Subscribe to Inc. magazine
LEGAL ISSUES

Where The Growth Is

In government reports statistics for growing companies can sometimes be misleading.
Advertisement

You can find out about some hot businesses from government reports,but beware of statistical snares

I'm perusing the 1989 edition of the Commerce Department's mammoth U.S. Industrial Outlook when an unlikely growth industry catches my eye.

House slippers. SIC code 3142, a category that includes ordinary slippers plus "slipper socks, made from purchased socks." Shipments are projected to rise nearly 7% this year, placing the industry 14th on the list of the 15 highest-growth manufacturing businesses for 1989.

This, I decide, is news. I read on. Alas, I learn in the next paragraph that house slippers were among the big losers of the past five years. At best they're now only making a comeback. Oh, well. I check out some of 1989's other projected fast growers, such as "fertilizers, mixing only" (#5 on the list). No dice. Here's an industry that hit its peak in 1977, declined, then grew a percent or so a year for the past half decade. It's probably not a great place to look for fast-growing companies either.

My purpose here is simple enough: to see what the U.S. government's vast output of economic data can tell me about where to find growing markets. Today's business landscape is changing rapidly, after all, and I'm curious to know exactly which industries are expanding and which are declining.

Growth-minded company owners, marketers, and prospective entrepreneurs will be interested too, I figure, particularly if we can learn something we don't already know. (We don't need the Commerce Department to tell us the software business is bigger than it used to be.) As it happens, I discover several surprises in my quest -- industries that won't make the headlines anytime soon but that are nonetheless growing rapidly and consistently. Let me caution you, however: like any raw data source, government figures can snare the unwary.

Snare #1 is what tricked me into thinking that house slippers might be an up-and-coming business, namely, the tendency to confuse cyclical recovery with long-term expansion. The fastest-growing manufacturing business for 1989, according to the Commerce Department, is -- are you ready? -- metal-cutting machine tools. Since this industry shows a five-year compound annual growth rate of -2.9%, 1989's projected expansion is most likely just a rebound. Still, don't be too quick to write off all such industries. Metal- forming machine tools (such as presses) show an estimated 1989 growth rate of 10% and a five-year annual rate of 8.6%. Why the difference? In recent years, explains Commerce's Patrick W. McGibbon, Detroit has retooled for a bevy of new models, buying a lot of new presses. In 1988 alone metal-forming tool shipments jumped more than 20%.

Snare #2 is assuming the government counts what should be counted rather than what's easiest to count. On page 17, the Outlook informs us that service-producing industries "dominate the U.S. economy in terms of both employment and output." But service growth is hard to gauge accurately, particularly because the relevant unit of measurement can vary from one industry to another. So Commerce devotes fully four-fifths of the book's detailed analyses to good ol' resource-extraction and manufacturing businesses, all of which crank out easily countable products. We learn plenty about cleaning preparations and cosmetics and virtually nothing about advertising and accounting.

As a result, you have to look hard for unsung service-industry growth. If you do, however, you'll discover a few nuggets -- such as a short chapter right at the end on operations-and-maintenance services in fields as diverse as waste treatment, highways, and buildings. All these businesses have shown steady growth in the past several years, with airline O&M expenditures rising by more than 10% a year.

Snare #3 is a time-honored statistical illusion: comparing percentage growth from different starting points. The third fastest-growing manufacturing business over the past five years, says the Outlook, is the particleboard industry. But before you run out to join up, notice that the whole shebang amounted to only $1.4 billion last year. If it were a company, it wouldn't make even the top half of the Fortune 500. The surprising 9% yearly growth in engineering and scientific instruments, by contrast, came off an initial base nearly four times as large.

Of course, government research volumes like the Outlook are most helpful if you know what you're looking for. Not long ago, for example, I read an informative study of Milwaukee's economy assembled by Sammis B. White and his colleagues at the University of Wisconsin (Milwaukee), and I noticed that "miscellaneous plastics products" was one of the fastest-growing manufacturing industries in the region. Later I happened to see that the Small Business Administration listed the industry among the top-10 small-company job generators for 1988.

Consulting the Outlook, I learned a good deal more. Miscellaneous plastics products (including everything from photographic film to trash cans) is a huge industry, accounting for more than $60 billion in revenues in 1988 and -- with 600,000 workers -- ranking as one of the biggest employers in the United States. It has been growing steadily at roughly 5% a year after inflation. And it's a quintessential small-company business, with 10,000 companies operating some 12,000 establishments. The prospects for this year are pretty good -- 5.3% growth -- and over the long haul may be even better, as new plastic composites create new product possibilities. Imports are growing but they're still a small fraction of the total market.

Right there, of course, is exactly what a marketer or company owner might want to know about an interesting and largely unheralded industry -- one, moreover, that's more important to the nation's economic health than house slippers. But because it doesn't make any top-10 or top-15 listings I wouldn't have found it if I hadn't been looking.

I can't help wondering what else is buried, undiscovered, in the government's statistics about our changing economy.


HOT MARKETS

The Commerce Department's pick of the fastest-growing businesses in America

In keeping with its emphasis on goods production, the Commerce Department's 1989 U.S. Industrial Outlook lists five-year growth leaders and this year's projected leaders for manufacturing businesses (tables A and B). Where services are concerned, all we get is 1989 projected growth rates, and then only for "selected" service industries (Table C).

TABLE A
Fastest-growing manufacturing industries, 1984-1989
Compound annual growth rate

Industry (sales)

Semiconductor devices 22.6%

Missiles/space vehicles 14.1

Particleboard 11.0

Paper industries machinery 10.7

Miscellaneous publishing 9.5

Wines & brandy 9.2

Surgical & medical instruments 9.1

Aircraft engines & engine parts 8.9

Engineering & scientific 8.9instruments

Metal-forming machine tools 8.6

Radio & television receiving sets 8.3

Optical instruments & lenses 7.8

Measuring & controlling 7.7devices, n.e.c.*

*not elsewhere classified

Source: 1989 U.S. Industrial Outlook

TABLE B
Fastest-growing manufacturing industries (projected), 1989

Projected growth rate

Industry (sales)

Metal-cutting machine tools 13.9%

Semiconductor devices 13.4

Paper industries machinery 13.0

Wines & brandy 10.5

Fertilizers, mixing only 10.0

Metal-forming machine tools 10.0

Surgical & medical instruments 9.0

Surgical appliances 9.0

Surface active agents 8.1(surfactants)

Optical devices & lenses 8.0

Instruments, n.e.c.* 7.0

Men's footwear 7.0

Polishes & sanitation goods 6.8House slippers 6.7

Missiles/space vehicles 6.2

TABLE C
1989 forecast growth rates, selected service industries

Growth

Industry (unit of measure) rate

Space commercialization 50.0%(revenues)

Computer software (receipts) 24.0

Electronic databases (revenues) 20.0

Computer professional svcs. 15.5(revenues)

Prerecorded music (mfrs. value) 15.0

Operations/maint.: security 15.0(expend.)

Airlines (revenues) 14.5

Data processing (revenues) 13.0

Equipment leasing 12.0(equip. cost added)

Operations/maint.: 11.5airlines (expend.)

Health services (expend.) 10.7

Telephone & telegraph 8.0(oper. revenues)

Hotels & motels (receipts) 8.0




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: