PA’s employment situation improved in June but has far to go

Summary: On July 17, the state Department of Labor and Industry released the June report on the state’s labor market conditions.  Overall, the June results show that significant progress was made since April’s unprecedented collapse of the economy.

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Household employment and unemployment

The household survey data that measure the size of the labor force, the number of people working and the unemployment rate found that both seasonally-adjusted labor force and number of people working had fallen from the May readings. However, the drop in labor force was larger by 50,000 than the slide in people working causing the unemployment rate to fall slightly from 13.4 to 13 percent. The state’s decline in both labor force and number of people working was very different from the national report for June that saw the unemployment rate drop from 13.4 to 11.1 percent with the number of people working climbing 4.9 million and labor force climbing 1.7 million.

Although June’s 13 percent unemployment rate was down from the horrendous 16.1 percent posting in April, the latest Pennsylvania rate still exceeds any seasonally-adjusted unemployment rate experienced in several decades including the 12.7 percent rate of January 1983 when the national economy was in a deep recession and far surpasses the 8.8 percent high set in March 2010 during the severe 2009-2010 recession. 

Payroll Employment

Meanwhile, in the June report for Pennsylvania, the survey of employers found a fairly sizable 231,000 seasonally-adjusted increase in employees from May to June that contrasts sharply with the decline in number of people working as reported in the household survey. The rise in payroll jobs was accounted for entirely by the private sector where employment was devastated by the virus related mandates and declines in demand in many sectors that shoved jobs down by a million in April compared to the April 2019 figure.

Note that comparisons to the year-ago month provides an indication from month-to-month in the recovery of how far employment has to go to get back to pre-virus levels.

Bear in mind too, that the loss in jobs in April’s report reflects the sharp downturn that began and accelerated in the second half of March as the lockdown was put in place. Much of the March survey of employers had already occurred so the devastated labor market was not revealed in official numbers until the April survey was completed. However, the gigantic and unprecedented increase in unemployment claims in late March pointed to the awful job counts that would be shown in the April employment report.

In May and June, private payroll employment increased a combined 440,000, reducing June’s year-over-year loss compared to April’s massive decline, although it remained a staggering 595,000 below the reading posted for June 2019. Meanwhile, all-government employment (federal, state and local) in June 2020 was down 25,500 compared to a year earlier with local government and school districts accounting for almost 90 percent of the all-government decline. Federal jobs were up slightly.

In short, the state’s private-sector jobs in April fell almost 20 percent below the 12-month earlier level; in May the reading was 15.6 percent below the previous May and in June it was still down 11 percent compared to June last year.  It is important to keep in mind that over the previous three years (2017-2019), annual private employment growth measured by month-over-year-ago-month averaged 59,000 despite slowing to 50,500 in 2019.  Conservatively, the expected monthly year-over-year gains in the April, May and June period, absent the coronavirus, would have averaged around 40,000 jobs or about 3,500 net new additional jobs each month. Thus, not only did the virus lockdown and shrinkage of demand wipe out hundreds of thousands of existing jobs it also prevented the private sector employment gains that could have occurred in a moderately expanding economy.

Employment by Sector

Private employment is divided into goods-producing and service-producing. In 2019, service-producing employment accounted for 83 percent of private-sector jobs.

April employment sustained the biggest loss compared to the 12-month earlier reading since the virus hit. Goods-producing jobs fell an enormous 21.4 percent from 865,000 to 679,000 (-186,000) while service-producing employment plunged 19.2 percent from 4.49 million to 3.63 million (-0.86 million). After posting solid rebounding gains in May and June, goods-producing jobs remained 56,000 (6.4 percent) lower than June 2019 while service-producing jobs were still down 535,000 (11.8 percent).

