Population losses being felt in labor market

Summary: A recent Policy Brief (Vol. 19, No. 18) analyzed the long-running population decline in the Pittsburgh Metropolitan Statistical Area (MSA) and the challenges the economy faces as a result.  Obviously, population changes affect the area’s labor market, specifically the labor force available for employers.  This Brief looks at the area’s labor force and how it has changed over the past decade.


The Pittsburgh MSA consists of the seven counties of Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmoreland.  In the previous Brief, we noted that in 2010 the Census Bureau placed the Pittsburgh MSA’s population at 2,356,285.  Based on the most recent estimate from July 2018 the area’s population had fallen by 31,542 to 2,324,743—a loss of 1.3 percent.

The U.S. Census Bureau’s American Factfinder website provides estimates of the share of the population in the labor force for each county, specifically for those 16 years of age and over. The data is presented as five-year moving estimates starting with 2009 (2005-2009) with the most recent covering 2017 (2013-2017).  The MSA participation rate was calculated using a weighted average of the county rates.

These estimates place the MSA’s population aged 16 years and over in 2009 at 1,934,482, rising to 1,955,211 in 2015 and then falling to 1,950,671 in 2017.  Over the eight years the net change in the population aged 16 years and older increased slightly by 0.84 percent.

The Census breaks down population counts into seven different age segments:  16-19, 20-24, 25-44, 45-54, 55-64, 65-74 and 75 years and over.  Splitting the MSA’s working-age population roughly in half between the younger (16-44) and the older segments (ages 45 and up) reveals that the younger group of the population fell by 27,487 while in the older portion in the MSA grew by 42,676.

The population aged 16 years and older represents the number of potential members of the labor force.  Bear in mind the definition of labor force. The Census’ glossary classifies someone in the labor force as a person who is not institutionalized that is either working, waiting to start work or actively seeking employment. Those not actively looking for work are not counted in the labor force (for example, retirees).  The Census also provides estimates of the labor force participation rate which represents the proportion of the population that is in the labor force.

Pittsburgh MSA’s labor force in 2009 is estimated to have been 1,195,370.  All figures are five-year moving estimates rather than yearly estimates.  57,870 members of the labor force (4.8 percent) were aged 16-19 years old and 105,675 were 20-24 years old (8.8 percent). Combined they accounted for 14 percent of the MSA’s labor force.  By 2017, when the total labor force reached 1,224,224, the combined 16 to 24 age group’s share had fallen to 13 percent.

Meanwhile for the oldest age brackets, the share of the labor force increased.  For those in the 55-64 age range, 181,376 were in the labor force in 2009 (15.2 percent of the total).  By 2017 there were 237,788 people in the labor force in that bracket (19.4 percent)—the largest increase of any age cohort.  But the second largest jump belonged to the 65-74-year-old age group with an increase from 41,491 in 2009 (3.5 percent share) to 60,916 in 2017 (4.9 percent share).

The age cohort with the biggest decline happened to the 45-54-year group.  There were 309,492 in 2009’s labor force count (25.9 percent of the total).  By 2017, their numbers dwindled by over 42,000 to just 267,400 and accounted for only 21.8 percent of the area’s labor force.

Of course, many factors determine why a person enters/stays in the labor force.  Principal among those are financial conditions and opportunity.  For those at the bottom age rung of the labor force (aged 16 to 19), their family situation may be financially stable enough that they don’t need to enter the labor force as their families can support them.  For the older age groups, it could be health-related, a need or willingness to stay active, finances or changes in the minimum age to claim full Social Security benefits.

Opportunities in the labor market are evidenced by growth or declines in employment statistics. Two measures are provided: the household survey from which labor force estimates are derived and the establishment survey which estimates the number of payroll jobs. As employment begins to increase, people currently not in the labor force are more likely to enter (or re-enter) as they see more and better opportunities for employment. Likewise, when employment falls and good job openings become scarce, some workers will become discouraged and stop actively looking for work.

The U.S. Bureau of Labor Statistics (BLS) publishes monthly employment data for the MSA.  This data has been converted to five-year moving averages (2005-2009) through (2013-2017) to be comparable to the labor force estimates provided by the Census.

In 2009, the number of people employed in the Pittsburgh MSA was 1,146,698, which was the highest level for the period through 2017. The (2005-2009) period represents employment levels before the recession of 2009-2010 began.  The lowest five-year employment, 1,127,661, occurred in 2013 (2009-2013), which includes the very weak years of the recession. By 2017 the employment estimate reached 1,143,631, still slightly below the 2009 reading.

In addition to the finding of very slow growth in the numbers of people working over the 2009-to-2017 period, it is also clear that the workforce is aging dramatically.

Looking at labor force and population counts for persons aged 16 to 54 and those 55 and over reveals substantial changes. In 2009 there were an estimated 1,239,706 people aged 16-54 in the seven-county Pittsburgh MSA.  By 2017 that number had fallen by 82,146 to 1,157,560—a decline of 6.6 percent.  Over the same period, the 55 and older age group grew from 695,776 in 2009 to 793,111 in 2017, a jump of 97,335 or 14 percent.  The average age of the area’s working-age population has become significantly older.

And, of course, there are ramifications for the labor force.  In 2009 there were 962,403 people in the labor force aged 16 to 54.  By 2017 that number dropped by 48,469 to 913,934 (-5 percent).  By contrast, for those aged 55 and up, the labor force count rose from 233,783 in 2009 to 311,643 in 2017—a jump of 77,859 or 33.3 percent. Indeed, the over 55 group accounted for all the net increase in labor force.

National data also shows the older portion of the population growing faster than the younger part from 2009 to 2017.  The population aged 16 to 54 grew by 1.24 percent (2,048,302) while the population 55 and over climbed by 25.3 percent (17,877,686).

