May employment in tangible and intangible industries

Good economic news this morning in the form of May’s employment data from BLS. Payrolls rose by 280,000 net new job, which was better than expected. Economists had forecast an increase of 226,000 jobs. The unemployment rate ticking up slightly to 5.5% because of more people looking for work.
Employment in tangible producing industries grew by 101,900 in May. Trade, Transportation & Utilities and Accommodation & Food Service were the biggest gainers. Intangible producing industries added 179,200 jobs with most of that gain in Professional & Business Services and Educational & Health Services had the overall largest gain but Arts, Entertainment & Recreation saw the biggest percentage jump.
As the charts below shows, U.S. employment in tangible producing industries and intangible producing industries is just about equal. Up until March, employment in tangible producing industries had been growing slightly faster than in intangible producing industries.
For more background on this data, see my earlier posting. Note that later this month I will be publishing a more refined version of this analysis based on more detailed industry level data. This may change the analysis somewhat.
May 2015 parts.png
May 2015 tangible & intangible employment.png


Digging deeper into intangible trade data – April and annual revisions

This morning BEA came out with the April trade data and its revisions for the last few years. That data contain goods news – and, with the revision, offered an opportunity/excuse to dig deeper into components of trade in intangibles.
The major news was a large drop by $9.7 billion) in the deficit to $40.9 billion. economists had forecast decline to $44 billion. Exports grew by $1.9 billion while imports fell by $7.8 billion. However, this drop in imports maybe more of a correction after March’s increase due to ending of the west coast dock strikes. Still it is good news with the deficit in both petroleum goods and non-petroleum goods declining. The deficit in petroleum goods has been on a steady track of improvement for the past four years (see chart below).
Oil goods intangibles-Apr15.png
Trade in intangibles also improved with the surplus rising slightly to $15.5 billion as export grew more than imports. The surpluses in maintenance & repair services continued to grow with exports up and imports down slightly. The surplus in financial services also grew as exports rose more than imports. The deficit in insurance services improved slightly. However the small surplus in telecommunications services declined slightly. The surplus in business services continued to grow. Net revenues from the use of intellectual property increased slightly as revenues from foreign sources (exports) were up more than charges for the use of intellectual property paid out to foreign sources (imports).
Our Advanced Technology deficit was essentially unchanged at $6.4 billion.
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 $9.1 billion in compared with $9.0 billion in March.
Intangibles trade-Apr15.png
Intangibles and goods-Apr15.png
Intangibles trade parts-Apr15.png
Today’s data also includes revision going back to 2012. For the most part, these revisions had little impact on the overall trends. However, the revisions show a more positive trend for telecommunications, computer and information services with exports revised upwards. Revenues from intellectual property (exports) were revised downward resulting in a lower surplus. Exports of financial services for the last 6 month were also revised downward.
These revisions also give us the opportunity to look at trends in each of the components in greater detail. Maintenance & repair services is the smallest component but contributes more to the surplus than some other industries. As the chart below shows, the surplus in this area has been growing rapidly lately as exports continue to increase while imports have flatten out. Maintenance & repair services still have only a modest overall surplus of $1.4 billion.
Maintenance and repair services-Apr15.png
The two largest industries (by total trade – exports plus imports) are business services and intellectual property. Intellectual property is also the largest positive contributor to the overall trade balance with a surplus of $7.3 billion. In the past five years, the growth in exports (payments received) has slowed down somwhat. As a result, the surplus has been essential flat.
While large in total trade, business services have a surplus of only $3.4 billion. Both imports and exports have grown steadily. In the past year, exports have risen enough to result in a boost in the surplus after a couple of years of stagnation and decline.
Business services-Apr15.png
Financial services has the second highest level of contribution to the trade balance with a surplus of $5.8 billion while being the third largest in total trade. Exports have surged while imports have grown only slowly.
Financial services-Apr15.png
Insurance services and telecommunications, computer & information services are roughly the same size in total trade (well behind financial services). However, telecommunications, computer & information services trade is basically balanced with a small surplus of $237 million while insurance services runs a large deficit of $2.6 billion. That deficit has slowly improved over the decade after reaching its low point in November 2008. Since then imports have steadily decline while exports have rising slightly.
Insurance services-Apr15.png
As the chart below show, telecommunications, computer & information services had been running a deficit for a number of years. The industry began showing surpluses in late 2012. The overall trend recently has been positive with exports growing and imports remaining flat (and even declining slightly).
In summary, financial services and revenue from intellectual property account for the vast majority of our intangible surplus. Financial services exports are healthy but revenues from intellectual property has stagnated. Business services also contribute positively but imports remain strong limiting the growth in the surplus. The deficit in insurance services remains a drag on the economy but has improved over the past few years. Trade in telecommunications, computer & information services is basically balanced with a slight surplus after years of small deficits. The overall trend seems to be positive, but one would think that the United States would have a larger surplus in this advanced technology areas. Maintenance & repair services also contribute to the surplus but are small compared to the other areas.
The overall picture is positive, with some concerns. A significant drivers of the growth in the surplus seems to be financial services exports. Given the troubles seen in this area over the past few years, one wonders whether this growth is simply catch up, due to declines elsewhere, or simply just a slightly lower trajectory than before the Great Recession. In any event, it is unclear whether that increase in exports can continue.
Another worrisome trend in the recent slowdown in IP revenues and the stagnation of the balance since mid-2011. It is unclear why this is occurring but it marks a significant difference from the pre-Great Recession period. Better understanding of this trend is needed to be able to make the appropriate policy choices.
Note: The detailed trade data use the new BEA classifications for services trade (see the March 2014 Survey of Current Business article, “The Comprehensive Restructuring of the International Economic Accounts: Changes in Definitions, Classifications, and Presentations.”).
Charges for the use of intellectual property is a somewhat broader category than under the previous classification and includes all 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 were previously included in Other Private Services and are now broken out as a separate category. However, cleaning of transport equipment is included in transport services, construction repairs and maintenance are included under construction, and maintenance and repairs of computers are included under computer services.
Financial services includes: securities, underwriting & related services; financial management, financial advisory and custody services; credit card and other credit-related services; and securities lending, electronic funds transfer and other services.
Insurance services includes direct insurance, reinsurance and auxiliary insurance 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 categorized as 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 and are not included as intangibles for the purpose of this analysis.
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.