It is important to note that the April and May 2020 losses in private employment compared to 12-month earlier readings dwarf the largest such declines in modern history.  Prior to 2020, the biggest month-over-the-same-month a year earlier decline going back in recent decades occurred in August of 2009 in the deep recession of 2009-2010 when private employment fell 235,000 (12.2 percent) below the level of August 2008, which is far short of the April 2020 percent decline. And bear in mind that the August 2009 level was the combined result of falling employment over several months preceding.

Goods Employment  

Inthegoods-producing sector, the huge 21.4 percent decline in April was created by a 104,000 (40 percent) decline in construction jobs from the April 2019 posting. Manufacturing in April saw a drop year-over-year of 76,700 jobs (13.3 percent). Mining lost 4,400 jobs (17 percent) from the previous April reading. Thanks to sizable job gains in both manufacturing and construction in May and June, the huge goods sector losses in April were trimmed significantly.  Combined construction gains of 88,000 in the two months along with an added 45,000 manufacturing increase and a small loss in mining lowered the goods sector 12-month loss to 56,000 (6.4 percent).

Despite the sizable rebound in May and June, the employment level in the goods-producing sectors remains in a recession level zone.

Service Employment by Category

As noted above, private-services employment was hammered in April losing 859,000 jobs (19.2 percent) compared to April 2019. And despite regaining about 300,000 jobs in May and June, the sector was still down 535,000 jobs from the previous June (11.8 percent). For comparison, the biggest year-to-year loss in the recession of 2009-2010 occurred in August 2009 when services employment fell 116,700 (2.8 percent) from the August 2008 count. In short, the recent services employment decline is unprecedented in the available, official data going back to 1939.

To be sure, there are enormous differences in losses both in counts and percentages among the large number of service groups and subgroups. 

Among the broad groupings, the leisure and hospitality sector has suffered the biggest decline in jobs, in number and percentage. In April, the group’s employment plummeted by 338,000 (59 percent) from the April 2019 level. Gains in jobs in May and June reduced the percentage loss to 37 percent from June 2019 with losses still well over 200,000, still a depression level shortfall.

Within the leisure and hospitality group, every major category (arts, recreation and entertainment, accommodations and food services) was brutally slammed with unparalleled job losses in April and remains very depressed despite the return of some jobs in most subgroups. 

Retail sales employment fell by 127,000 jobs (21 percent) in April from the year before reading of just over 600,000.  By June the sector had added back over 50,000 jobs but still remained 74,000 (12 percent) below the previous June. Furniture, clothing, sporting goods and auto dealers took large percentage loss hits in April while grocery stores, general merchandise and building materials also fared much better than retail as a whole.

Professional and business services employment suffered a loss of 81,000 jobs (10 percent) in April from the 815,000 level a year earlier. A combined gain of 24,000 in May and June has lowered the year-over-year shortfall to 7 percent. Almost every category in this broad sector lost some jobs on the order of 10 percent or less including architecture, engineering, computer systems and management of companies. However, the administrative support and waste management group was hit hard, accounting for 60 percent of the losses in the professional and business services sector.

Education and health services employment is the largest in the service sector group averaging nearly 1.3 million employees per month in 2019. In April 2020, employment fell 161,000 (12.3 percent) below the previous April level. By June, the return of jobs in most subgroupings reduced the year-over-year shortfall to 76,000 (6.0 percent). April’s loss in this large sector was led by sharp declines in ambulatory health care, childcare and social assistance.  Physicians’ offices and colleges saw 10 percent drops in April. Fortunately, most of these groups had job gains through May and June, but none had recovered to their June 2019 readings.

Financial services did not lose many jobs compared to a year-over-year basis (less than one percent) in the April to June period although the year-over-year gains of the January through March period did not continue. 

The information sector, in a departure from the rest of the economic groupings, saw job losses increase between April and June. In June, losses stood 14,300 (16 percent) below the previous June following April’s 8,700 (10 percent) decline from a year earlier.    

