Don’t be fooled by today’s employment numbers for June: a look at tangible and intangible jobs

While the employment numbers for June from BLS may look good on the surface, a closer look reveals a dangerous trend. A large part of the employment rebound in June was in jobs where there is physical presence with customers. Increases occurred tangible services of accommodation & food services and personal services, and in the one intangible service that requires physical presence arts and entertainment. These three sectors accounted for almost half of the jobs gained in June, benefiting no doubt from a loosening of lockdown restriction. However, the June numbers reflect the situation in the middle of June. Since then coronavirus cases have skyrocketed. These industries may face a rapid decline in employment as new restrictions are imposed.

Overall, as well as the case with the May rebound (see my earlier analysis), tangible jobs fared better than intangible jobs in June, accounting for three-quarters of the employment gains. Trade, transportation & utilities jobs saw a big gain and manufacturing jobs continued to increase.

One encouraging sign is that intangible services jobs in professional & business services and in educational & health services increased at a healthy level. These are nowhere near their February levels but the trend is on the right direction. As I noted before, we will have to wait an see whether the experience of the crash will alter the supply relationship with companies and consumers finding they can get by with a lesser degree of intangible services.

 

June 2020 parts

Which jobs got hit in the COVID crash: tangible versus intangible

The Great Recession fundamentally changed the labor market mix between tangible and intangible-producing jobs. The COVID crash may shift that realignment again as tangible and intangible-producing jobs react differently to the downturn. Both declined significantly but only tangible-producing employment rebounded in May.

First, a little background. Intangibles are increasingly important as both inputs and outputs of economic activities. Intangibles are both major inputs to the production process of most other industries (such as research and development) and an important part of direct personal consumption (for example, of financial services). To understand the importance of intangibles in the U.S. labor market we need to go beyond the traditional (and outmoded) division between goods and services.

Matrix 2020To better capture the structure of the labor market, I have divided it into tangible and intangible as well as goods and services, as described in my earlier analysis. Tangible activities are primarily physical activities (involving atoms); intangibles are primarily information/analytical activities (involving bits). Production of goods is almost exclusively a tangible activity. Services can be divided into tangible and intangible activities. Tangible services involve physical activities such as cutting hair, ringing up a sale at a cash register, cooking and serving a meal, and transporting someone or something. Designing a poster, negotiating a deal, writing an article, and approving a loan are examples of intangible services. (See below for more on the methodology.)

Continue reading “Which jobs got hit in the COVID crash: tangible versus intangible”

COVID-19 hits IP trade hard – other intangibles, not so much

Yesterday, the BEA released data on the March trade deficit showing the effect of the COVID-19 pandemic on US trade. Like overall trade, trade in pure intangibles took a hit in March, with the intangibles surplus down 2.9% as exports dropped faster than imports. The surplus had also declined in February after rising the previous 4 months.

A more detailed look shows that some categories of intangibles did better, and worse, than others.

The two areas contributed the most to the decline: financial services and net revenues from the use of intellectual property dropped. Both these are showing very worrisome trends. Net revenues from the use of intellectual property decline by over 7.1%. Import (royalties paid out) grew somewhat while exports (revenues received) dropped. As the chart below shows, this is a continuation of a worrisome trend that started back in 2014 of steady to declining revenues and steadily increasing payments.

Note that the balance in financial services also started flatting back in 2014. The March surplus in financial services dropped by 2.3% as both exports and imports went down.

As for the other types of intangibles, the story is rather blasé. The surplus in business services actually grew with total trade increasing– exports rising slightly higher than. The maintenance & repair services surplus was essentially flat as both exports and imports fell. The surplus in telecommunications services was also flat; but in this case both exports and imports grew. The one area where we have a trade deficit, insurance services, improved ever so slightly as both exports and imports rose.

 

Declining IP trade balance

The Wall Street Journal has a story about the declining trade balance in services over the past 9 months as exports have stagnated and imports grown.  However, the most striking feature of the services trade balance decline has been in intellectual property (a pure intangible).  And the problem is not a recent one.  Foreign revenues from intellectual property (exports) have been flat for almost a decade while foreign payments (imports) have continued to increase. IP-Sept 19

Archive of Athena Alliance papers and presentations

Athena Alliance papers and presentations, events and policy forums are now archived and available as part of this blog. The are posted by date below interspersed with the blog postings. To see just the papers and presentations, click here. To see just the postings on the Policy Forum on the Intangible Economy, click here. To see just the materials on past events, click here.

For Athena Alliance annual reports, see the following:

Annual report 2001
Annual report 2002
Annual report 2003
Annual report 2004
Annual report 2005
Annual report 2006
Annual report 2007
Annual report 2008
Annual report 2009
Annual report 2010
Annual report 2011
Annual report 2012
Annual report 2013
Annual report 2014
Annual report 2015

Thank you and goodbye

It is time to say goodbye.

 

I have taken a new position as Senior Program Officer at the National Academy of Engineering for their Manufacturing, Design and Innovation (MDI) program (see program website). As a result, we have now shut down Athena Alliance and the Intangible Economy blog and are archiving our reports.
Thank you for your interest in The Intangible Economy over the past 10 years.