And that of course is also reflected in the labor force with the number of people aged 16 to 54 increasing by just one percent (1,302,273) from 2009 to 2017.  Meanwhile, for those 55 and older their ranks in the labor force jumped by 32.3 percent (8,456,866). Nonetheless, national employment was up significantly faster during the 2009 to 2017 period, growing almost four times as fast as the MSA’s one percent.

But while the Pittsburgh MSA lost labor force participants in the younger segment, nationally there was a gain, even if it was marginal.

The fact that the population and labor force participation is skewing older does not bode well for the region.  Job growth in the region over the last decade, whether measured by the household survey or the employer survey (see Policy Brief, Vol. 19, No. 9), has been anemic at best.

Jobs, and the prospects of finding a job, draw people to the area, thereby increasing not only the population but the pool of labor force participants.  Thus, the region would do well to greatly improve its economic policies to make the region attractive to both businesses and job seekers.

Recent Weakness in Jobs and Earnings in the Pittsburgh MSA

Of late, the news regarding the Pittsburgh region’s labor market statistics has not been encouraging.  Following the 2011 rebound to the 2008 prerecession peak of 1,120,000 private sector payroll jobs, employment rose by 16,000 in 2012 but has slowed to much smaller increases of 1,600 in 2013, 3,500 in 2014, 3,300 in 2015 and is on pace to fall short of 3,000 in 2016 based on the jobs count through August of this year.  Interestingly and of concern,  the Department of Labor and Industry report for August shows that, on a seasonally adjusted basis, nonfarm jobs in the MSA were 8,300 lower in August of 2016 than in August 2015.


Meanwhile, August 2016 data from the household survey shows no gain in the number of area residents reporting they were working while the labor force rose from a year earlier.  As a result, the unemployment rate was up by almost a full percentage point from August 2015 to stand at 5.9 percent.  Only Allegheny County and Butler County were below six percent. The two highest seasonally adjusted unemployment rates were posted in Fayette (8.5 percent) and Armstrong (7.9 percent).


The latest weakness in payroll jobs reflects a declining trend in monthly employee count compared to the same month a year earlier in the goods producing industries. This pattern began in early 2015.  In August 2016, goods producing jobs were down 4,100 from August of 2015 while service jobs climbed by 2,100 resulting in a net loss of 2,000 private sector jobs compared to a year earlier. In the service producing sector, jobs have continued to rise but have slowed dramatically since the post-recession jump of 11,000 jobs from 2011 to 2012.


From 2000 to 2015, goods producing employment slumped by 39,500 jobs. A rise of 65,000 in service employment led to an overall increase of 25,500 private jobs during the 15 year period—an average gain of 1,700 per year. Compare this to the 105,000 gain in private employment from 1990 to 2000 or 10,500 per year, led almost entirely by service sector growth.  The slowing of service job gains from 10,000 a year to just over 4,000 per year since 2000 has been a major contributor to very weak overall gains during the last 15 years. This longer term weakness in total private employment growth has occurred despite three brief spurts of growth including the 2006 to 2008 period, the two years after the recession trough in 2009, and a short lived boost related to the Marcellus Shale gas drilling from 2011 to 2014.


Accompanying the slowing in private employment gains and the smaller share of relatively high paying goods producing employment and the greater share of lower paying service jobs, there has been a decline—albeit unevenly—in average weekly earnings in the region over the last 24 months beginning in August 2014.  The yearly average of weekly earnings in 2015 stood at $814.17, a decline from $829.40 in 2014. Through August of 2016, earnings continued to fall reaching $791.21, a drop of $22 or 3.8 percent from the August 2015 reading of $823.20.


Data for average weekly earnings is available only back to 2007 when the yearly average stood at $687.90. By 2015 the yearly average weekly income was $814.17. Thus, over the eight years from 2007 to 2015, weekly earnings climbed 18.4 percent. But, as pointed out above, earnings have continued their nearly two year slide in 2016 and are now only 15.3 percent above the 2007 level. Unfortunately, from 2007 through the first half of 2016, consumer prices have climbed 21.7 percent.  That means the August 2016 real average weekly earnings in the Pittsburgh MSA were almost six percent below the 2007 level.


Obviously, there are major differences in employee earnings throughout the region and even within each county.  There are areas of relative prosperity and areas that remained depressed—and some in between.  It is also true that nationwide real wages have stagnated and real GDP growth has been very anemic compared to other periods following recessions. This is largely a reflection of the fact that nationally aggregate hours worked in manufacturing are 14 percent lower than in August 2006. Contrast that with the 49 percent surge in aggregate hours in the leisure and hospitality sector over the last 10 years.


Manufacturing jobs nationally paid average weekly wages of $1,054 in August 2016 while leisure and hospitality weekly earnings were only $324. Wages represent productivity levels, so for every manufacturing job lost, there would have to be three or more leisure and hospitality jobs added just to hold total output constant. Moreover, leisure and hospitality jobs have a much lower export component and thus do not have a significant multiplier effect.


There can be little doubt that national, state and regional policies have made growth in mining and manufacturing tougher to achieve in the US and the Pittsburgh MSA. The result is weakened GDP expansion, falling real incomes and woefully inadequate high paying job opportunities.  If this trend is to be reversed there must be a major shift in policies toward business and the labor markets. Lower taxes, less regulation, replacing the job strangling, expensive and ineffectual Affordable Care Act and a genuine commitment to promoting the engines of growth—especially new business startups—are critical to getting the country and region back on a prosperous growth track.

Do Rankings Provide a True Picture of Metro Area Business Climates?

