Business services keep on growing

This month’s topic is business services, a large sector in the Northern Colorado economy which we define as SIC 7300 plus 7514.SIC 7300 includes establishments primarily engaged in rendering services to businesses on a contract or fee basis, such as advertising, credit reporting, collection of claims, mailing, reproduction, stenographic, news syndicates, computer programming, photocopying, duplicating, data processing, services to buildings, and help supply services.
We also include passenger-car rental because most rentals are to business people. Engineering, accounting, research, management, and related services are not included.
Bureau of Economic Analysis data is available from 1969 to 1994 for SIC 7300. Total personal income from business services in Northern Colorado increased from $2.6 million in 1969 to $183.7 million in 1994 in nominal numbers. Business income was about 0.5 percent of regional income in 1969; it was about 4 percent in 1994. Our time series models forecast income in this sector in 1997 to be somewhere between $212 and $223 million.
County Business Patterns data show the dramatic growth in many of these sectors between 1988 and 1993. The aggregated sector (SIC 7300) shows an increase of 50 percent in the number of establishments during that period and a 150 percent increase in the number of employees. Advertising doubled the number of firms and increased the number of employees by 450 percent. Credit-reporting agencies had the same number of firms in 1993 as in 1988 but increased the number of employees by 250 percent. Mailing, reproduction, and stenographic increased the number of firms by 50 percent and the number of employees by 200 percent.
Services to buildings is a large sector with more than a thousand employees. The sector increased the number of firms and the number of employees by 50 percent between 1988 and 1993. The miscellaneous equipment rental and leasing sector didn’t add many more establishments but did increase the number of employees by 40 percent over the period.
There were large (300 percent) increases in the medical-equipment rental subsector. Heavy construction equipment rental doubled in size between 1988 and 1993.
The personnel supply services sector is also a large sector, with 3,000 employees. The sector doubled the number of firms between 1988 and 1993 and quadrupled the number of employees. The help supply services subsector makes up most of this sector.
The computer and data-processing services sector is growing very fast, tripling both the number of establishments and the number of employees during the 1988 to 1993 period. The miscellaneous business services sector had a 50 percent increase in the number of establishments and doubled the number of employees during the period. This sector employed almost 1,400 employees in 1993.
The passenger-car rental sector showed a 50 percent increase in both the number of establishments and the number of employees during the 1988 to 1993 period.
As we can see from the above data, the number of firms providing business services is growing in Northern Colorado, but not as fast as the number of employees. Local firms are getting larger. Also evident in the CBP data is that the breadth of services provided locally is expanding.
The Input/Output Model shows that employee income is almost 4 percent of total employee income in the region, about the same as value added in the business services sector plus automobile rental.
Employment is about 7 percent of total regional employment. This means that wages are relatively low in the sector, a common characteristic of retail and service sectors. The model indicates that other business services, personnel supply services and computer and data processing add the most value to the local economy.
The business services sector, including car rental, imports about 2.15 percent of total imports into the local economy and exports about 3.5 percent of total exports from the local economy. This is very low and is normal for service sectors. Manufacturing sectors are usually the big importers and exporters.
Employment multipliers in these sectors are low, mostly in the 1.6 to 1.8 range. This is because they are mostly end use sectors, i.e., the services provided are used in and for the final product during the latter stages of production or to sell the product. Therefore, they do not stimulate further production or get resold as an intermediate product. Automobile rental and leasing is an exception with an employment multiplier of 4.79, i.e., each job in this sector generates 3.79 jobs elsewhere in the local economy.
Personal-income multipliers are also relatively low, in the 1.75 to 2.4 range. Services to buildings and detective and protective service are in the upper end of that range. Again, auto rental and leasing is higher at 5.5.
In summary, business services in the Northern Colorado economy is growing very fast, especially employment in these sectors. Local firms are expanding while new firms are also locating here. More of these services will reduce imports into the local economy by the manufacturing sector. Multipliers in these sectors are generally low because of their use near the end of the production process.John Green is a consultant and professor of economics at the University of Northern Colorado in Greeley. Eric Siverts is president of the Fort Collins-based Siverts & Associates.ÿ