Sunday, April 20, 2008

Pittsburgh's Economy Is Doing Better Than Many Other Regions

The Pittsburgh Region received some really good news last month when the U.S. Department of Labor issued revised job numbers for 2007. The new statistics showed that our region created 8,400 net new jobs between 2006 and 2007. Although that was well below the levels of job creation we experienced in the late 1990s, it was more new jobs than we’ve seen in any year since 2000, and nearly twice the 4,300 jobs created between 2005 and 2006.

Moreover, while our job growth had ranked 35th or worse among the top 40 regions between 2003 and 2006, our 2007 job growth rate jumped to 28th best, ahead of sunbelt regions like Los Angeles, Miami, San Diego, and Tampa, as well as places like Cleveland, Detroit, Minneapolis, and Philadelphia.

Still, 28th out of 40 is well below average. Our job growth rate of 0.74% in 2007 was only two-thirds the U.S. growth rate of 1.13%. Why is our job growth so low?

The answer is surprisingly simple – our lack of population growth means we don’t get job growth in sectors that depend primarily on the local population. The two largest examples of this are retail stores and local government services. Regions that have a growing population need more stores, more public schools, more police, etc. Our population has been declining, so we don’t need more of those things¸ which means we don’t need more jobs there, either. In fact, in 2007, we had 1,100 fewer jobs in the retail sector and 900 fewer jobs in local government than in 2006.

If you look at job growth in the sectors that aren’t so population-dependent, you see a very different picture. Our private sector job growth from 2006 to 2007 was 0.92%, which ranked 23rd among the top 40 regions. And our private, non-retail job growth (i.e., jobs other than in government or retail) was 1.18%, ranking 19th among the top 40 regions. The U.S. job growth rate in private, non-retail jobs was identical – 1.18%.

In other words, outside of government jobs and retail jobs, the Pittsburgh Region’s job creation performance exactly matched the U.S. in 2007. Not only that, we outperformed places like Baltimore, Chicago, Las Vegas, San Francisco, and Washington DC.

Where is our private sector job creation coming from? The primary contributors to job growth in 2007 were Professional and Business Services (6,000 net new jobs), Health Care (2,100 net new jobs), Construction (1,900 net new jobs) and Leisure and Hospitality (1,200 net new jobs). Those 6,000 new professional and business services jobs were spread across a range of businesses, such as law firms, engineering firms, R&D centers, and the headquarters of our major firms.

But it’s a mistake to focus solely on the sectors that add large numbers of new jobs. The sectors that retain jobs are also important, particularly if they are good, high-paying jobs. Foremost among these is manufacturing. Although the manufacturing sector here added “only” 200 jobs in 2007, most of the top 40 regions and the U.S. as a whole lost manufacturing jobs. In fact, Pittsburgh was one of only 8 of the top 40 regions that added manufacturing jobs in 2007. Since manufacturing is our largest economic sector in terms of income generation, and since it supports many of our professional and business service jobs, this stability is good news for the region.

Will the improvements in job creation persist as the country teeters on the brink of recession? So far, so good – while job creation rates in most parts of the country have decreased recently, ours actually improved slightly in February. That’s because more than one out of every five (22.2%) of our jobs is in higher education or health care, and those are sectors that typically don’t decline in a recession. In fact, we have the second highest proportion of jobs in education and health care of any of the top 40 regions, making us more resistant to recessionary downturns than other cities.

There is no cause for complacency, though. Despite the growth in 2007, we still have 8,000 fewer jobs than we did in 2001. We need to address our serious competitiveness problems – starting with the worst state business taxes in the nation – in order to keep our existing jobs in manufacturing and other sectors and to capture new growth when the U.S. economy turns around. That should be a priority both here and in Harrisburg this year.

(A shorter version of this post appeared in the Pittsburgh Business Times on Friday, April 18.)


Anonymous Anonymous said...

So if we're essentially creating non-retail private-sector jobs at the national rate... how much do we have to improve in this measure in order to attract enough in-migration to overcome the birth deficit (and then perhaps grow some of those population-dependent sectors)?

Would you say that the sectors we are most successful at growing have significant multiplier effects?

9:30 PM  
Blogger Harold D. Miller said...

There are significant multiplier effects from manufacturing, business services, and some of the other sectors where we've been doing well. It would take a significant change in migration rates, though, to overcome the birth deficit and actually make the population grow -- we'd need about 8,000 more in-migrants (or 8,000 fewer out-migrants, or any combination thereof), which would be about a 20-25% change in migration...

9:43 PM  

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