Five Categories of Economic Activity

The term "economic activity" describes the flow of money. Everything that is bought and sold and every sale of something intangible, such as a song or an insight, is tallied by economists and civil servants who track economic activity. For meaningful and relevant reporting, economic activities are often broken down into sectors of the economy that describe clusters of goods or services, or ways to earn money. For a small business owner, these economic concepts provide context for your own sales and purchasing, showing where your business and its vendors and customers fall in the bigger economic picture.

Tip

The primary sector works with raw materials, and the secondary sector transforms those raw materials into products. The third sector provides services. The fourth and fifth sectors focus on knowledge and infrastructure.

Physical resources that are coaxed or extracted from the earth provide the basis for the primary sphere of economic activity. This category includes raw materials that are mined, harvested, fished, collected or extracted in any way that doesn't fundamentally transform them. Although the process of growing or mining a raw material may require considerable investment and infrastructure, the product itself is typically sold in a form that is reasonably close to its original state. Primary sector jobs are responsible for the work of obtaining these raw materials that can later be sold to businesses in other economic sectors.

Manufacturing and industry are the secondary sectors that take raw materials and transform them into value-added products. A food-processing facility starts with the raw material of basic ingredients and then creates secondary-sector products, such as candy or canned soup. A textile company takes cotton, wool or synthetic fabric (which is itself a secondary-sector product made from chemical compounds) and manufactures fabric and clothing from these substances. Products made by the manufacturing industry are valued higher than the bare worth of their materials because intelligence and systems have been introduced to enhance their value.

The tertiary sector of economic activity trades in information and services rather than physical goods. Whether you're paying to enjoy a massage after a grueling day or buying a product from a middleman such as a retailer or broker, you're supporting the service industry, or the sector that creates economic activity from the work of humans. In the United States, about 80 percent of the population earns their living from this tertiary sector.

The fourth sector of the economy is built on intellectual activity, or the flow of information. University professors, scientific researchers and internet technicians all belong to this sector, which provides livelihoods based on thought and inquiry. This economic sector is sometimes called the knowledge economy, and it is closely linked to the service industry because both work with intangible rather than tangible assets.

The fifth sphere of economic activity focuses on infrastructure, such as hospitals, governments and non-profit agencies. Some economists also include unpaid domestic labor, such as child care or housecleaning, in this sector.