Ken Jarboe

August employment in tangible and intangible industries

Today’s employment numbers from BLS is somewhat mixed news. The unemployment rate dropped slightly to 5.1% in August but payrolls increased by only 173,000. Economists had expected an increase of 217,000 jobs.
Employment in intangible producing industries grew faster than in tangible producing industries. Employment in tangible producing industries was up by only 34,100 in August. Manufacturing and Construction & Mining employment dropped. Trade, Transportation & Utilities and Accommodation & Food Service were once again the biggest gainers. Intangible producing industries added 139,100 jobs. Educational & Health Services had the overall largest gain. Professional & Business Services and Government also grew. Arts, Entertainment & Recreation employment increased, reversing a two month decline.

Aug 2015 employment

Aug 2015 percent

Aug 2015 pie

For background on the methodology, see our working paper Employment in tangible-producing and intangible producing
industries
.

July trade in intangibles

The U.S. trade deficit declined by $3.3 billion in July, according to data released this morning from BEA. Exports were up by $0.8 billion and imports were down by $2.5 billion. Economists had expected a deficit of $42.4 billion. One worrisome note is that petroleum goods deficit grew for the second month in a row, in contrast to the downward trend for most of this year. The non-petroleum goods deficit improved slightly in July.
Once again exports of pure intangibles continued to grow. While imports rose slightly, the intangibles surplus increased to $15.8 billion in June. The surplus in business services continued to grow. But, once again and continuing a worrisome trend, net revenues from the use of intellectual property dropped. The surpluse in maintenance & repair services was steady and grew in financial services. The deficit in insurance services improved slightly, while the very small surplus in telecommunications services declined. (See detailed charts below.)
Our Advanced Technology deficit dropped from $8.8 billion in June to $7.4 billion in July. The biggest change in the deficit came from a decrease in Information and Communications Technology (ICT) imports, which offset a smaller surplus in aerospace.
Advanced Technology goods also represent trade in intangibles. These goods are competitive because their value is based on knowledge and other intangibles. While not a perfect measure, Advanced Technology goods serve as an approximation of our trade in embedded intangibles. Adding the pure and embedded intangibles shows an overall surplus of $8.4 billion in compared with $8.9 billion in June.
Intangibles trade-July15.png
Intangibles and goods-July15.png
Oil goods intangibles-July15.png
Intangibles trade parts-July15.png
Maintenance and repair services-July15.png
IP-July15.png
Insurance services-July15.png
Financial services-July15.png
Business services-July15.png
ICT-July15.png

Note: I am now reporting the trade data using the new BEA classifications for services trade, which breaks services into more categories. In the past, the intangible trade data was the sum of Royalties and License Fees and Other Private Services. Under the new classification system, intangibles trade data is the sum of the following items: maintenance and repair services n.i.e. (not included elsewhere); insurance services; financial services; charges for the use of intellectual property n.i.e.; telecommunications, computer, and information services; other business services.


Charges for the use of intellectual property n.i.e. is simply a renaming of Royalties and License Fees. This includes transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights.


Maintenance and repair services n.i.e., financial services, and insurance services, were previously included in Other Private Services. Telecommunications, computer, and information services is a combination of those two items (telecommunications and computer & information services) that were also previously included in Other Private Services. Three categories previously in Other Private Services — education-related and health-related travel and the expenditures on goods and services by border, seasonal, and other short-term workers — were removed and reclassified to travel. The new category of other business services is a continuation of the older category Other Private Services with those components removed.


Thus, other business services includes categories such as advertising services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; and industrial engineering services. It also includes personal, cultural, and recreational services which includes fees related to the production of motion pictures, radio and television programs, and musical recordings; payments or receipts for renting audiovisual and related products, downloaded recordings and manuscripts; telemedicine; online education; and receipts or payments for cultural, sporting, and performing arts activities.


For more information on the changes, see the March 2014 Survey of Current Business article, “The Comprehensive Restructuring of the International Economic Accounts: Changes in Definitions, Classifications, and Presentations.”

What the annual GDP revised data tells us

When BEA released its advanced estimate of GDP last month, it also released its annual revisions. Those revisions go back to 1969 and include more data on Intellectual Property Products (IPP).
First, the revisions. The chart below shows the comparison between the earlier and the most recent data. The level was significantly of in 1Q 2011 and 1Q 2013 and so far off in 2Q 2012 and 3Q 2013 that it missed the trend. Not to be too critical, but this points out that we still have a ways to go in timely data collection.
2015 revisions.png
The more interesting item is the new data on IPP going back to 1969. The chart below shows both the volatility and the somewhat cyclical nature of IPP investment. The same is true for the various components: R&D, software and entertainment, literary, and artistic originals. Interesting that software gets less volatile in the last decade and a half. R&D investment seems to be all over the place. Other than a few spikes, investment in entertainment, literary, and artistic originals has been rather steady.
IPP percent from 1969.png
Software percent from 1969.png
R&D percent from 1969.png
Artistic percent from 1969.png
For more details on the revisions, see The 2015 Annual Revision of the National Income and Product Accounts by Stephanie H. McCulla and Shelly Smith from the August 2015 edition of the Survey of Current Business.

R&D investment up in second estimate of 2Q 2015 GDP

The U.S. grew faster last quarter than thought according to the second estimate of GDP data released this morning from BEA. In this latest estimate, GDP is up 3.7% in the second quarter of this year. the advanced estimate was of a growth rate of 2.3% (see earlier posting). Economists had expected an upward revision to 3.2% based on new data.
Investment in R&D was revised upwards from 5.2% to 12.2% – which was greater than in the 1st quarter. As a result the entire category of IPP was revised upward as well. However, investment in software was still below the 1Q level and investments in entertainment, literary, and artistic original declined in the 2nd quarter.
IPP parts 2Q15 - 2nd.png