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.

Pennsylvania’s Meager February Job Gains

Pennsylvania saw its month to month payroll job count stall in February with a mere 600 net gain from January. What’s more, the year over change since January of 2012 was a paltry 0.3 percent. In something of a twist, widespread losses across a number of service sectors led to a drop in private service employment while goods producing jobs led by manufacturing rose just enough to offset the services job losses.

Interestingly, the Professional and Business Services category continued to show strong gains statewide similar to the pattern in the Pittsburgh MSA. From January to February the sector accounted for over half of the growth of the service sectors managing an increase at 3,600 jobs. And over the past year the Professional and Business Services component posted a net job increase of 11,900, accounting for over 70 percent of the growth in nonfarm employment. Moreover, with the 6,300 loss of government jobs, private sector employment rose 22,800 of which over half are attributable to this category.

Three areas of weakness have arisen that were previously producing rapid employment growth rates. In February, private Education and Health Services saw a decline of 5,200 jobs from January and have slowed to a growth rate of less than one percent compared to February of 2012. Similarly, the once near boom- like employment gains in Leisure and Hospitality have been replaced by losses. In February, the sector experienced a drop of 4,000 jobs from January and was down 5,600 jobs from 12 months earlier. Lastly, Mining and Logging jobs were unchanged in February for the January level and have fallen by 1,100 since February of 2012.

Thus, it appears that for the time being at least the state is witnessing a shift in economic leadership from Eds and Meds, Leisure and Hospitality and Mining to the professional and business services component. What this might portend is not clear but it is dramatic nonetheless. One must expect that the very fast gains in the sector cannot be sustained for long unless there is a return to faster growth in other major economic sectors.

Too many municipalities?

Establishment elites and their allies in the liberal media continue to rail against the 130 municipalities in Allegheny County as the source of high government costs, inefficiencies, and slow economic growth.

Wonder why these folks never consider the great era of prosperity and growth that occurred decades ago when Allegheny County had "too many" municipalities? It puts the lie to their argument.

The main reason for slow growth has been the rise of unionism, especially public sector unions, that have driven up costs of government service, led to higher taxes and created massive interference with the working of the free market and dependence on government directed development.

Therein lies the major problem with the County’s slow economic growth and population loss. Reducing the number of municipalities might lead to some improvement in delivery of services, but it can also lead to worsening results as well. Pittsburgh, the largest municipality by far in the County, spends almost $1,400 per resident to provide government services and Pittsburgh schools spend $20,000 per student. Most municipalities and school districts in the County spend nowhere near those levels.

So, tell us again why all the focus on "too many" municipalities as opposed to talking about how to deal with the real obstacles to prosperity.

The Dangers of Ignoring Massive Imbalances

A wise economist once remarked that nothing grows exponentially forever. A corollary would be that rapid exponential growth of anything will not be sustainable for very long. It would have been wonderful if politicians, analysts and reporters had called attention to developing problems associated with excessive and out of balance growth in mortgages during the last 15 years or so and especially the 2001 to 2007 period. In 1980 home mortgage debt was about half of total business debt. By 2000 it had risen to 70 percent and then surged through 2006 to actually surpass business debt. Only with the collapse of the industry in 2008 did business debt move higher than home mortgage debt.

The private business sector is the driving economic force in the country. Growth in business debt is in part a reflection of the success the sector is having, although too fast growth can lead to problems there as well. The point is the massive increases in mortgage debt relative to the jobs producing part of the economy should have alerted regulators and analysts to a developing danger. Speculation of ever higher home prices in sections of the country and the efforts to get everyone who wanted one a mortgage were driving home loans to the stratosphere. A day of reckoning was inevitable. That day has come and it will take years to undo the damage caused by the failure of the Federal government to rein in the ludicrously imprudent lending practices fostered by Fannie Mae and Freddie Mac.