In December 2015, the Kauffman Foundation released their annual Index of Main Street Entrepreneurship (IMSE) that looks at the number of established small businesses as well as the count of business owners in forty U.S. metropolitan statistical areas (MSA).  The Pittsburgh MSA did quite well ranking in the top ten.  This follows the Foundation’s June 2015 release of their Index of Startup Activity that ranks these same MSAs on entrepreneurism as it relates to the starting of a new business.  For the second year in a row, the Pittsburgh MSA finished last on the startup index.  With two separate rankings, and two dramatically different results, what conclusions can be made about Pittsburgh’s entrepreneurial, or more importantly its business, environment?


As we wrote in Policy Brief, Volume 15, Number 28, the Index of Startup Activity is comprised of three measures of entrepreneurial activity, the rate of new entrepreneurs, the opportunity share of new entrepreneurs, and the startup density.  The purpose being to see how conducive an area may be to new entrepreneurs in their quest to start a business.  The Index’s final result, after ranking the Pittsburgh metro area next to last in each of the three Index components, places Pittsburgh fortieth of the forty MSAs.


The IMSE examines the same MSAs, but this time looks at the number of business owners and the count of established firms (companies with fewer than 50 employees and more than five years old).  Specifically, the two measures used are the rate of business owners and the density of established small businesses. Surprisingly, after the area’s poor finish in the Index of Startup Activity ranking, the Pittsburgh MSA ranked eighth of forty in the IMSE.


The first component in the IMSE is the rate of business owners (per 100,000 adults) in an MSA.  It is designed to capture the percentage of the adult population that owns a business.  The Pittsburgh MSA’s score of 5.09 percent means that 5,090 of every 100,000 adults in the area are business owners.  According to the Foundation’s narrative, “it captures all business owners, including those who own incorporated or unincorporated businesses, and those with or without employees.”


Values for this component are calculated on a three year moving average with 2014 being the most recent year available (survey data from U.S. Census Bureau and Bureau of Labor Statistics).  The highest score (8.69 percent) belonged to Miami while the lowest score (3.81 percent) went to Cincinnati.  Of the forty metro areas in the study, Pittsburgh’s score ranked ninth lowest (31st of 40).  For the country as a whole this rate is 6.02 percent, meaning that the Pittsburgh MSA is nearly a full point below the national average.  For the seven years covered by the report the Pittsburgh MSA has been very consistent at about 5 percent.


Among the top ten ranked MSAs in the overall IMSE ranking, the Pittsburgh MSA rated lowest on the business ownership component.


The second IMSE component is the density of established small businesses. This component is the count of established small businesses per 100,000 people in the MSAs.  It is derived from a yearly tally in the U.S. Census Bureau’s Business Dynamics Statistics with 2012 being the most recent year available.  By this measure, the Pittsburgh region does remarkably well.  With a score of 1,165.8, it ranks as the fifth best of the forty MSAs studied, trailing New York (1,267.1), Boston (1,219.0), Providence (1,222.1), and San Francisco (1,169.8).  According to the report, the density of established small businesses for the nation as a whole is 1,006.6.


It must be pointed out that there are serious questions about the methodology used to create the IMSE.  First, the report on the IMSE notes that each measure was given equal weight in calculating the final combined ranking.  Obviously, it must be asked:  how can the Pittsburgh region finish fifth highest on small business density and thirty-first on the rate of business owners and still come up with a combined final ranking of eighth?  Furthermore, there is a problem with the dates; they do not match up for the two IMSE components. The rate of business ownership is a three year moving average and goes through 2014 as its most recent data point while the small business density component has no data after 2012. How is it possible to get a combined IMSE for 2014?  Rationale for the combined IMSE, if any, should explain this apparent anomaly.


To be sure, at first glance, the Pittsburgh MSA’s top ten IMSE ranking sounds quite positive. However, is it really a reliable or useful indicator of the business environment?   It is a question worth exploring.


A look at the growth in nonfarm jobs shows the Pittsburgh MSA did not fare well over the 2008 to 2012 time frame of the small business density component of the IMSE, growing a mere three quarters of a percent.  But remarkably, of the MSAs ranked in the IMSE top ten, it was still the highest growth rate over the period. The only other top ten MSA with positive growth in nonfarm jobs is Boston (0.19 percent).  For all the MSAs ranked in the top ten, the average employment growth for the period was a negative 1.73 percent.


Interestingly, a look at the MSAs in the overall bottom ten of the IMSE shows that four had very strong or solid job gains including; Houston (3.66 percent), San Antonio (3.48 percent), Dallas (1.31 percent) and Columbus, OH (1.13 percent).  The average for the ten lowest ranked MSAs is negative 2.32 percent.  While that number is fairly close to the average for those ranked in the IMSE top ten, consider that four of the bottom ranked MSAs, Las Vegas (-9.56 percent), Sacramento (-6.16 percent), Phoenix (-5.89 percent), and Riverside, CA (-5.05 percent) all had very deep reductions in employment as their superheated housing markets collapsed and recovery took much longer than in the country as a whole.


In sum, for the forty MSAs studied, employment growth does not display any significant statistical correlation with the Kauffman Foundation’s Index of Main Street Entrepreneurship. And therefore it offers little indication of an area’s business environment and small business vitality. If an MSA has a solid job market, the need to strike out on one’s own may not be as great or necessary.  Keep in mind also that the data for established small businesses came from 2012.  While it may be the most recent available at the time the Kauffman Foundation put study together, it is quite dated and not particularly useful in informing policy making decisions in 2016.


