The service industry is all around us, even if it's become so ubiquitous that we don't even notice it anymore. In the United States, almost 80% of the workforce is employed in some kind of service industry job, often in functions you may not even consider the service industry. Read on to learn more about this industry.
What is the service industry?
The service industry, sometimes called the service sector, is responsible for providing tangible and intangible services to consumers. This isn't strictly limited to things like roof repair or house cleaning services. It's a huge sector that encompasses everything from trades to healthcare to professional services, such as the one being provided right now in the writing of this article.
The service industry is considered the third tier in a three-sector economy that includes a sector dedicated to agriculture, hunting, forestry, fishing, and mining and a sector dedicated to manufacturing goods. The service industry is the industry that provides all kinds of services, including retail sales.
Service industry versus retail industry
As established above, the retail sector is a subset of the service industry, primarily because retail is about more than just purchasing an item. Retail largely revolves around customer service, such as helping customers choose products, offering a positive experience, and providing support after a purchase sale, such as returns and assistance with product-related problems.
The service industry, though, is much more than just retail services. It also includes transportation and distribution, restaurants, tourism, insurance and banking, healthcare, and even legal and professional services. Basically, if it doesn't directly make something or produce raw materials, such as food ingredients or iron ore, it probably falls under the service industry.
There is a four-tier model for the economy that breaks out research and development (R&D), information technology, education, and consulting into a final tier. However, in a more common three-tier model, these areas will also largely fall under the service industry.
Examples of service industries
There are many, many service industries in the modern world, especially under a three-tier economic model. Here are just a few examples of areas that fall under the service industry:
- Facilities management and maintenance: Anything that it takes to keep a building going is likely under the service industry, from janitorial services to building security and landscaping.
- Professional and business services: Consulting, marketing, human resources, administrative support, and translation are just a few services that fall under this category.
- Logistics and supply chain management: Warehousing, fulfillment, last-mile delivery, and even customs brokerage are services that are vital to keeping products in stores for businesses and consumers.
- Technology and creative services: Under the three-tier economy, information services fall under the service industry and can include things like website hosting, cloud computing support, and programming. Creative services include things like web design, writing, and video production.
- Environmental services: Even the trash collector is part of the service industry, as are people who specialize in water purification and indoor air quality.
- Subscriptions: From your streaming video provider to your subscription to the local newspaper, car-sharing, co-working, or equipment rental memberships all belong to the service industry.
Related investing topics
Why the service industry matters to investors
Because almost 80% of American workers are involved in the service industry, the footprint of this tier of the economy cannot be understated. Investors should be acutely aware of the service industry and its many sectors. Although the different sectors under the service industry can perform very differently throughout the economic cycle, they can also be used to hedge against one another.
For example, if you invest in high-end retailers, it might also make sense to hedge with business-to-business logistics companies or companies in the transportation sector with a more general reach. Or if you invest in homebuilders, the tech industry could possibly provide you with options to hedge your investments.
It's all about finding balance between different areas in this industry that don't directly affect one another or move together. To build a well-rounded investment portfolio, it's important to understand the different categories of businesses, including the many segments under the service industry.
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