Wednesday, March 26, 2008

The Pittsburgh Region's Real Comparative Economic Strengths

The most common way to think about the strengths and weaknesses in the Pittsburgh Region's economy is to ask where jobs are growing and where they are declining. Over the past two years (2005-2007), the region created a total of 12,700 net new jobs. Most of these jobs were in the service sector -- 9,200 net new jobs, compared to only 3,600 net new jobs in the goods producing sector. This significantly higher number of service sector jobs is what leads many people to claim that we are now a "service" economy.

But the fact that a sector is creating more jobs relative to other sectors here does not mean that it's performing well in a broader, national context. And a sector that is stable or even slightly declining here may actually be outperforming other parts of the country.

In fact, although the service sector has been our biggest job generator, job growth in the Pittsburgh Region's service sector has been quite anemic compared to other regions -- the 0.9% growth in service jobs here ranked 37th out of the top 40 regions in the country between 2005 and 2007. Only Cleveland, Detroit, and New Orleans did worse.

In contrast, you might be surprised to learn that the goods-producing sector in the Pittsburgh had the 10th highest growth rate among the top 40 regions between 2005 and 2007. Moreover, the fact that we had net job growth in this sector was unusual -- 22 of the top 40 regions had a net reduction in goods-producing jobs during the past two years.

The biggest source of job growth in the goods-producing sector in Pittsburgh was construction, which created 3,900 net new jobs between 2005 and 2007, a 7.3% increase. We created more new construction jobs here in the last two years than Silicon Valley, Phoenix, or Orlando.

But perhaps the biggest surprise for those who think that Pittsburgh "is no longer a manufacturing region" is that our essentially stable employment in manufacturing (100,700 jobs in 2005 vs. 100,500 jobs in 2007) was the 11th best performance among the top 40 regions between 2005 and 2007. And since average wages in manufacturing are dramatically higher than in many parts of the service sector, holding on to our manufacturing jobs is as important as creating new service sector jobs. And things are improving, not getting worse -- manufacturing employment increased by 200 jobs here between 2006 and 2007, and even though that was only an 0.2% increase, it was the 7th best performance among the top 40 regions.

What about health care? Isn't that our greatest strength now? Although it's true that the health care and social assistance sector was the biggest net job creator in our region between 2005 and 2007, creating 7,300 net new jobs, its job growth has actually been anemic relative to the rest of the country. Pittsburgh's rate of job growth in this sector ranked 31st among the 35 top regions that report data on this sector. Between 2005 and 2007, jobs in health care and social assistance here increased by 4.3%, compared to a 13.5% increase in Charlotte, an 11.9% increase in Phoenix, and an 11.5% increase in Minneapolis. Although we had very strong growth in ambulatory health services (the 7th highest rate among the 31 top regions that report data on this sector), that was offset by very weak growth in hospitals (the 7th lowest job growth among the 37 top regions that report on this sector).

Our strongest service sector has actually been business headquarters operations. There was a net increase of 6,000 jobs in the "Management of Companies and Enterprises" category between 2005 and 2007, and that was the 2nd highest job growth among the 29 top regions that report this category. We had a 26.9% increase in jobs in this sector between 2005 and 2007, compared to only 5.0% in Charlotte, and 3.6% in Minneapolis. Although dramatic job increases in this sector in earlier years were primarily due to reclassifications of jobs from manufacturing, retail, and other sectors as part of the transition from the SIC classification system to the NAICS system, the continued increases in jobs in this sector suggest that our region is very attractive for business headquarters operations. And many of our headquarters operations are the headquarters of manufacturing firms.

So in terms of relative strengths, we are still very much a region that "makes things," and that is one of our key competitive strengths compared to other regions. As noted in the previous post, it's critically important that we provide the kind of business climate that manufacturers need to survive and thrive here, not only because of the high-paying jobs they directly provide, but because of the tens of thousands of other jobs they support in the service sector.


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