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Crescenzi: Healthier Service Sector Good for Job Growth

In today’s report, the service sector was shown to have added 154k private-sector service-producing jobs. The gain fits with recent data suggesting the composition of U.S. growth has shifted favorably, with spending moving toward services rather than manufactured products. This is of course good for the U.S. job market, because the service sector is where the vast majority of jobs exist.

Healthier Service Sector Good for Job Growth

The rebound in the U.S. economy thus far has been concentrated in the goods-producing sector of the economy, something quite evident in data on personal spending on durable goods, particularly compared to data for spending on services. Given the fact that the U.S. economy is a service-oriented economy, the composition of consumer spending has therefore been skewed unfavorably in terms of what is best for job growth.

Unemployment line
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Unemployment line

Recent data suggest this condition might be changing, and if it lasts it would likely contribute to additional payroll growth.

In Monday’s report on personal income and consumption and in Friday's report on GDP, personal spending on services showed acceleration. To wit, personal spending on services was shown to have increased at a 2.5 percent pace in the third quarter, the best showing since the fourth quarter of 2006. This is important, as it has been lacking throughout the recovery and a healthy service sector is vital to job growth given that the U.S. is a service-oriented economy: Of the 130 million employed in the U.S., 112 million are employed in the service-producing sector.

Rallying Risk Assets: It’s not Just QE

A move away from policies and rhetoric widely perceived as anti-business is in combination with new action by the Federal Reserve driving the rally in risk assets. September’s stock market rally—the best for any September since 1939 (October was the best October since 2003), and the rally in risk assets more generally since Jackson Hole has almost certainly been related in part to the idea that a move away from the political left will reduce the intensity of government involvement and thus create a better climate for businesses and perhaps boost business sentiment enough to boost hiring. A blend of good data, QE II, and a change of seating in Washington could make the rally in risk assets more entrenched.

Tony Crescenzi is Senior VP, Strategist, Portfolio Manager Pimco. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market."