This article appeared in the Southwest Missouri Economic Review (March 1997). That publication should be consulted for Southwest Missouri economic data.
The Springfield Economy, 1970-1994
Thomas L. Wyrick*
This article surveys the evolution of the Springfield-Greene County economy from 1970 to 1994. To keep the discussion within manageable limits, the analysis focuses on the performance of total earnings. Other measures of economic performance, like total employment and hourly pay, typically rise and fall with total earnings, so a study of earnings provides a general overview of local economic activity. Government transfer payments and some other receipts, such as pensions, are a separate component of personal incomes not examined here.
The present analysis relies on earnings data for all of Greene County, but more than two-thirds of all jobs within the county are in Springfield and an even greater percentage of county economic activity occurs there. The present report frequently refers to the "Springfield" economy because of the city's dominance within Greene County.
The Greene County Economy
Greene County lies near the center of the southwest quarter of Missouri. With a 1994 population of about 222,400, nearly 68% of Greene County residents live in Springfield. Springfield is the third-largest city in Missouri and easily the largest in the southern part of the state, so it serves as a commercial and cultural center for Missouri's Ozarks region.
In practice, this means that the rapid population growth experienced in other Ozarks communities has provided a stimulus to the Springfield economy. For example, residents of Branson may travel to Springfield to shop for clothing or for entertainment, and typically rely on Springfield hospitals for medical care.
Springfield also attracts a disproportionate share of retirees and college students from other communities. These groups spend dollars that were originally earned elsewhere, so their expenditures inject new dollars into the local economy and create jobs for Springfield workers. These patterns are reflected in the earnings of many groups, including area health care providers and employees of local colleges.
Table 1 summarizes key features of the Springfield-Greene County economy. The city's largest single industry is health care services, including hospitals, doctors and other health care providers. Manufacturing, by far the largest economic sector in 1970, has experienced slow growth over the past generation, and its importance to the local economy continues to decline.
Table 1. Significant Features of the Greene County Economy
Population, 1994 222,400 Population growth (annual), 1970-94 1.54% Labor force, 1994 121,900 Business establishments (number), 1994 7,177 Largest industry Health services Total personal income of county residents $4.42 bil. Personal income growth (annual), 1970-94 9.26% Per capita personal income, 1994 $19,882
Over the 24-year period examined in this report, earnings in Greene County's nonfarm economy rose by 9.1% annually. Over the same period the inflation rate (as measured by the CPI) averaged 5.7%, so the local economy experienced real growth of about 3.4% in the average year. Most analysts believe that the CPI causes inflation to be overstated by 1% or more, and if they are correct then Springfield's real growth rate probably exceeded 4% over this very long period. At that rate, the local economy would double in size every 16-18 years.
Major sector performance
Rather than consider the economy as a unified whole, it is useful to break it down into major sectors. A sector, such as manufacturing, includes several industries that produce different products but which carry on similar activities -- e.g., manufacturers of shoes, furniture and paper.
Analysts divide the economy into 11 major sectors. One sector, farming, is especially difficult for government statisticians to keep tabs on because of the large number of family farms, where many transactions go unreported, because farm output may be valued only when it is sent to market rather than when it was produced, and because of the irregular timing of capital investments and depreciation expenses. These conditions impart an irregular pattern to farm income that makes comparisons with other sectors difficult or impossible.
Lacking comparable data for the farm sector, many analysts prefer to focus on the 10-sector nonfarm economy. Table 2 shows the annual growth rate of total earnings for each major sector of Springfield's nonfarm economy. The table includes the earnings of persons working in Greene County even if they reside elsewhere. As noted earlier, cash transfer payments received from government and pension incomes are not counted as earnings or included in this study .
The annual growth rate of earnings over the entire 24-year period is shown in the far-right column of Table 2, while the other columns provide growth rates for shorter periods.
