Service Sector Still Serving Up Good Values

Jul. 14, 2015 3:41 PM ETFL, JLL, LAD, MMI, TBI
John P. Reese profile picture
John P. Reese
2.07K Followers

Summary

  • Since early 2009, the US service sector has enjoyed a remarkable, lengthy expansion.
  • That's been great news, given that nearly 85% of American private sector jobs are now service-oriented.
  • While service sector stocks have fared well, good values remain.

Since the end of the Great Recession, America's service sector has been on a remarkable run. When the sector expanded in June, it did so for the 65th consecutive month, according to the Institute for Supply Management. The growth has been particularly strong for over a year now, and high levels of new orders indicate it shouldn't be slowing any time soon.

The strong service sector growth is critical because, over the past several decades, America has shifted consistently and dramatically toward being a service-dominated economy. In the early 1960s, 59% of U.S. private jobs came from the service sector, with 41% from the goods-producing sector; by 1981, the gap had grown to 67.8% for the service sector vs. 32.2% for the goods-producing sector; by 1991, it had shifted even further, with about 75% of U.S. jobs coming from service sector.

Today, nearly 85% of America's private jobs are service-oriented (all data from the Labor Department). Yes, we are experiencing something of a manufacturing "renaissance", but by and large we still rely less on people buying our cars and appliances and clothing, and more on people using our cable, phone, and Internet services; shopping at stores that sell goods made elsewhere; using healthcare services like doctors and nursing homes and rehabilitation centers; and needing transportation services to move products imported from other countries.

That means service-type companies, and the service sector as a whole, have become the real bellwethers of U.S. economic activity. Of course, the service sector depends quite a bit on the U.S. consumer -- and, in recent years, we've heard how the U.S. consumer is overleveraged and tapped out. Fortunately, the data doesn't support that notion. In recent months Americans seem to have been putting to work the money they are saving thanks to low gas prices.

This article was written by

John P. Reese profile picture
2.07K Followers
John P. Reese is considered an expert in the systematic investing strategies of legendary investors, including Peter Lynch, Ben Graham, Warren Buffett and others. He has been active in the development of fundamentally-based quantitative models since the mid-90s. His research on Seeking Alpha will include stock ideas, strategy and value investing pieces, behavioral finance concepts, systematic and modeling methods as well as other long term investing concepts. John is founder and CEO of Validea.com and also co-founder of Validea Capital Management. Validea Capital runs an actively managed ETF that utilizes the fundamental stock selection models of investing legends as well as a set of robo advisor allocations through Validea Legends and Validea Legends Income. John holds two U.S. patents in the area of automated stock analysis and is considered an expert in the field of quantitative stock selection using the strategies of investing legends. John is a columnist for TheStreet.com, Forbes.com and Canada's Globe & Mail and is co-author of “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies". He holds a master's of business administration from Harvard Business School and a degree in computer science from MIT.A more complete biography can be found here: http://en.wikipedia.org/wiki/John_P._Reese

Disclosure: I am/we are long MMI, JLL, FL, TBI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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