IBISWorld’s Media Center recently released an insightful article detailing significant shifts in the U.S. industry over the past sixty years (IBISWorld Inc., The Evolution of US Industry). The U.S. economy is now a heavily service-based economy with noticeable increases in the areas of healthcare, social assistance and retail.
It’s worth noting that IBISWorld’s initial chart data is somewhat confusing due its presentation based on percentage of GDP, not total economic revenue generated per industry. While the overall U.S. GDP (gross domestic product) has increased during this period from around $1.5T to nearly $18T, the chart data are based on percentage of Value Added Share, not actual GDP.
Tracking Value Added Share of GDP through the years
In the postwar climate of the 1950s, the U.S. economy experienced virtually no competition from a depleted European market. This led to a manufacturing boom that quickly established the U.S. as the world leader in construction materials, including steel and iron. Three key factors of deregulation, increased foreign competition and outsourcing signaled the end for manufacturing’s enormous success and its economy share dropped from 29.7% to 13.5% from 1960 to 2010 (IBISWorld Inc., The Evolution of US Industry).
The U.S. economy’s evolution over the past two decades shifted from the manufacturing industries to the service-based industries. Non-service sectors contain economies of scale, which require substantial infrastructure to maintain profitable stateside operations. Technology alone is affecting tertiary industries more than ever, with financial, technical, professional, insurance and real estate services relying on the latest technological advances in everyday business. API, mobile marketing and social media are all being leveraged for better service to satisfy the customers of today.
Economies of scale in response in the U.S. Industry
Economies of scale in non-service sectors also are necessary to maintain an ever-growing economy. The highly lucrative economic climate of the 90s and early 2000s created enough critical mass to warrant economies of scale in many non-service sectors. What is interesting is that, for the most part, there are no economies of scale in accommodations or food, which generally follow population growth.
The U.S. service sector is projected to generate over nine million jobs from 2010 through 2015. This represents 85% of all new positions during this five-year span. As more baby boomers live longer, the service-industry demand on healthcare is expected to be the fastest growing segment of the U.S. economy. This evolution in U.S. industry growth will be worth tracking as service-based sectors gain more of the lion’s share of the economy leading into 2020.