The two Kauffman studies released in 2015 contained virtually opposite rankings for the Pittsburgh MSA on the same topic.  The takeaway from all this is that such rankings should be viewed carefully and used with caution.  In our analysis of the Index of Startup Activity released last summer, we noted it “is not to be taken as the end-all and be-all of the story of the region’s economic performance, but it is another wake up call.”  Nonetheless, there is enough that is negative in four of the five components of the two Indexes to suggest that the business environment in the Pittsburgh region has a lot of room for improvement.

Pennsylvania Businesses Not Very Optimistic

Recently the Lincoln Institute of Public Opinion Research released its annual Spring Keystone Business Climate Survey. Over 360 business executives from all corners of the Commonwealth completed the survey.  The overall results are not too surprising—a significant percentage of the executives responding are not very optimistic about what the business climate has been or is expected to be over the next six months. But is this a one-time snapshot during a sluggish economy or a longer running trend?


To provide some insight into this question, we look at the previous Spring Business Climate Surveys back to 2010, the year the last recession ended.  Each year the survey asks executives to offer their opinions on issues that affect the business climate within the Commonwealth.  Some questions are specific to current events, but there are six core questions asking about general business conditions, sales, and employment levels.  In this Brief, we will concentrate on business conditions and employment levels.


When asked in the spring of 2010 “do you think business conditions in Pennsylvania are better, the same, or worse than they were six months ago”, only 12.6 percent indicated that it had in fact gotten better.  Forty-one percent claimed no change while 43 percent believed conditions had worsened.  Keeping in mind that the nation has just emerged from a severe recession, finding that 84 percent of business executives had the opinion that conditions had either not changed or deteriorated was not all that surprising.  Some optimism crept in during the spring of 2011 as 25 percent of respondents believed conditions were better.


However that mild optimism faded as the percentage of those indicating an improvement steadily declined over the next three years settling in at 14.3 percent in 2014.  This spring’s results showed a decidedly more pessimistic tone in response with the 85.2 percent of executives reporting no change or a worsening of Pennsylvania’s business climate from six months prior topping the percentage for this measure found by the 2010 survey. The latest survey results are certainly far from being a ringing endorsement of the economy.


When asked about the Commonwealth’s business climate six months out, 24.5 percent of respondents in 2010 thought it would improve.  Optimism about the near future was stronger in 2011 but gave way to a gloomier outlook in 2012 when only 15.5 percent thought the future was looking brighter. It rose a bit in 2013 to just more than 19 percent and remained there this spring.


The second set of questions concerns employment levels at the companies represented by the executives responding to the survey.  The first question asks “are employment levels at your company higher, the same, or lower than they were six months ago”.  As expected, while emerging from the recession in 2010, the responses reflect pessimism as only 9.5 percent of the respondents indicated they had increased employment levels.  This number rose to 22.3 percent in 2011 before falling sharply back to 13.4 percent in 2012 and then even further to 8.5 in 2013. It rebounded a bit this past spring as 14.6 percent of executives stated they have increased employment over the last six months.


But the real story here is the percentage of executives who claim their firms stood pat over the previous six months.  In 2010 that percentage was 54.7.  It increased some over the next two years reaching 65.7 in 2012.  After a slight dip last year, it stood at the two–thirds level in the most recent survey.  The only positive is that when asked if any had decreased employment, the 18.2 percent who acknowledged that they had, is the lowest figure in the last five spring surveys (the highest was 2010 at 31.6 percent).


The second question surrounding employment is concerned with expected levels six months out.  Coming out of the recession in 2010 the percentage indicating that they were planning to add to payroll was only 8.6 percent.  The number increased greatly in 2011 (29.8 percent) before falling to roughly half that in 2012 and 2013 respectively.  In the most recent survey that number has crept up to 18.2.  In 2014 nearly 70 percent responded they had no plans to change employment levels, the highest level since 2010 when 74.2 said they were planning to hold steady.


This lack of ebullience among executives about the business climate and their employment levels is substantiated by the official jobs figures. Establishment payroll data for Pennsylvania shows that from 2010 to 2011 the annual average number of total nonfarm jobs increased by just over 63,000—about one percent.  From 2012 to 2013 this figure increased ever so slightly by just 16,600 jobs.  Thus far in 2014 the number of nonfarm jobs in the Commonwealth has risen by 37,900 in January over its year earlier level, but that growth cooled off considerably in February and March.  While these are positive gains, it shows basically no evidence of accelerating in statewide job totals thus far in 2014.


The results of the Lincoln Institute’s 2014 Spring Business Climate Survey are not very optimistic.  It continues a trend that stretches back to the end of the recession in 2010.  Those in the know—business decision makers—reinforce what the data has been suggesting, that the Pennsylvania economy, has been moving ahead, albeit slowly over the last couple of years.

More Disappointing News on Pittsburgh’s Labor Market Data

A month ago, the Department of Labor and Industry released a stunningly negative report showing huge downward adjustments to establishment payroll jobs for 2013—revisions that wiped out all of the significant growth that had been reported each month last year.   In December for example, the so called establishment survey of jobs figure was lowered by 21,000, erasing entirely the originally reported gain.


And now, the Department is out with newly revised data obtained through the household survey; the survey that measures the number in the work force, the number of persons employed and the unemployment rate.  Revisions cover all five years from 2009 through 2013 inclusive. Generally speaking the revisions are downward for both employment and labor force and get larger going forward in time from 2009.


The revisions are not encouraging.  Remarkably, the downward revision to the number of persons reporting they are working puts the annual average employment for 2013 below the average employment for 2008—instead of the 8,000 gain in employed over the period in the originally reported figures.  Over the last seven months of 2013 the downward adjustments averaged 14,265 per month. Note that for the year as a whole the adjustment was 10,268 lower than the originally reported figures for 2013.