Finally, a look at “other services”. This sector is comprised of three subgroupings; repair and maintenance, personal services and religious, civic, grant making and professional organizations. In April other services suffered a loss of 85,500 jobs (33 percent of its April 2019 count). The year-over-year loss was reduced to 54,900 (21 percent below a year earlier) in June by a two-month gain in excess of 30,000 jobs.

Conclusion Overall, the June employment situation showed that significant strides toward improvement have been made since the unprecedented collapse of jobs in April. But, the situation in many sectors is still in deep recession and some in serious depression levels. Notwithstanding a significant upturn in jobs since April’s calamitous drop, employment in full-service restaurants, hotels and the arts, recreation and entertainment groups along with personal services remain mired at depression levels, and further improvement will be difficult with all the restrictions in place.

10-year jobs changes in Pennsylvania and the Philadelphia and Pittsburgh regions

Summary: Many Institute Policy Briefs over the years have analyzed the employment situation in Pittsburgh and Pennsylvania.  This Brief expands coverage to examine the state and its two largest metro areas including Philadelphia.  Because the five-county Southeastern Pennsylvania area accounts for about a third of Pennsylvania’s private-sector jobs, changes in that region will bear heavily in the state’s overall performance. This analysis evaluates the region’s role over the last 10 years in comparison to the state and the Pittsburgh seven-county metro area. A final comparison with the national performance is also provided.

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The jobs data used for comparison purposes are the Bureau of Labor Statistics (BLS) establishment payroll employment estimates rather than the household survey count that measures the number of persons reporting themselves as working. Performance is measured by the 2008 to 2018 changes in four categories—total private jobs, private services, goods-producing and manufacturing.

Data are readily available for the Pittsburgh metro area and Pennsylvania. However, Philadelphia’s combined five-county data are not provided by the BLS.  Philadelphia-area figures are reported for the three-county Pennsylvania metropolitan division made up of Chester, Bucks and Montgomery counties and for the two-county Pennsylvania metropolitan division comprised of Philadelphia and Delaware counties.  Philadelphia County and Philadelphia City are identical geographically.

The five-county area data are derived by adding the two-county and three-county divisional data together.  This procedure might produce different numbers compared to a process that sampled the five counties as a whole but the differences should be too small to affect the important findings regarding trends in the five-county region. For completeness this analysis looks at the two divisions separately as well.

All jobs figures are presented as annual averages of monthly data.

Total private employment

In the three-county division (Montgomery, Chester, Bucks) private employment rose from 947,000 in 2008 to 992,600 in 2018, a gain of 45,600 or 4.8 percent and a 0.47 percent annual average over the period.  Note that employment fell to 902,000 in 2009 and did not recover fully to the 2008 level until 2015.

In the two-county division (Philadelphia and Delaware) private jobs climbed from 753,500 in 2008 to 834,200 in 2018, a rise of 80,700 and a 10.7 percent increase or a 1.02 percent annual average over the ten years. Private employment fell to 735,000 in 2009 but had fully recovered to the 2008 level by 2012.

Combined the five-county region saw private employment move upward from 1,700,500 to 1,826,800, a gain of 126,300 or 7.4 percent, with 64 percent of the growth accounted for by Philadelphia and Delaware counties.  These two counties fared better during the recession and grew faster after the recovery began.

Meanwhile, during the 10-year period, Pennsylvania’s private-sector jobs rose by 285,000 or 5.7 percent. And during the period the Pittsburgh metro area’s private sector job count moved up by 50,000 or 4.9 percent. Thus, the five Southeastern counties posted stronger than state growth thanks to the 10.7 percent rise in the Philadelphia and Delaware county division. Indeed, the two counties had a jobs increase of 30,000 more than the seven-county Pittsburgh region.  On the other hand the Pittsburgh region kept pace with the Montgomery, Bucks and Chester division.

Private-service jobs

In the three-county Pennsylvania metropolitan division private services added 62,800 employees over the 10 years rising from 787,100 to 849,900, a boost of 8 percent. In the two-county group the service employee count climbed by 89,500 above its 2008 level of 686,000 to reach 775,500, a 13 percent gain for a 1.2 percent annual average growth. Combined, the five counties saw service employment rise from 1,473,100 to 1,625,400, a pickup of 152,300 or 10.3 percent.

