Pittsburgh’s Economy 2020

Pittsburgh’s economy has a difficult row to hoe as we look ahead to 2020. Economic potential through the new year will be supported by stable consumer conditions and business sentiment, but the resources necessary to keep up with demand are running thin. It may be time for Pittsburgh to deliver on the promise of affordability and “Most Livable” titles, or face the prospect of withering on the vine.

Employment growth in the Pittsburgh metropolitan statistical area will finish 2019 essentially flat, with the latest numbers—available through November 2019—showing a year-over-year decline of -0.35 percent. This, after solid gains were enjoyed in both 2017 and 2018. But it is the state of Pittsburgh’s labor force that is cause for concern. Labor force is practically unchanged since 2000 and currently sits at about 1.2 million workers. That long-term stagnation, or stability for the true optimists, would not itself be such a problem if the number of jobs in the metro area had not risen to nearly match that level over the past three years, leaving a far more limited reserve of potential workers available to businesses looking to hire going forward.

This is good news for those employed; it is bad news for businesses that will want to hire in the coming year and beyond. Without an infusion of new workers, those businesses will lose out on growth potential, or will be forced to source their products and services from other parts of the state or the United States more broadly, leaving Pittsburgh with growth opportunities squandered.

Pittsburgh has touted itself as an affordable, innovative, “livable” market for decades. Yet the size of its labor force shows that the local economy has not been able to cash in on those qualities. In reality, Pittsburgh will have to see costs of living and doing business rise in response to greater demand if the region is to take the next step in its 21st century economic evolution.

Labor market tightness implies that Pittsburgh workers should see a good year in terms of wage growth in 2020. Average hourly earnings are above statewide levels and on par with the national average after sitting between 5 and 10 percent below U.S. standards for much of the past 20 years. Local wage growth will finish 2019 essentially flat when compared to one year ago. But some of this result can be attributed to a near-constant creation of lower-wage positions, while employers that generate higher-paying occupations have difficulty sourcing workers in Pittsburgh due to the labor market constraints discussed above. Even if near-term wage growth prospects come down from the rafters after posting a 5 percent year-over-year pace in both 2017 and 2018, consumer price inflation and interest rates will remain subdued in 2020 as well. This will allow even modest wage gains to generate improved purchasing power for households, businesses and borrowers in general. Pittsburgh’s local economy may struggle to make its next leap forward, but those taking part in its current state will find plenty of support for their financial condition.

Service industry employment is the clear pacesetter for Pittsburgh’s job market heading into 2020. Reflecting business demand, solid gains in professional and business services—which includes occupations such as lawyers, accountants, marketing and all manner of computer systems design and programming positions—indicate that businesses are indeed doing business. Meeting demand from businesses in the region launched employment growth in professional and business services to nearly 2 percent in year-over-year terms in the fourth quarter of 2019. This matched the national average in this industry—a first for Pittsburgh since 2014.

Consumer spending is also on track to remain a driver of job creation in 2020. Leisure and hospitality industries are a good indicator of local consumer sentiment, since local households are the most likely source of restaurant and other entertainment revenues for businesses in an economy that is not tourism-centric, as is the case in Pittsburgh. Leisure and hospitality industry employers also looked to close out 2019 with positive year-over-year growth in payrolls. As long as consumers continue to spend, the outlook for Pittsburgh’s local economy will remain positive.

PNC’s Small Business Outlook Survey for the state of Pennsylvania, published in October 2019, supports the notion that Pittsburgh’s business environment is ripe for continued growth in 2020. Small and mid-sized business owners were surveyed as to their degree of confidence in near-term economic conditions. More respondents expressed optimism regarding their own businesses’ prospects, as well as local and national economic prospects overall when compared to the same survey’s results from one year prior. With both hard data and surveys of sentiment indicating economic confidence, it seems that Pittsburgh’s growth potential need only find a way to attract the necessary labor resources in order to keep growth in the region on track.

Offsetting the spending-oriented service sector job gains in 2019 were, essentially, the remainder of Pittsburgh’s industrial base. Year-over-year payroll declines were seen from the heavy manufacturing, construction, and transportation and utilities sectors, to the region’s bellwether education and health care and finance industries. All sectors with the exception of manufacturing had enjoyed robust hiring through 2017 and 2018, however. So a slowdown does not come as a shock—especially given the ever-shrinking pool of labor resources that would be needed to fill such skill- and training-dependent positions. Again, Pittsburgh’s need to attract a new, sustainable wave of workers is highlighted as such a broad array of dynamic industries look unable to maintain hiring momentum.

Pittsburgh’s housing market is reaping the benefits of economic stability. Homebuying demand is supported by mortgage interest rates that are far below historical standards, which are likely to remain so for several years as inflation is well-contained, long-term bond yields are subdued, and the Federal Reserve shows no inclination toward tightening monetary policy. The real driver of home price appreciation in Pittsburgh, however, is a shocking lack of any rebound in new homebuilding in the metro area since the end of the 2008 recession. Residential permit issuance remains at only 25 percent of its housing market pre-bubble era pace—around 1,000 new single-family permits being issued per year versus consistently 4,000–5,000 from 1990 through 2006. This lack of supply growth ramps up competition among homebuyers, resulting in home price appreciation that should remain between 4 and 5 percent year-over-year in 2020. This is above the expected national average of near 3 percent. And it is noteworthy that above-average home price growth has not been experienced in Pittsburgh, outside of recessionary periods, since the early 1980s. These housing market conditions will conspire to put new homebuyers at a disadvantage in terms of affordability in the coming year, but conversely, existing homeowners will enjoy a boost to their household balance sheets.

In summary, Pittsburgh’s economic strength is broad-based entering 2020. Supply-side constraints in labor markets and housing markets threaten to keep Pittsburgh from achieving its full growth potential over the next few years, but some degree of continued gains are assured by the local economy’s all-around solid fundamentals.