Downward revisions were especially pronounced for June and July employment counts with reductions averaging 17,300 per month compared to originally reported figures. New employment estimates for the fourth quarter also showed sizable cuts from original reports that average 13,400 workers for the three months. These reductions put the fourth quarter of 2013 employment nearly 8,000 below the fourth quarter of 2012. Before the revisions, the average for 2013 as a whole stood 8,500 higher than in 2012—after the revisions it was up only 2,300. It is noteworthy that even before the latest round of revisions the monthly gains in late 2013 had already slowed substantially compared to the gains recorded during the midyear months.


Fourth Quarter Average Household Employment


















While the number of people working, either self-employed or for another entity, is hugely important as an indicator of economic vitality, it does not by itself however, capture the whole story. Thus, the survey also asks those who report to the interviewer they are not working whether they are actively seeking work. Those who respond “not working but looking” are classified as unemployed.  Added together, the number employed and the number unemployed are called the labor force. Those of working age (over 16) who are not institutionalized and are neither working nor looking for work are termed “not in the labor force”.


The unemployment rate, the closely watched monthly statistic that grabs headlines, is simply the ratio of the number unemployed to the number in the labor force usually expressed as a percentage. Interestingly, the number unemployed were revised upward by a monthly average of 527 in 2010 and just under a thousand in 2011. During the first eight months of 2012, the upward revisions in unemployment continued to average around 1,000 but in the latter third of the year, the revisions shifted downward hitting negative 3,000 by year end. This was followed by a 5,890 reduction in January 2013 and further reductions throughout the year. For 2013 as a whole, the revisions lowered the unemployed count by almost 2,000 per month on average.


But as it turns out, the unemployment rate itself was barely changed by revisions for most months over the five year period except in the few months with exceptionally large revisions in the number unemployed.  Note that in both the original reports and the revised data, the number unemployed began to fall rather sharply in the second half of 2013.  At the same time, employment began to fall below the twelve month earlier levels reflecting a distinct weakening in the labor market.  So, of necessity, with both unemployment and employment falling the labor force also fell and by more than employment to reflect the decline in both.


What does this tell us about the recent dramatic declines in the unemployment rate?  A drop in the number unemployed accompanied by rising employment would be unambiguously positive in that it would point to some unemployed persons finding work. However, with employment falling or holding steady when unemployment falls, the implication is that out of work persons are not moving into jobs but rather out of the labor force altogether, that is to say they are no longer looking for work.  Some argue that the falling labor force could reflect retirements.  That might be possible but it would suggest that as people with jobs are retiring some of the unemployed are filling the positions opened up by the retirements including those created by promotions into the vacancies resulting from the retirements. It could happen, but the sudden rather rapid decline in unemployment in the second half of 2013 implies something else is at work, either in measurement issues or in actual changes in labor market dynamics.

Pittsburgh Area Jobs Data Still Weak

The Department of Labor and Industry has released the preliminary employment data for February 2014 and it does not look good for the region.  For the third consecutive month both total nonfarm and total private employment fell from their year earlier totals.  This comes on the heels of data revisions of 2013’s employer survey that severely reduced the original numbers turning what appeared to be strong monthly year-over-year gains into weak ones lowering both the annual average number of total nonfarm jobs (-13,400) and total private jobs (-14,400) significantly.


Most will cheer the fall in the unemployment rate from a seasonally adjusted 6.3 percent in December 2013 to 6.0 percent in January to 5.8 percent in February.  However, the reason for the decline has more to do with a drop in the labor force than it does people moving into the employed category.  For example, the number of unemployed in February fell 22,900 people from February 2013’s count.  However, the number claiming to be employed only increased 4,000—a negligible amount considering there are more than 1.17 million people employed in the area—while the number in the labor force declined by 18,900.  Thus, more than 80 percent of the reduction in the number unemployed is due to them dropping out of the labor force.  Not a ringing endorsement of the area’s economy.


This weakness is corroborated with the employer survey.  The preliminary count of total nonfarm jobs in February came behind that of a year earlier by more than 5,000 jobs.  Total private also fell short of last year’s total (-2,900).  This continues the trend from December, where the rebenchmarked data showed a decline in the year-over-year total nonfarm jobs (-2,900) and total private jobs (-1,500).  January’s final numbers likewise revealed a year-over-year loss of 3,900 total nonfarm jobs and 3,300 total private jobs.


The sectors posting job losses were spread throughout both the goods producing and service providing super sectors.  In the goods providing super sector the only area of growth is in mining and logging, posting year-over-year gains of a couple of hundred jobs for the last three months.  In fact it hasn’t experienced a year-over-year decline since midway through 2007.  Keep in mind that this sector, a beneficiary of the Marcellus Shale drilling boom, only accounts for a small percentage of the area’s job market—less than one percent of total nonfarm jobs.  Both the construction and manufacturing sectors have had slides over the last three months with manufacturing’s streak stretching back to August 2013.


Perhaps the biggest surprise happened in the private service providing super sector—specifically in the education and health sector.  Long an area of growth for the Pittsburgh region, the preliminary February data show no growth from the year earlier totals.  This sector has seen its year-over-year job numbers decline for the entirety of 2013 and into January 2014.  And if the final February data are revised downward—a distinct possibility—the losses will have extended to fourteen straight months.


For the first two months of 2014 the sector with the most growth has been leisure and hospitality with year-over-year increases of more than 1,000 in each month.  This growth extends back through all of 2013 as well.  Oddly enough the largest subsector, accommodation and food services, has not been the source of growth as they have been experiencing large year-over-year decreases.  This subsector accounts for about 80 percent of the leisure and hospitality sector with arts, recreation, and entertainment comprising the other 20 percent.  The latter must be the source of this growth, but with so little data at the regional level, it’s difficult to say where the jobs truly are.