Over the same 10 years, Pennsylvania private service employees climbed 355,600 or 8.6 percent, well short of the 10.3 percent gain in the five Southeastern counties. In the Pittsburgh metro area, private service jobs were up 52,800 from 2008 to 2018, a 6.1 percent rise that was slower than the state and well below the five Southeastern county growth pace.

Goods-producing employment

Over the 2008 to 2018 period, goods-producing jobs did not fare well in the Southeastern, Pittsburgh area or in the state. In the three-county group, goods employment slid from 159,900 to 142,700, a drop of 17,200 or 10.8 percent.  For the two-county division, goods jobs were down from 67,500 in 2008 to 58,700 in 2018, a decline of 8,800 or 13 percent. Combined, the five Southeastern counties lost 26,000 goods-producing jobs and were down by 11.4 percent of the 2008 total.

During the 2008 to 2018 period Pennsylvania’s goods-producing jobs tumbled by 70,500, a 7.7 percent drop from the 2008 level. Pennsylvania’s goods-producing jobs decline was smaller in percentage terms than in the Philadelphia region. Pittsburgh-area goods jobs fared better than the state and much better than the Southeastern counties, declining by only 2,800 or 1.7 percent.

Manufacturing jobs     

Over the 10 years, the three-county Pennsylvania metropolitan division’s manufacturing jobs fell from 104,600 to 90,200, a decline of 14,400 or 13.8 percent. The two-county division saw factory employment plunge from 44,200 to 34,100 or 22.8 percent. Combined, the five Southeastern counties lost 24,300 factory jobs, 16.4 percent of the 2008 total.  Note that in the two-county division factory jobs represented only 5.8 percent of total private employment in 2008 and an even smaller 4.1 percent in 2018. For the five Southeastern counties, manufacturing accounted for 8.7 percent of jobs in 2008 and only 6.8 percent in 2018.

Meanwhile, manufacturing employment in Pennsylvania fell by a net 77,800 jobs or 12.1 percent over the 2008 to 2018 period to stand at 565,900 and account for 10.6 percent of the state’s total private employment. This represents a significant drop from the 12.8 percent figure in 2008. Factory jobs in the Pittsburgh region fell a net 11,600 or 11.8 percent to stand at 86,800. In 2008, manufacturing employment made up 9.6 percent of private jobs but accounted for only 8.1 percent in 2018.

The loss of high productivity manufacturing jobs and their replacement by lower paying service-producing sectors jobs in Pennsylvania is not a recipe for sustaining strong gains in real gross state product. Two of the biggest job gains over the ten years were registered by education and health (190,000 jobs) and leisure and hospitality (90,000 jobs). These sectors had statewide average weekly incomes in 2018 of $812 and $386 respectively. During 2018 manufacturing jobs paid $1071 per week. Almost any job growth is better than no growth but some jobs have much greater economic impact than others.

It is important to note also that mining jobs related to shale drilling pushed up mining jobs in Pennsylvania sharply by over 15,300 from 21,700 in 2009 to 37,000 in 2014. Much of that big jobs gain was lost through 2016. And despite a rebound in mining employment since 2016, jobs remain well below the 2014 level.

Comparison to U.S. employment

In comparison, U.S. private employment was up by 10.4 percent from 2008 to 2018, almost 3 percentage points or 40 percent faster than the five-county Philadelphia area and about double the state (5.7 percent) and Pittsburgh (4.9 percent) growth rates. Meanwhile, U.S. private service employment posted a 13 percent increase over the 10 years which was significantly faster than the five Southeastern counties’ 10.3 percent.  Likewise, the U.S. service employment gain easily outpaced the statewide growth of 8.6 percent and was more than double Pittsburgh’s 6.1 percent.

