Just How Big Is the Service Sector?

The U.S. government thoroughly measures the output of American farms. On July 18, for example, the Agriculture Department announced that milk production per cow averaged 1,888 pounds in June. The government collects less information about services, which range from $10 manicures to $1,000-an-hour legal advice. That’s a problem, because services account for 77 percent of private-sector output in the U.S. There are only six principal economic indicators for services (including ones for construction and retail trade), vs. 17 for agriculture, construction, manufacturing, mining, and energy. “The economic data collected by U.S. statistical agencies remain highly skewed toward more traditional industries,” writes economist Kris Dawsey, author of a new Goldman Sachs report.

The lack of information about the service sector mainly affects the government’s first two stabs at calculating gross domestic product each quarter. By the third try the government’s calculation is more accurate, because it has more data to work with—in particular the Quarterly Services Survey, which is prepared by the Census Bureau. Those squishy early estimates matter because they can influence public opinion and potentially even affect the decisions of the Federal Reserve and Congress. This year the Bureau of Economic Analysis, a branch of the Commerce Department, initially estimated that health-care usage rose at a 9.9 percent annual rate in the first three months of 2014. It later concluded that it declined at a 1.4 percent annual rate—a huge swing by any measure.