All-in-all the February jobs report shows a continued softness in the Pittsburgh area labor market.  This is showing up in both the household data, despite the falling unemployment rate, and the employer survey with falling total nonfarm and private jobs numbers.  The Pittsburgh area may be a victim of a malaise in the national and state economies, but there are some things that leaders can do to help boost these numbers.   That entails making the business climate more inviting through lower tax rates and fewer regulations that tie the entrepreneurial spirit.

Pittsburgh Area Job Gains Good—But a Mystery

Over the last twelve months-July 2012 to July 2013 (the latest available figures)-private sector employment in the Pittsburgh seven county metro area climbed by 18,700 jobs, a gain of nearly 2 percent. While slower than the 3 percent annual growth registered during the fall of last year, Pittsburgh regional employment improvement far outpaced the sluggish pace recorded in the Commonwealth.  That means much of the state was experiencing very slow growth, and in the case of the City of Philadelphia, an actual decline.


Although the solid increase in employment in Southwest Pennsylvania is somewhat remarkable in the face of statewide weakness and is good news for the region, there is something of a mystery about what is driving the job gains. In the broad categories, gains in financial activities, professional and technical services and leisure and hospitality accounted for 16,000 net new jobs over the last twelve months. Note that both wholesale trade and retail trade along with private colleges posted lower employment figures. Health care and specialty construction enjoyed significant gains as well.


But back to the mystery.  Within the financial activities grouping, finance and insurance firms that represented 57,800 of the jobs in this group posted a measured and reported employment rise of 1,600 over the last twelve months. The business categories other than finance and insurance within the broad financial activities group include real estate rental and property management agencies, and firms renting other assets such as cars, equipment and consumer items. Thus, of the 4,300 total job increase in the financial activities sector, 2,700 were accounted for by the smaller financial activities sector components that, taken together, had total employment of just 14,500 a year ago. That means these businesses had an employment jump of almost 20 percent. 


This is not to argue that the spectacular growth did not happen but it would be reassuring to know which of the smaller sectors enjoyed such massive gains.  Otherwise there is a fear that benchmarking changes next year will find the originally reported numbers were too high.


A similar pattern exists in leisure and hospitality. Of the 5,700 employment rise over the last twelve months 1,700 net new jobs were added in accommodations and food services. Note that accommodation and food services accounted for 92,800 of the leisure and hospitality category in July of 2012, 80 percent of all leisure and hospitality employment.  Thus, the arts, entertainment  and recreation components-the other categories within leisure and hospitality-with combined employment of 24,300 in July 2012 accounted for 4,000 of the leisure and hospitality gain of 5,700. The arts, entertainment and recreation jobs increase amounts to 16.4 percent annual growth. 


Again, this not to say the jobs are not really there. It could be earlier measurements were too low and we are now getting more accurate readings. But it would be nice to know which firms or sub-sectors were adding jobs at such a tremendous rate. It would also be nice to know whether the job growth reflects the weekly hours worked reduction phenomenon brought about the Obamacare provisions whereby firms hire more people but at reduced hours in order to get the work done.  Such behavior could go a long way to explain what is happening. Time will tell.


Finally, professional and technical services employment continued its far above average growth by recording a rise of 6,100 jobs over the last twelve months-an 8 percent jump.  Unfortunately, the Labor Department reports jobs numbers for only two sub-sectors-architecture and engineering along with scientific research and development services. Together these two categories accounted for only 900 of the total professional and technical services sector gain of 6,100. So, here we are again wondering where the job strength is coming from.  The professional and technical services sector covers a wide variety of services including legal, accounting, advertising, computer services, design, consulting, photography, and veterinary services and others.


Since this vast array of services produced 5,200 net new jobs (almost 30 percent of all the net increase in private sector employment) over the last twelve months it would be very helpful to have some idea where the strength lies.  Is it broad based or are there sub-sectors showing tremendous growth? Are there federal, state or local policies boosting the robust growth and is it sustainable?  If so, that would be very useful to know.


In total, some 12,000 of the 18,700 private sector job gain over the last twelve months occurred in categories that are not individually measured leaving us to scratch our heads trying to figure out where those jobs actually are and why the growth is so rapid.

Pennsylvania’s Private Sector Job Growth Sluggish and Unbalanced

July’s report on Pennsylvania’s establishment payroll employment reveals an overall slowing growth trend and a very unbalanced situation regarding job gains. 



Consider that total private jobs rose by 82,600 from July 2010 to July 2011; 57,200 over the next twelve months, and only 36,800 from July 2012 to July 2013.  It is noteworthy that private total jobs remain 30,000 below the peak levels reached in 2008.  It is also important to remember that the growth in the 2010 to 2011 period reflected some rebound from the recession losses so that weakening in subsequent years is not overly surprising. But just as in the nation as a whole, post-recession job gains in Pennsylvania are anemic, especially over the last twelve months.  Nationally, private jobs remain 1.5 million below the 2008 peak.


But perhaps more concerning than the slow pace of gains is the limited number of sectors adding jobs. Of the 36,800 increases in jobs over the last twelve months,  four industry groups account for the entire rise; namely, education and health care, leisure and hospitality, professional and technical service and finance.  Meanwhile, goods producing sectors were all flat or down slightly, information was lower, transportation and utilities slipped, retail and wholesale jobs were lower.


Amazingly, employment in accommodations and foodservices that represents eight percent of all jobs accounted for a third of the total private employment increase with education and health care combined with professional and technical accounting for most of the rest.  


