% 51 5.3%
Consumer goods rental 6 3.8% 18 3.6%
Commercial, industrial machinery, equipment 21 0.9% 62 3.5%
Lessors of nonfinancial intangible assets  (except copyrighted works) 13 10.8% 37 6.8%

#8 Utilities

These revenues by utilities do not include revenues by government-owned utilities but only privately-owned utilities. And they only include revenues from services, such as line charges for distribution, but not revenues from the products such as natural gas, and those revenues ticked down in the quarter and year-to-date:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Utilities 158 -0.5% 449 -0.2%
Electric power generation, transmission and distribution 136 -0.4% 362 -0.3%
Natural gas distribution 18 -1.2% 76 -0.1%
Water, sewage and other systems 4 -1.1% 11 -0.5%

#9: Arts, entertainment, and recreation.

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Arts, entertainment, and recreation 78 4.5% 218 6.5%
Performing arts, spectator sports,  & related 35 2.0% 94 5.0%
Performing arts companies 5 1.8% 14 3.1%
Spectator sports 13 4.6% 33 3.1%
Promoters of performing arts, sports, and similar events 9 9.3% 25 12.0%
Agents, managers for artists, athletes,  entertainers, and other public figures 2 0.9% 7 9.4%
Independent artists, writers, and performers 5 0.0% 15 0.0%
Museums, historical sites, and similar  4 -7.6% 12 -1.9%
Amusement, gambling, and recreation industries 39 8.3% 112 8.8%

#10: Accommodation Services.

Revenues grew 4.4% in the quarter to $67 billion. For the full year 2018, this sector was the only one that booked a revenue decline.

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Accommodation, traveler and RVs 67 4.4% 191 2.8%
Traveler accommodation 64 4.4% 185 2.7%
RV (recreational vehicle) parks and recreational camps 2 6.0% 5 6.0%

Some other services.

Waste Management and Remediation, small, but growing at a good clip:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Waste management and remediation services  27 4.5% 79 5.7%

The hodgepodge that doesn’t fit anywhere else lineup, also grew at a decent clip in the quarter, and at strong clip year-to-date:

Q3 2019, $ billions Change fr. Q3 2018 YTD 2019, $ billions Change fr. YTD 2018
Other services (except public administration)  144 3.6% 432 7.0%
Repair and maintenance 48 6.0% 141 2.9%
Death care services 5 -0.9% 14 -1.3%
Drycleaning and laundry services 8 2.7% 23 4.3%
Religious, grantmaking, civic, professional, similar organizations 66 1.1% 200 11.3%

And a recession?

Revenue growth in services being this strong, and with services dominating the economy, it would require a major downturn in the already weak goods-producing sector to drag the overall economy into a recession.

On the other hand, the downturn could originate in services — such as financial services as was the case during the Financial Crisis, or a tech bust as was the case in 2000 — which, given the magnitude of these services, would quickly drag down the overall of the economy. But that’s is not happening yet.

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. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Financialization of the US Economy: Insurance & Finance Boom and Get Even Bigger

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 *