Producer services: trends and prospects for the Seventh District

Economic development strategists in the Seventh District have tried to hitch their wagons to the booming service sector as a means of replacing disappearing paychecks in manufacturing and agriculture. But not all services are capable of driving regional growth. Service sector jobs satisfying local consumer demand, such as dry cleaning and most retail sales, do not usually generate additional personal income. According to the so-called "export base" theory, goods and services sold afar generate income which, in turn, finances local income and spending on nonexport goods and services. In this way, the portion of regional growth that is generated by changes in external demand for the region's exports is usefully identified for purposes of development policies. Accordingly, the region's perspective correctly focuses on those service sectors that are driven by external demand— that is, so-called "export sales." 1 In particular, producer services industries have been associated both with strong growth of late, and with external rather than local markets. Producer services are services sold to firms rather than to consumers and typically include accounting, management consulting, financial services, real estate, insurance, engineering, architecture, and credit reporting.' The producer services sector represents one of the most rapidly growing sectors as measured by the rate of job growth (see Table 1). Moreover, its growth has been consistently high over the past two decades, growing at an annual rate of 4.5 percent per year from 1969 to 1979, and 4.8 percent from 1979 to 1989.