The bottom row of Table 2 shows the growth rate of earnings for the total nonfarm economy. Total earnings rose most rapidly from 1975 to 1980, but they did so largely because of the high wage and price inflation experienced at that time. After adjustment for inflation, earnings actually grew somewhat less rapidly in 1975-80 than in the most recent period, 1990-94.
Table 2 shows that Springfield's two largest economic sectors in 1994 were services (1) and manufacturing (2). This reverses their 1970 rankings. The performance of these two large sectors reveals much about the local economy's development over the past generation.
The service sector (1) is not only the largest, but is also the fastest growing sector of the local economy. The service sector includes a variety of personal and business services, including many of the recreational services that people purchase after they have obtained the necessities of life. Total earnings in the service sector rose by more than 12% annually over the long period covered by this study. Though the growth rate is less after the effects of inflation have been removed from the data, this very large sector has grown at a rapid pace by almost any measure.
Annual percentage change in earnings Sector (Rank, 1-10) 1970-75 1975-80 1980-85 1985-90 1990-94 1970-94 Agr. services, forestry, fisheries (9) 11.97% 0.15% 2.85% 4.59% na 4.80%# Mining (10) 18.40% 15.25% -5.83% -5.04% na 5.10%# Construction (7) 8.26% 10.50% 8.48% 4.31% 9.84% 8.19% Manufacturing (2) 5.56% 11.15% 7.96% 4.22% 3.52% 6.57% Transportation & public utilities (6) 9.92% 14.93% 3.32% 6.18% 5.47% 7.99% Wholesale trade (5) 13.19% 17.47% 6.76% 7.92% 6.69% 10.48% Retail trade (3) 10.98% 11.49% 8.65% 4.38% 10.38% 9.09% Finance, insurance & real estate (8) 6.78% 12.58% 12.19% 8.91% 7.59% 9.67% Services (1) 12.32% 16.22% 12.31% 8.93% 10.24% 12.05% Government & gov't enterprises (4) 11.15% 11.45% 7.17% 7.87% 5.75% 8.78% Total nonfarm earnings 9.51% 13.10% 8.45% 6.63% 7.62% 9.10%
# Growth rate, 1970-90. Sectors are ranked 1-10 in total 1994 earnings.
Earnings of workers, owners and others whose income was earned within Greene County, Missouri. Data marked na were not disclosed by the Commerce Department to protect the confidentiality of specific companies.
Source: U.S. Department of Commerce. Data obtained from the Regional Economic Information Service. For more information, contact http://www.lib.virginia.edu/ssdcbin/reisbin/reit6.cgi?st=29&cnty=29077
That contrasts with the performance of the manufacturing sector (2), which registered a below-average 6.57% growth rate since 1970. This record of slow growth does not imply that manufacturing companies in Springfield are unable to compete with other manufacturers, but that consumers do not increase their purchases of manufactured goods as rapidly as their incomes rise. Families who possess two cars, homes full of furniture and closets full of clothing do not purchase twice as many of these items when their incomes double. Instead, they purchase many of the personal and health care services that provide non-material comforts.
Agricultural services, forestry and fisheries (9) and mining (10) were clearly the area's two slowest-growing economic sectors, though growth rates comparable to those for other sectors are not available because of the government's need to protect confidential (firm-level) information. The withholding of data usually reflects an exodus of firms from the local market, so that only one or two remain. Thus, the na entries reflect declines in total production and earnings, but the magnitudes cannot be accurately gauged without more information.
The agricultural services sector (9) deserves special mention because of its close relationship to the farm economy. Slow income growth in agricultural services, particularly between 1975 and 1980, is explained by the very difficult conditions that farmers and ranchers faced during those years-high inflation, high interest rates and recession. Under the circumstances, many farmers had no choice but to cut back on spending for agricultural services. Because consumer food purchases rise less rapidly than their incomes, farms and agricultural service companies have a difficult time keeping pace with the overall economy.