Somewhat surprising, employment in mining and logging slipped in the last twelve months and has grown very little since the big jump from 2010 to 2011.  Construction and manufacturing remain flat following modest rebounds in 2010.  On a positive note, finance and private education showed renewed strength over the last twelve months after period of stunted gains in previous years. Then too, the solid growth in professional and technical employment is somewhat reassuring, although the limited data detail does not permit a clear picture of which particular subsectors are propelling the gains. This sector covers a very wide range of services including legal, accounting, public relations, scientific, consulting, architecture and engineering.  It is likely, although not yet provable, that the advent of Marcellus Shale activity has produced a substantial share of the employment increases in the professional and technical sector in Pennsylvania.  


Overall, the relative weakness in recent total job gains, especially when private sector employment remains well below the five year earlier level, is bothersome. And compounding the consternation is the limited sources of job growth. Health care continues to be a stalwart and has accounted for a third of net private job gains for the last three years. This sector is driven in part by massive increases in federal program spending as Medicaid and Medicare demands rise exponentially.  It is not clear what will happen to health care job growth after the Affordable Care Act is fully implemented.  But it seems reasonable to conclude that strong gains will continue at least initially.


At the same time, large gains in the foodservices component that account for an outsized share of private  employment growth  are hardly reassuring since those jobs are typically low wage and increasingly involve shorter hours with no benefits. This is just one of the easily predictable and actual undesirable consequences of the Affordable Care Act.


While some of the recent job growth weakness in the Commonwealth can be laid at the feet of the policies emanating from Harrisburg, as was the state’s below national average growth in the preceding decades, it is clear that much of the fears, concerns and wariness in the business community that hinders expansion and hiring stems from exceptionally disturbing national economic, regulatory, fiscal, monetary and tax policies.  Sadly, the potential for major changes in those policies seem far off.


In the meantime, Pennsylvania needs to address more forcefully its own business inhibiting policies and regulatory environment.  The list is familiar.  Enact a right to work law, get rid of prevailing wage requirement on public projects, lower business taxes and enact substantial and meaningful reform of state and teacher pensions.  Getting Pennsylvania into the 20th century regarding property assessment laws would be very helpful. Getting rid of the right of teachers and public transit workers to strike would also move Pennsylvania closer to the rest of the country.  Assuming some normalcy will eventually return to D.C., Pennsylvania needs to  have more than Marcellus Shale gas going for it if it is to achieve a path of broad based prosperity.

PA Labor Market Develops Signs of Weakness

March’s employment news for the Commonwealth was quite unwelcome. Both the household survey and the establishment payroll survey brought signs of marked weakness in employment.



People reporting themselves as working fell by 14,000 in March after a 6,200 decline in February and a slight 1,000 drop in January. In short, the entire first quarter exhibited a pattern of steady weakening in the number of people working.  Meanwhile, private payroll employment at establishments fell by 6,500 in March, sliding below the January level and up by a mere 1,000 compared to a March 2012. Indeed, private payroll jobs are still 40,000 below the March 2008 number, the high watermark for a March job count, and just before the effects of the national recession pummeled the state’s labor market.


Misguidedly, the headline about the labor market situation was the unemployment rate dip from 8.1 percent in February to 7.9 percent in March. But in light of the fact that the number of people working tumbled by 14,000, it is reasonable to ask; how could the unemployment rate fall?  It fell because the labor force plunged by 33,000. That is to say, an additional 33,000 people in the non-institutional population old enough to work chose not to seek work. While this is a startling number it does mirror the massive half million decline in the nation’s labor force in March. As a result of the 33,000 plunge in the number of people not looking for work, the number of unemployed went down 19,000, mathematically lowering the percentage unemployed.  In sum, the apparent good news of an unemployment rate decline hid the bad news of a significant drop in the number working along with a substantial decrease in the labor force.


Why the recent Pennsylvania weakness?  Based on the national employment situation in March, there has been a similar abrupt slowing countrywide.   Apparently, the state has not been able to sidestep the impacts of the forces restraining the national economy-Obamacare effects, the tax hike in January and the regulatory onslaught coming from the DC governing apparatus.   


Looking back over the three years of the recovery so far, what was the pattern of job gains and what have been the sources of strength-and recent weakness?


From January 2003 to January 2008, private sector employment rose at an average annual rate of 0.8 percent to reach 5,074,400 jobs. Nationally, private employment climbed at a 1.2 percent annual rate over the same period with several states enjoying well above national rates of job gains.  With the steep national recession hitting in 2008, Pennsylvania employment fell to a low of 4,810,100 jobs in February 2010 before starting to rebound. Over the next twelve months, the job count had risen by 110,000, reaching 4,919,000 in February 2011. Between February 2011 and February 2012 jobs grew by 85,000 bringing the two year increase since the recovery began in March 2010 to 195,000. Unfortunately, the solid gain between February 2011 and 2012 marked the end of the good employment growth period. As noted above, from March 2012 to March 2013, private employment managed a statistically insignificant uptick of only 1,000 jobs.


The question that arises is: Which sectors accounted for the two years of fairly good gains and which have led the slowdown? 


Surprisingly to some perhaps, the professional and business services sector posted the largest pickup in employment from March 2010 to March 2012 registering a gain of 51,200. But for those who follow the data closely it is not a surprise. Over the period 2003 to 2008, this sector actually grew more jobs than the larger and rapidly growing health sector. Rebounding from the recession it recovered all lost employment and added to the pre-recession peak level. Over the past year (March 2012 to March 2013), the sector managed another 3,900 increase-a far cry from the year earlier pace but still a positive contribution to the Commonwealth’s employment count. 


Health care and social assistance, the largest individual private sector in terms of employment, supplied 31,200 of the 195,000 total net gain in private employment over the first two years of expansion and was the second largest contributor to the rise. The good news is this sector appears to be recession proof and added another 13,000 jobs over the March 2012 to March 2013 period continuing its decade long upward trend.