U.S. manufacturing jobs were down 5.4 percent over the 10 years although significant gains in the last two years have helped hold the 10-year decline to the 5.4 percent drop after the sector started to lose jobs in the second half of 2016. The factory employment percentage decline was much smaller than Pennsylvania’s 12 percent, Pittsburgh’s 11.8 percent and dramatically lower than the five-county Philadelphia area’s 16.4 percent loss.

In short, the state and its two largest metropolitan regions have lost ground relative to the country over the 2008 to 2018 period despite weathering the recession of 2008-2010 better than the national economy largely because the housing crisis was not as bad in the state.  Philadelphia and Delaware counties performed about on par with the country in private jobs and service jobs but were hit much harder in the manufacturing sector.

Pennsylvania Jobs Growth in Perspective

Summary: By almost every measure, 2017 was a good year for the national economy as evidenced by a big rise in the stock market and a sizable gain in employment, especially in manufacturing.  In fact, across the country, private jobs increased by nearly 2 percent over the 2016 level.  But how did Pennsylvania’s economy fare, especially in comparison to other states?

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This Brief compares Pennsylvania’s jobs performance in key sectors of the economy to national gains as well as to the performance of neighboring states Ohio and Maryland and two right-to-work states—North Carolina and Texas.  All data are from the Bureau of Labor Statistics’ current employment statistics survey.

Nationally private jobs total rose 1.8 percent from 2016 to 2017.  Pennsylvania’s 1.2 percent increase was well below the national gain and slower than Texas and North Carolina (1.9 percent each).  It did however, best neighboring Ohio (0.8 percent) and Maryland (1.05 percent).

Moreover, during the five years from 2012 to 2017, the commonwealth’s private jobs growth has been quite weak compared to the nation and the other states.  Over the period, annual average private jobs in the country climbed by 10.7 percent. North Carolina posted a 12.5 percent gain while Texas’ private jobs jumped by 13.2 percent.  Maryland’s increase was 6.8 percent and Ohio’s job count was up 7.1 percent.  Pennsylvania’s rise of 5 percent trails the nation badly and is far less robust than the stronger performing states.

As has been noted in earlier Briefs, manufacturing jobs in Pennsylvania were on a downward trend for quite some time. However, in a bit of a turnaround, 2017’s monthly average manufacturing job count registered a near one-half of a percent increase over the 2016 level.  This was smaller than the national increase of 0.73 percent, but not by much.  All of the other states in this comparison group also had gains of less than one percent with Maryland leading the pack at 0.85 percent and Ohio at 0.25 percent was the slowest and the only state in this group with growth slower than Pennsylvania’s.

Over the last five years, national manufacturing jobs were up 4.3 percent thanks largely to a muted recovery from the plunge that occurred during the severe 2008-2010 recession.  Most of the growth occurred in the 2011 to 2015 rebound period. After stumbling in the second half of 2016 manufacturing employment regained significant momentum and moved up briskly in the last three quarters of 2017. Nonetheless, despite recent strong gains employment remains below its 2007 level.

Two of the states reviewed beat the five-year national gain (North Carolina, 6.2 percent and Ohio, 4.6 percent) while the others posted losses (Pennsylvania, -1.0 percent, Maryland, -4.3 percent and Texas, -2.2 percent).  Manufacturing, a goods-producing sector, is prized for its higher wages and multiplier effect it has on the economy. Pennsylvania has been struggling with manufacturing job losses going back to the collapse of the steel industry.

Meanwhile, several service sectors in Pennsylvania have fared better than manufacturing in terms of jobs. This Brief reviews the sectors of trade, transportation and utilities; education and health; professional and business services; and leisure and hospitality.

Trade, transportation and utilities employment includes wholesale trade, retail trade, transportation and warehousing along with utilities. From 2016 to 2017 the annual average jobs count in this sector nationally rose 0.9 percent.  Both Pennsylvania and Maryland registered small declines in this sector (-0.07 percent and -0.17 percent respectively).  The other states in the sample posted gains with North Carolina highest at 1.5 percent and Ohio lowest with jobs up by only 0.2 percent.