On a more positive note, the second-fastest growing sector was wholesale trade (5) -- the business of supplying goods to retail merchants. With an average gain of 10.48% each year, the earnings of local wholesalers outperformed those of local retailers. This was possible because local wholesalers supply retailers both in Springfield and in other Ozarks cities, and retail sales in many of those cities are rising faster than in Springfield. Thus, Springfield's role as a regional trade center links its performance to that of the broader Ozarks economy.
Earnings gains in transportation and public utilities (6) averaged 7.99% since 1970, or about 1.1% below those for the overall economy. Much of the shortfall can be explained by the contraction experienced in a single industry, railroad transportation, whose presence in Springfield contracted throughout much of the 1980s. Expanding rapidly were the trucking and warehousing industries -- businesses that work in tandem with the fast-growing wholesale sector, discussed above.
The retail trade sector (3) supplies customers with merchandise and food. Earnings gains in retailing have matched those for the overall economy, at 9.09% per year. Eating and drinking establishments registered particularly rapid growth, since the conveniences they offer are highly valued by families with rising incomes and little leisure time.
Finance, insurance and real estate (8) is another sector whose performance has been comparable to that of the broader economy. Though the demand for financial services grows more rapidly than consumer incomes, many of those services (such as mutual fund services) are purchased from out-of-town firms, and therefore do not contribute local jobs or earnings. The financial services industry has become more competitive in recent years as deregulation has taken hold, and that is a second force holding down earnings in the financial sector.
Earnings in the construction sector (7) have lagged those of the overall economy. This is partly because much of the land in Greene County is already in use -- unlike land in Christian, Webster and other nearby counties. Construction earnings rose somewhat faster than the economy-wide average in the early 1990s, a time when the local population and demand for housing accelerated. It seems unlikely that the Greene County population will continue growing at such a rapid pace, however, so the pre-1990 situation seems likely to reassert itself soon -- where construction will again lag behind the broader economy. Even if construction does tend to migrate from Springfield to nearby counties, most of the associated jobs and expenditures will remain within the area economy. Contractors will continue buying most of their construction materials from centrally located suppliers in Springfield, and construction workers will continue spending their paychecks with Springfield retailers.
Finally, earnings in the government sector (4) have lagged slightly behind the economy-wide average. Most of the spending increases by the federal government in recent decades has been in the form of cash payments to recipients, so a growing government budget has not translated into a larger government payroll. At the state and local level, outlays on many services (education, justice, police) are tied more to the population than to local economic activity. Thus rising incomes within Greene County have not created as much demand for public services as they have for many other services.
Industry performance
As noted earlier, the economic sectors listed in Table 2 include several industries. An industry is a collection of firms that produce similar, frequently competing, products or services. For example, all car dealers make up an industry and all restaurants make up another. Industries can be broken down even further, into new cars and used cars, for example, or into traditional, fast-food and pizza restaurants. The source of data for the present analysis does not break industries down to that degree, but for some purposes such distinctions would be important.
The earlier observation that the service sector has grown more rapidly than others is less informative than one might first imagine, since the service sector includes a diverse array of firms producing legal services, amusements, and household cleaning, among other things. By looking at the performance of specific industries one gains a better understanding of consumer spending patterns and of the activities of local companies and workers.
