Local Economy Stays Healthy

A year of good news, if not exceptional
by Jeffery Fraser & Julia Fraser
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Pittsburgh’s spirited bid fell short of landing Amazon’s second headquarters and the 25,000 jobs it promised last year, but the southwestern Pennsylvania economy continued encouraging trends in job growth, wages and unemployment on its own.

Without the jolt of such a major employment stimulus, the region’s hopes are pinned on creating jobs with the companies that already call it home, which it did for the second consecutive year in 2018, adding 13,000 jobs, which was a 1.1 percent from 2017, according to annual jobs data released by the U.S. Bureau of Labor Statistics yesterday.

Such gains helped the region open 2019 with a solid economy that is expanding opportunities for businesses and workers alike, although not in dramatic fashion.

And among those optimistic about the region’s economic prospects are the consumers who’ll play a big role in determining them. More Allegheny County residents are bullish about this year’s economy than in 2011, when they were last asked their near-​term predictions, a survey conducted last June suggests.

Making jobs

When jobs grew by about 1 percent in 2017, the modest hike was celebrated for bucking a four-​year trend of stagnation and lit hope that it was a sign of a period of sustained growth, however unspectacular it might be compared to high-​octane metro areas, such as Seattle and Austin.

Last year’s job totals suggest companies continue to add workers at a measured, but steady pace. “It’s in line with what we’ve been expecting the past few years,” said James Futrell, vice president of market research at the Allegheny Conference on Community Development. “In some ways, that’s good, but we’re still lagging in our job growth numbers.”

Jobs in Austin, Texas grew 3.3 percent last year to lead the Pittsburgh Today benchmark regions.

In Nashville, jobs increased 3 percent. All of the benchmark regions added jobs, but some at a tiny rate, such as St. Louis, where jobs grew at 0.4 percent.

The recovery of the natural gas industry in southwestern Pennsylvania’s Marcellus Shale play and higher demand for construction workers were key drivers of the latest increase in regional jobs.

Mining, logging and construction posted a 5.4 percent gain last year – the largest experienced in all of the job sectors in the seven-​county Pittsburgh Metropolitan Statistical Area. Construction, in particular, is booming with the Shell Appalachia ethane cracker complex in Beaver County requiring thousands of workers, local hospitals beginning major capital projects and the energy industry building out its infrastructure.

Retail workers had little cheer about in the region or nationally. Retail jobs last year were down 1.94 percent over 2017 payrolls in the Pittsburgh MSA.

But at the same time retail jobs are disappearing, consumers are spending more on entertainment, dining and other leisure activities, stimulating jobs in that sector. “As we see retail decline, it’s not unusual to see leisure and hospitality increase,” said David Ruppersberger, president of the Pittsburgh Regional Alliance. “If people aren’t buying things, they are doing things.”

Jobs were even added last year in manufacturing for the first time since 2012. “One nice thing about manufacturing is that it’s more geographically dispersed and more likely to benefit the entire region,” Futrell said.

There is good reason to be concerned about where jobs are being created. Six of the 9 counties surrounding Allegheny County have continued to lose jobs since 2010, when the U.S. economy began expanding in earnest.

Fatter paychecks

Unemployment in southwestern Pennsylvania dipped below 4 percent at times last year, falling to within striking distance of the national rate, which it still trails. Only during a red-​hot national economy, such as the dot-​com boom in the 1990s, has local unemployment been so low.

As jobs were added and unemployment crept lower, the labor force tightened even more, heating up the competition for workers. “The low unemployment rate is something you see nationwide. As the labor market gets tighter here, where do the workers come from to fill the job?” Futrell said.

The cost of doing business is rising in that climate, particularly in southwestern Pennsylvania, where wage growth last year outpaced most of the Pittsburgh Today benchmark regions, partial-​year U.S. Bureau of Labor Statistics suggest. “Businesses face an environment where they have upward pressure on their labor costs, putting pressure on their bottom lines,” said Kurt Rankin, vice president and economist for PNC Financial Services Group. “But we have jobs being created. Jobs bring incomes and Pittsburgh residents have been spending those incomes.”

The spike in wages could help businesses convince workers to move to the region, which has the additional disadvantage of being surrounded by states with a higher minimum wage than what’s offered in Pennsylvania. The average weekly wage in the Pittsburgh MSA has climbed higher than six Pittsburgh Today benchmark regions, including Cleveland and Cincinnati. But it’s still lower than eight others, including Baltimore, Detroit and Philadelphia.

The increase is long overdue. We’ve been a low-​wage region for far too long,” said Vera Krekanova, chief research officer at the Allegheny Conference on Community Development. “Honestly, the growth should be higher in terms of reflecting what is happening in the labor market. It’s good news, but it’s not extraordinary. We are just catching up.”

Any worker drawn to a job in the region would help bolster the flagging local labor force, which contracted for the third consecutive year.

Looking ahead

PNC economists expect the national economy to pick up steam and grow during the first half of the year, perhaps by around 3 percent on an annualized basis, before slowing. Unemployment is expected to drop further, keeping the labor market tight and job growth is likely to slow under those conditions.

It’s widely expected that the impact of last year’s tax cuts will begin to fade as consumers return to familiar spending patterns. And tariffs, trade war rhetoric, market turbulence and political unrest at home and abroad are among the headwinds the U.S. economy will have to deal with.

Southwestern Pennsylvania’s economy is influenced by national trends, but the highs and lows tend to be muted in the region. “Pittsburgh is going to ride along those waves as opposed to being on the crest of them,” Rankin said.

Challenges the region faces from within include demographic trends. Another year of shrinking population wasn’t good news for businesses tied to consumer spending. “For anything that is consumer-​facing, the decline in population is a trend that’s hard to beat,” Ruppersberger said.

But with major building projects blooming, construction is expected to remain a strong source of local jobs along with the leisure and hospitality industry, a stalwart in recent years. Expansion in the health care industry offers hope that jobs in one of the region’s largest employment sectors will continue to be added. Manufacturing also enters 2019 on a positive note, although it is one of the local sectors most sensitive to the behavior of global markets.

The region’s labor force might even get some help from new state policies, such as the Clean Slate law, which eases some of the restrictions that tend to keep nonviolent criminal offenders from getting jobs.

Confidence in the local economy is higher than usual in Allegheny County. Residents expressed as much in a quality of life survey conducted by Pittsburgh Today and the University Center for School and Urban Research at the University of Pittsburgh. Some 38 percent of county residents said their personal finances improved over the last three years, up from 30 percent in 2011. That might help explain why 40 percent expect the local economy to improve this year compared to the 32 percent in 2011 who thought the coming year would be better. That number, however, falls to 29 percent among African Americans.

Still, only 16 percent of people living in the population and employment center of southwestern Pennsylvania expect 2019 to be a down year.

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