August employment in tangible and intangible industries

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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.

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

July trade in intangibles

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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.

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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

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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.

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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.

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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

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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.

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Next Production Revolution - OECD

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And continuing with OECD activities, here is the outline of a new project on the Next Production Revolution:

The objective of the OECD work on the 'Next Production Revolution' in 2015-2016 is to examine and better understand the pathways - both technological and non-technological - of future prospects for growth, innovation and productivity across the economy. The ambition is to better understand the key structural changes in both manufacturing and services that could occur and assess the implications these technological changes and the resulting business dynamics will have for a wide range of policies. The work does not aim to forecast what will happen in the future as this is an impossible task in a world characterised by increasing levels of volatility, uncertainty, and complexity. The aim is rather to formulate robust policy recommendations on how economies can fully benefit from the emerging new opportunities, and prepare for the challenges of the next production revolution.

I should point out that this project shares the basic viewpoint of the recent NAE report on Making Value for America: Embracing the Future of Manufacturing, Technology, and Work (see my earlier posting on Engineers who get it) -- that one of the major factors in the new I-Cubed (Information, Innovation, Intangible) Economy is the fusion of manufacturing and services.

    Note: the views expressed here are solely those of the author and do not necessarily represent those of Athena Alliance.

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