What is the 'Service Sector'

The service sector produces intangible goods, more precisely services instead of goods, and according to the U.S. Census Bureau, it comprises various service industries including warehousing and truck transportation services, information sector services, commodities, securities and other investment services, professional, technical and scientific services, waste management services, health care and social assistance services, and arts, entertainment, and recreation services. Countries with economies centered around the service sector are considered more advanced than industrial or agricultural economies.

BREAKING DOWN 'Service Sector'

The service sector, also known as the tertiary sector, is the third tier in the three sector economy. Instead of the product production, this sector produces services like advice, experience and discussion. Examples of service sector jobs include housekeeping, tours, nursing and teaching. By contrast, individuals employed in the industrial or manufacturing sectors produce tangible goods, such as cars, clothes or equipment.

Among the countries that place heavy emphasis on the service sector, the United States, the United Kingdom, Australia and China rank among the top. In the United States, the Institute for Supply Management (ISM) produces a monthly index that details the general state of business activity in the service sector. This index is regarded as a metric for the overall economic health of the country because approximately two-thirds of U.S. economic activity occurs in the service sector.

According to the International Monetary Fund (IMF) and the CIA World Factbook, the following countries are the largest by service or tertiary output as of 2016: 

  1. United States: $14.76 billion
  2. China: $5.7 billion
  3. Japan: $3.5 billion
  4. Germany: $2.4 billion
  5. United Kingdom: $2.1 billion
  6. France: $1.9 billion
  7. Italy: $1.4 billion
  8. Brazil: $1.3 billion
  9. Canada: $1.1 billion
  10. India: $1.0 billion

The Service Sector in the Three-Part Economy

The service or tertiary sector is the third piece of a three-part economy. The first economic sector, the primary sector, covers the farming, mining and agricultural business activities in the economy. The secondary sector covers manufacturing and business activities that facilitate the production of tangible goods. The service sector, though classified as the third economic sector, is responsible for the largest portion of the economy’s business activity. Businesses in this sector are rapidly placing more focus on what is becoming known as the "knowledge economy," or the ability to surpass competitors by understanding what target customers want and need, and operate in a way that meets those wants and needs quickly with minimal cost.

Technology in the Service Industry

Technology, specifically information technology systems, is shaping the way businesses in the service sector operate. In nearly all industries within the sector, businesses institute technology to bolster production, increase speed and efficiency and cut down on the number of employees required for operation. This cuts down on costs and improves incoming revenue streams.

The Future of the Service Sector

As of 2015, the growth of the service sectors in China and the United States have seen a significant decline. Analysts are closely watching China over concerns that slugging demand trends in the country will affect economic growth globally. The service sector in the United States, while showing signs of a noticeable slow down through the fourth quarter of 2015, still has a steady amount of growth.

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