Leading the Nation, But Leaving Many Behind

Like a rocket suddenly leaving the launch pad after a long countdown, the Pittsburgh Region’s economy surged forward last fall with unprecedented job growth. In September, the region still had 7,000 fewer jobs than before the recession began and over 9,000 fewer jobs than in the year 2000. But just one month later, the exact opposite was true – there were more jobs in the Pittsburgh Region in October than any October in history. We had 14,900 more jobs in October than in September, 23,100 more than a year earlier and 2,500 more than in October 2008 when the recession was just beginning.

This job growth was not just a national wave that Pittsburgh was lucky enough to ride. The Pittsburgh Region actually led the nation in job growth in October with the largest percentage increases in both total jobs and private sector jobs of any major region in the country.

The job surge wasn’t a temporary phenomenon, either. Preliminary figures for December indicate that another 1,400 net new jobs were added between October and December, pushing the region’s job count to the highest level in history. Over the twelve months ending in December 2011, Pittsburgh had the 4th highest rate of job growth of any region in the country.

Which businesses should we thank for this remarkable turnaround?

The total number of jobs always increases in the fall due to a variety of seasonal factors, so you have to look closely to see what’s really going on. Most of the new jobs were created in sectors such as healthcare and higher education where we’ve become accustomed to seeing growth, but we also saw better-than-typical growth in the retail sector.

Our economic success in the fall was also helped by an industry that didn’t add any jobs at all – the leisure and hospitality sector (which includes arts, sports, restaurants, bars, and hotels). Although there were 200 fewer jobs in the leisure and hospitality sector in October than the month before, that’s actually good news because in every other year for the past 20 years, that sector has lost between 1,400 and 4,800 jobs in October due to seasonal layoffs. The leisure and hospitality sector ended the year with more jobs than any December in history, helping to boost regional job totals beyond what they otherwise would have been.

But despite all this good news, there’s also a dark side to the job growth story. Although the total number of jobs in the region is now higher than it was before the recession, that doesn’t mean that we’ve recovered all of the jobs we lost. The strong job growth in sectors such as health care and higher education is masking the fact that over 21,000 jobs that were lost in manufacturing, construction, retail, and the information sector still haven’t returned.

Our manufacturing sector was the hardest hit during the recession, and the recovery there has been weaker than almost any other industry. We lost over 12,000 manufacturing jobs between 2007 and 2009, far more than in any other industry, but since then, only 1,500 net new manufacturing jobs have been created – i.e., seven of every eight manufacturing jobs lost still haven’t come back. Here we lag the nation rather than lead it. While Pittsburgh was #4 in job growth overall last year, it ranked only 26th among the top 40 regions in manufacturing job growth. Cincinnati has restored more than half of the manufacturing jobs it lost, Milwaukee has had more than one-third of its lost manufacturing jobs return, and even Detroit has recovered over a quarter of the manufacturing jobs it lost thanks to stronger manufacturing growth in those regions.

Our construction industry has also not come close to recovering; only 2,000 of the 7,000 jobs lost during the recession have come back. The information industry (newspapers, TV, etc.) has experienced no recovery at all; it lost 1,300 jobs during the recession and another 2,500 jobs since, for a 17.6% loss of jobs over the past 4 years.

This is why, even though the Pittsburgh Region now has more total jobs than any time in history, 27,000 more of our residents are unemployed today than in 2007, before the recession began. Many of those individuals likely worked in businesses such as manufacturing, construction, and retail where the jobs haven’t returned, and are having difficulty finding work because their skills don’t match the needs of the hospitals, research labs, and professional services firms where job growth is occurring.

Can we just ignore the stagnation in manufacturing and other sectors and keep relying on “eds and meds,” with a dash of the Marcellus Shale, to drive our economy in the years ahead?

That would be a dangerous bet. The job growth in both healthcare and higher education has been supported by price increases in those sectors that are well above the rate of inflation, and that can’t continue forever. Although the Pittsburgh Region may see some continued short-run healthcare job growth as Highmark and UPMC gear up to do battle, federal cuts in healthcare payments and demands for lower health insurance premiums mean that healthcare providers cannot continue to expand forever. Job growth in higher education is also likely to slow due to Federal and state budget cuts for both research and scholarships and families’ increasing inability to afford high tuition costs. And the recent plunge in natural gas prices is already cooling the overheated growth in Marcellus Shale drilling, and it may also begin affecting jobs in the coal industry, too.

With that kind of stormy forecast for our current growth sectors, we should redouble our focus on manufacturing rather than writing it off. That means far more than just assembling special tax credits for the occasional opportunity to attract a big new manufacturing plant. We need to help our thousands of existing manufacturing firms expand and encourage entrepreneurs to start new manufacturing firms here by providing access to capital (both business loans and startup investments), adequate infrastructure (particularly industrial sites and transportation systems), and a more competitive tax and regulatory climate. And we need to encourage more high school students to pursue careers in manufacturing so that manufacturing firms can quickly fill jobs when they do create them.

(A version of this post was published as the "Regional Insights" column in the Sunday, February 5, 2012 Pittsburgh Post-Gazette.)