Over the five years 2012 to 2017, jobs in this sector rose 7.9 percent nationally.   Pennsylvania’s modest uptick of 2.6 percent was the lowest of the states in the five-state group. The fastest growth was recorded in Texas at 13.2 percent. North Carolina was close behind (11.2 percent) followed by Ohio (5.3 percent) and Maryland (3.6 percent).

Pennsylvania has done fairly well over the last five years in the education and health sector.  From 2012 through 2017, this sector posted a 7.8 percent rise in average annual jobs. Even with this gain however, the commonwealth failed to keep pace with the national growth of 11.6 percent.  It did slightly outpace Ohio (7.5 percent) but trailed North Carolina (9.1 percent), Texas (15.2 percent) and Maryland (10.2 percent).  Interestingly, health and education job growth from 2016 to 2017 was in a tight range of 2.2 percent to 2.7 percent for all states in the group except Ohio where the gain was a much slower 1.2 percent. The national pickup was 2.4 percent.

Much is made of the state’s strength in “eds and meds” but the reality is that over the long term it has lagged the national rate and other states that are also strong in growing this sector.

The professional and business services sector is another area in which Pennsylvania typically does well.  Over the last five years jobs in this sector climbed 9.2 percent in the state.  This was faster than neighboring Ohio (6.9 percent) and Maryland (8.1 percent) but lags well behind North Carolina (16.4 percent) and Texas (17.8 percent).  National growth over the last five years was 14.1 percent.  Thus while Pennsylvania posted respectable growth, it still lagged well behind the national increase and even further behind the faster growing states in the comparison group.

Looking at the 2017-over-2016 results, Pennsylvania grew 0.9 percent besting Maryland (0.7 percent) and Ohio (-0.4 percent).  The national gain was 2.1 percent (same for North Carolina) with Texas leading at 2.2 percent.

Leisure and hospitality concludes the sector employment comparisons. Overall, this sector has grown the fastest of all the major sectors. During the 2012 to 2017 period, national growth was 16.6 percent (an average compound growth of 3.1 percent per year). Five-year growth for the comparison group ranges from a high of 21.9 percent in Texas to a low of 8.1 percent in Pennsylvania. North Carolina’s 18.4 percent also exceeded the national gain while Ohio (11.8 percent) and Maryland (13.7 percent) trailed.

On a year-over-year basis, Ohio had the smallest rise (1.5 percent) with Pennsylvania slightly ahead of that pace (1.7 percent).  National growth in this sector was 2.5 percent with both North Carolina and Texas (2.7 percent apiece) exceeding that gain.  To be sure, this sector represents something of a mixed bag. While the increase in jobs is welcome, most are not high-paying jobs and are unlikely to have a spin-off effect on other sectors of the economy.

Pennsylvania’s comparative jobs record over the last five years leaves a lot to be desired.  The state was neither able to keep up with growth in total private jobs nationally nor in the economic sectors examined.  In the group of states reviewed, Maryland and Ohio along with typically higher growth states North Carolina and Texas, it had the lowest growth in total private jobs.  It also finished last in this group of states in job expansion for the trade, transportation and utilities and the leisure and hospitality sectors and next to last in the education and health sector.

The reasons for this relatively poor performance are not difficult to find.  As we have written in previous Policy Briefs, Pennsylvania has an overall poor business climate, high business taxes and a business stifling regulatory climate. Its fealty to unions is evident in the absence of a right-to-work law, high rates of unionization of public sector employees and allowing teachers and transit workers to strike.  If Pennsylvania wants stronger economic growth, it needs to remove the glaring constraints it places on free market economics and it needs to address its shortsighted governance practices.