Table 3. Earnings Growth in Selected Industries, 1970-1994
1994 1970-94 Total Annual Earnings earnings Economic Sector* (thousands) Growth (%) Top-10 fastest-growing industries Security and commodity brokers & services--FIRE $11,872 19.1% Transportation by air--T & PU $8,047 16.5% Trans. equipment excl. motor vehicles--Mfg. $3,212 16.3%# Transportation services--T & PU $13,372 15.0% Business services--Services $148,355 15.0% Health services--Services $569,674 13.2% Amusement and recreation services--Services $21,809 12.8% Trucking and warehousing--T & PU $150,042 12.5% Auto repair, services and garages--Services $65,479 12.2% Legal services--Services $63,213 12.0% Bottom-10 slowest-growing industries Heavy construction contractors--Constr. $21,107 6.2% Food and kindred products--Mfg. $148,881 6.2% Apparel and accessory stores--Retail $17,879 5.8% Paper and allied products--Mfg. $47,214 5.3% Apparel and other textile products--Mfg. na 5.3%^ Private household services--Services $8,830 5.0% Agricultural services--AS, F, F na 4.8%^ Railroad transportation--T & PU $52,461 3.4% Holding and other investment companies--FIRE $1,481 3.3% Electric and electronic equipment--Mfg. $73,636 3.1% Total nonfarm earnings $3,712,532 9.1%
Source: U.S. Department of Commerce. Data obtained from the Regional Economic Information Service. For more information, contact http://www.lib.virginia.edu/ssdcbin/reisbin/reit6.cgi?st=29&cnty=29077
A complete study of the Springfield economy would track the growth of every industry, but to grasp the dominant themes in local economic development it is sufficient to focus on the handful of industries whose performance sets them apart from the broader economy. Table 3 lists Springfield's "Top 10" and "Bottom 10" industries, measured by the growth rate of industry earnings since 1970.
The table shows that five of the fastest growing industries in Springfield are from the services sector -- including three very large industries: business services, health services and trucking/warehousing. Rapid growth among already large industries is typically a sign of regional specialization, in which local firms export their services to those living elsewhere. This is particularly true of the city's health care industry. A large share of the patients of Springfield doctors and hospitals reside in other counties, while many others are retirees who completed their working careers elsewhere before moving to Springfield.
As noted earlier, the rapid growth in trucking/warehousing can be traced to the growing activities of local wholesalers. They help provide merchandise to retail stores in a wide (50-100 mile) radius, which includes quite a few fast-growing towns.
Earnings have also risen rapidly in the amusement/recreation industry and in the air transportation industry. The success enjoyed by these leisure-oriented industries is further evidence of Springfield's growing prosperity.
Earnings growth in the auto repair industry reflects the fact that as cars become more technically complex it becomes necessary to take them to specialized centers for servicing rather than working on them at home. The rising value of leisure time also contributes to this trend.
Legal services have experienced significant income gains, suggesting that the region grows more litigious as population density increases, commercial activity grows and incomes rise.
Among the slow-growth industries are many which a generation ago seemed dominant: heavy construction, railroad transport, electronic equipment and food processing.
Looking back, the relative decline of these industries has frequently been marked by the closing of local plants or by large layoffs. Public controversies surrounding such events often focus on the hardships created at the time, but overlook their underlying cause: consumers no longer find certain products as desirable as before, or they can obtain the same items at lower cost from non-local producers. Virtually every industry goes through such dislocations at some point in its history. These difficulties are a necessary element of a market economy, where powerful forces shift workers and other resources between industries to suit the changing demands of consumers.
Summary and Implications
Over the past generation the Springfield-Greene County economy has shifted away from manufacturing, rail transport and construction toward the production of intangible services. The Springfield economy has become the dominant provider of health care, higher education, legal and trade services over a region encompassing perhaps 6,000 square miles.
One might conclude from the discussion above that the same industries and workers who have recently risen to prominence will continue to prosper in the years ahead. However, the major changes that have taken place since 1970 suggest the opposite conclusion.
Many of the business activities performed by leading service industries can be divided into two constituent parts: information and human expertise. The U.S. is now entering a period known as the "Information Age," in which bits of information can be moved over long distances at very low cost. Using computers and telecommunications technologies, Springfield consumers will be able to patronize distant service providers if the services of local firms are too expensive or of lower quality than those available elsewhere. Among the industries likely to be affected are health care, higher education, entertainment, financial and legal services.
As that day dawns -- gradually, over the next decade -- the list of top-performing industries will continue to change, as those slow to adapt fall down the list and more agile competitors move up. As it has been, so will it be again.
*Professor, Economics Department, Southwest Missouri State University.