Close behind health care in job growth, the leisure and hospitality sector (led by accommodations and food service) added 31,100 to payrolls over the first two year period of recovery and rebound from the recession. That strength has not continued, however, as jobs slipped a bit over the last twelve months. 


The remainder of the 80 thousand or so increase in private employment from 2010 to 2102 was spread over several sectors each of which experienced gains between 10 thousand and 17 thousand. This list includes construction (+17,000), mining and logging (+14,300), transportation and utilities (+13,000), retail (+10,000), education (+8,700) and manufacturing (+10,100).   


Of these sectors that contributed to the burst of solid overall employment gains from 2010 to 2012, only transportation and utilities managed to eke out a modest gain over the last year. Many sectors including mining and logging, construction, retail, finance, leisure and hospitality and the information sector saw employment levels decline during the last twelve months. These declines largely offset the rise in health, professional and business services and transportation and utilities resulting in the slim 1,000 uptick in total private jobs.


In short, employment growth at the major job drivers has slowed dramatically while the slower growing sectors have stopped expanding or even slipped into negative territory. This is not a healthy position for the Commonwealth. Unfortunately, there is little the state can do in the short run to boost employment expansion. The weakness in Pennsylvania stems principally from national policies that are restraining the economy.  Policies that deter investment and punish savings, budget deficits that threaten the national fisc together with continuous calls for higher taxes and reams of new regulations daily are having a smothering effect on the economy. Pennsylvania has been fortunate to have had the substantial boost from Marcellus Shell gas operations but that by itself is not enough to overcome the dead weight of the anchor Washington has attached to the economy.

Employment Growth in the Region Cools

The recently released January employment data for the Pittsburgh metropolitan statistical area (MSA) were not very encouraging.  After a reasonably strong 2011 and first half of 2012, data from the region’s employers show quite a slowdown in job additions for the latter half of 2012 with 2013 starting off just as sluggish. 


 Household data seems to confirm the slowing, as the area’s unemployment rate increased more than one-half of a percentage point from the same time last year. There was positive news in the form of a 2.5 percent jump in the labor force since January 2013 perhaps signaling more confidence among job seekers that the region has plenty of jobs to be filled.  But is this confidence warranted?


The employer payroll survey (which reports data unadjusted for seasonality) shows the MSA adding ten thousand total private jobs in January 2013 over the January 2012 level-a modest one percent increase.  By comparison January 2012 had 21,300 more jobs than its year earlier level which, in turn, had more than 24,500 jobs above the January 2010 reading. By looking at the levels compared to twelve months earlier, any seasonal effects are eliminated.  As mentioned, the growth in total private jobs was much stronger in 2011 and the beginning of 2012.  On average, the 2011 monthly year over year gains to total private jobs was 23,100.  The first half of 2012 averaged 22,100 more jobs compared to a year before, while the second half average fell to less than 13,200.  Nonetheless, despite the reduction by half in the rate of employment growth, it is a moderately positive sign that no month in the last two years had decreases in private sector jobs.


As was pointed out in previous Briefs, the Pittsburgh MSA has a major advantage created by the presence of the Marcellus Shale formation and is benefitting from a gas drilling boom. The number of jobs in the mining and logging sector surged in 2011 rising year over year by an average of 28 percent.  In the first quarter of 2012 the growth continued to top 22 percent before falling below 20 percent in April and then below nine percent from September through the close of the year.  This coincides with the fall in the average annual price of natural gas (as calculated for the State’s well impact fee) as it went from an average of just over $4.00/million BTUs in 2011 before falling to $2.79 in 2012-a decrease of 30 percent.  As the price falls, fewer wells will be drilled and growth will slow.  Even though it is very early in 2013, the average annual price has crept up to $3.40 and perhaps drilling activity may start to pick up. Another possibility to consider is that perhaps the pace of drilling new wells has already reached its apex in the region and additional drilling will be at a somewhat slower pace going forward. 


Other industries related to natural gas drilling seemed to follow suit, most specifically manufacturing and construction.  After years of decline, the manufacturing sector started to see positive year over year gains beginning in the second half of 2010.  While these gains were slight, anywhere from one to two percent from late 2010 through mid-2012, they turned negative in December 2012 and again in January 2013.  The construction sector followed a similar pattern of strong growth at the end of 2011 and through the first half of 2012 before weakening in the latter months of 2012 before posting a loss in January 2013. 


But these are relatively small sectors in the MSA and their slowdown cost the region around 2,500 jobs which is just a quarter of the cool down in the jobs market.  Marcellus Shale exploration and drilling propped up the region’s economy during the national recession and subsequent sluggish recovery, but it may be settling into more sustainable levels of activity.


Another sector that showed considerable slowing includes professional and business services.  This sector averaged a 7,700 monthly year over year increase to jobs for 2011.  That figure dropped to 5,200 in 2012 due to much slower gains in late 2012-the final quarter average was only 2,400.  While January 2013 had a year over year increase of 3,700, the torrid pace of 2011 through the first half of 2012 has not been sustained. 


So where is the good news? 


Keep in mind that the area gained more than 10,000 total private jobs year over year in January 2013 to settle in at more than 1.02 million-the highest January total since at least 1990 (as far back as the data go).  While the fast pace set coming out of the recession may have cooled off, the region is still moving forward.  And as we showed in a previous Policy Brief (Volume 13, Number 2) other sectors such as professional and technical services are emerging with substantial gains.  Likewise, the region’s healthcare subsector continues to grow albeit at a slower pace. Notwithstanding the moderately good performance of late, the region’s leaders cannot rest as there is plenty of work to be done to make the area more inviting to employers.