State Jobs and Revenue Gains Very Weak in Recent Months

Summary:  The State’s fiscal situation is closely tied to its economic growth.  As the economy grows jobs, tax receipts from firms and individuals grow.  This Policy Brief looks at the recent dramatic slowing in job gains in the Commonwealth and the accompanying weakness in state tax revenue.

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The Pennsylvania economy has been plodding slowly along as evidenced by the weakening jobs numbers since March of this year.  Job growth is not only a measure of the economic wellbeing of the Commonwealth; it also affects the amount of tax revenue the State can expect to collect.  When job gains weaken, so will tax collections. For the first quarter of the current fiscal year (2016-17), Pennsylvania’s revenues have borne out this relationship as total general fund revenues, and many of the subcategories such as corporate net income, and personal income, are running behind the year earlier pace. And, more importantly they are coming in below the State’s official estimates for the current fiscal year.

 

Recently released labor data for September put the seasonally adjusted unemployment rate at 5.7 percent, up almost a percentage point from the March rate of 4.9 percent and a full point since January’s 4.6 percent rate. Over the same six month period, the household survey data show the number of people reporting they were working had fallen by 34,000.

 

The establishment survey payroll data show a similar pattern.  Over the last six months, nonfarm employment was essentially flat rising very slightly from March (5,894.6 thousand) to September (5,895.2 thousand).  Meanwhile, private sector jobs fell by 3,000 during that time. In contrast, in the preceding six months from September 2015 to March 2016, private employment rose by 51,000.  It is important to note that Pennsylvania’s private employment in September was only a tiny 2.8 percent higher than the pre-recession level of September 2007. It took seven years for employment to recover to pre-recession levels.

 

It is virtually axiomatic that a slowing in job gains will translate to weaker revenue growth for taxing bodies.  Indeed, in the first quarter of the State’s current fiscal year (July through September) total general fund revenues fell slightly compared to the same quarter of the previous fiscal year (-0.21 percent).  Of the three most important revenue streams (corporate net income, personal income, and sales and use taxes) only the sales and use tax amount is ahead of last year’s pace (0.19 percent).  The personal income tax, the largest of the three, is trailing last year’s collections by 2.4 percent while the corporate net income tax is down 7.6 percent.  The corporate tax is problematic because it is a tax on corporate profits and if profits are down, hiring new employees is less likely, and the firm may be in danger of having to do layoffs. Note that a sizable jump in the cigarette tax (owing to the dollar per pack tax hike) has kept the general fund revenue decline from being even greater.

 

Even more problematic for the Commonwealth is that actual revenue collections are significantly below estimated figures prepared for the budget. Through the first quarter of the current fiscal year total general fund revenues were $6.614 billion.  The State’s estimate was for collections of $6.833 billion resulting in a $219 million shortfall relative to forecast.  Corporate net income taxes are off by more than $67 million ($529.2 million actual vs. $596.9 million estimated).  The estimates were a little closer for the personal income tax with $2.731 billion actual vs. $2.786 billion estimated, and for the sales and use tax, revenue was overestimated by $72.4 million ($2.495 billion actual vs. $2.567 billion estimated).  Obviously, unless the first quarter performance is dramatically improved in the months ahead there will be a major budget problem early in 2017.

 

The cigarette tax had the largest revenue increase compared to the first quarter of the previous fiscal year owing to the $1 per pack boost from $1.60 to $2.60.  For the first quarter of the current fiscal year, the State has collected $279.7 million, up by $32 million from a year earlier. However, the collections are below the State’s estimate of $289.4 million, a shortfall of about $10 million.

 

The July to September quarter slowing compared to a year ago is not a recent problem either.  Looking at these revenues over the last six months shows a similar pattern.  Total general fund revenues for April 2016 through September 2016 are $15.28 billion. Last year during that six month span they were $15.51 billion. In our Policy Brief from early July (Volume 16, Number 29) we noted that “The slowdown has been underway for some time but has become pronounced in the last several months. Fiscal Year to date total revenue gains for each month of 2016 have fallen well short of the increases posted for January through May in 2015. For January to May 2016, the average Fiscal Year to date rise was 1.4 percent with the May cumulative fiscal year to date a meager 0.6 percent. For the same period in 2015, the average increase was 7 percent and for May of 2015 it was 7.3 percent.”