More locally, at the state level we see the consequences of year after year of big jumps in government spending and irresponsible pension promises. When hard times come, there are no choices but raising taxes, which makes recovery from recession harder, and cutting spending deeply. More pain is sure to come for Pennsylvania as a result of financial imprudence. In Pittsburgh, we see the effects of excessive generosity in labor contracts by the City and the Port Authority. They are scrambling for more revenue in an already extremely taxpayer pinched economy.

And still, there is no political will to seriously address the root cause of their problems, only incomprehensible hope that a miracle will happen and the bad situation they find themselves in will somehow magically disappear.

Some have foreseen the consequences of ignoring the imbalances that were building up and tried to warn of the coming disaster. But sadly, politicians and too many participants benefitting from the growing imbalances were all too willing to let the goods times roll, hoping not to avoid paying a high a price when the inevitable train wreck occurred.

Water, Water, Everywhere…

Residents of the South Hills City neighborhood of Beechview have been dealing with a headache since mid-April when an 18 inch water main broke and sent the overflow onto the main thoroughfare, Banksville Road. Word came this week that the break will affect traffic through mid-June. This came not long after a water main break (of the 8 inch variety) on nearby Pioneer Avenue, which affected the high volume West Liberty Avenue.

Infrastructure-like water and sewer lines, roads, bridges, public buildings-crumbles; there is no denying the fact (the point person on the Beechview water line break noted "We put a lot of pipe in, just like we did with roads and bridges, about 100 years ago. Now it’s all reaching the end of its lifespan") and the impact that heavy use places upon it.

But we are reminded of the comments made by the past chairman of the region’s premiere organization aimed at "growing the region" who said in 2007 that "our roads, our infrastructure couldn’t handle a 15 percent growth rate. We couldn’t handle a 10 percent growth rate". So the region continues to experience slow to minimal growth and the impact of crumbling infrastructure.

The problem with minimal growth is that when the ever-important infrastructure begins to crumble there are fewer people around to shoulder the cost through their taxes, user fees, and/or rates than before. Not good news for a region that is expected to deal with stormwater/sewage issues, road upgrades, and a broke mass transit agency on top of the other desires of area governments and school districts.

County Going Green, Needs Green

In the popular manner of the new paradigm, Allegheny County has just adopted a Sustainability Policy. The new law will focus on energy savings, reduced emissions and water conservation in the County government. Nothing wrong with that if implementing actions to save does not cost more than the projects save taxpayers.

But if the County is truly concerned about the environment and "green house" emissions why does it spend so much time and effort promoting job growth, trying to get more air service at the airport, etc. More economic activity means more travel by car and plane. Think of ongoing and recent initiatives. The Penguins new arena, the casino on the North Shore, fairly new stadiums for the Steelers and Pirates-all are efforts to attract people to the County and City. More event attendees, more car travel, and more emissions.

The County government steps to lower its pollution footprint will produce a drop in the bucket compared to the footprint created by the past and current "development" efforts.

There is one thing the "green" efforts have going for them. The huge decline in manufacturing in the City and County has largely taken care of the "emissions" problem already. Now, if we could do something about those annoying cars.

And, lest we forget, the County’s fiscal situation is not very good and is expected to get worse in coming years. Thus, we hear proposals about new taxes and fees on hospitals to generate more "green" for county coffers. Collecting more tax dollars is very difficult to do unless the economy is expanding, and that means more energy consumption, more emissions. What a dilemma the County faces. It needs green and wants to be "green". It’s not easy as the famous Muppet, Kermit, used to sing.

Population Slide Continues in City and Region

City Office BuildingThe recently released 2008 population figures show the City of Pittsburgh posting a yearly loss of nearly 1,700 residents, continuing a trend that has been ongoing for several decades. City officials and apologists were heartened by the fact the drop was smaller than in previous years and all atwitter about how the City was finally nearing a turning point and that population growth is just around the corner-arguments they have made for years. What they need to do is to face up to the reasons people leave the City such as high taxes and a poorly performing school district and begin to make meaningful changes to stop the ongoing exodus. 


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