 

The caution lights are flashing.  Pennsylvania’s job growth is flagging and that is translating into weaker collections of tax revenues. This has the potential to become a sizable problem as the fiscal year progresses if the economy and jobs do not return to significantly faster growth—and soon. In light of the decade of anemic employment gains, it would seem apparent that Pennsylvania must adopt policies that promote strong economic growth and move away from its tradition of fealty to public sector unions and its regulatory environment that hamstring businesses.

Pennsylvania’s Jobs Data Reports: Caution Advised

A few weeks ago the Department of Labor and Industry released July employment data for the state. According to the report, Pennsylvania had added 66,500 non-farm jobs between July 2014 and July 2015—a fairly good showing of just over one percent growth.  On September 1st, the Department released jobs data for the state’s 18 metro areas that are made up of 35 counties, 16 micropolitan areas (16 counties) and the 16 other counties not included in the metro or micro categories.

 

Non-farm job growth over the twelve months from July 2014 to July 2015 was very robust in several metro areas including Pittsburgh (2.5 percent), Harrisburg-Carlisle (2.9 percent), Scranton-Wilkes Barre (3.6 percent), Lancaster (2.1 percent), and Reading (1.6 percent).  Most other metro areas registered twelve month gains generally in the one percent range with Johnstown, Williamsport, and Lebanon posting small declines.

 

Interestingly, the 18 metro areas posted a total twelve month increase of 92,800 non-farm jobs. That is 26,300, or 40 percent, more than the state’s reported total gain. Does that mean the other 32 counties not in the 18 metro areas suffered declines sufficient enough to make up the 26,300 higher number than the state total?  As it turns out, the answer is no.  In fact, the other 32 counties posted a twelve month combined rise of 7,700 jobs. That brings the total for all counties and metro areas to 100,500, 51 percent above the reported state total—far too large to be discounted as an anomaly. While the jobs data from the micropolitan areas and sixteen other counties are not seasonally adjusted, that should not affect the analysis since we are comparing July to July.

 

Is the state non-farm job increase too low, or is the combined labor market total too high—or is it some combination of both?  Either way the size of the gap indicates some serious issues with job counting estimates.

 

What are possible explanations for the gap?  It could be a number of things but likely it is in sampling design and collection issues and assumptions made about the arithmetical adjustments.  For instance, we know from previous recent experience that large twelve month jumps such as the ones reported for Pittsburgh and Scranton-Wilkes Barre often get revised downward to show much smaller gains.

 

Consider the growth by industry category in the metro areas posting the largest twelve month increase in non-farm jobs. The large 3.6 percent jump in jobs in Scranton-Wilkes Barre was led by an eight percent surge in Health and Education sector employment over the July 2014 to July 2015 period.  Possible, but realistically this is not an accurate measurement. Then too, Professional and Business services employment spiked by ten percent.  It could happen but there should be some plausible explanation of gains of that magnitude.  Finally, Retail employment was up seven percent during the twelve months.  It is a virtual certainty that gain will be revised downward.

 

In Pittsburgh, where non-farm jobs climbed a very robust 2.5 percent over the twelve months ending in July of this year, Leisure and Hospitality employment surged by eight percent, led by limited seating eating places which jumped ten percent. This sector has been notorious in recent years for posting out-sized gains in initial reporting that have to be revised downward. The Professional and Technical services sector reported a six percent increase.  Again possible, but we simply do not know from the available data which industry subsectors account for the gains, thus confirmation of the growth will not come until after the revisions are completed next spring.

 

Finally, it is noteworthy that the Harrisburg-Carlisle metro area, with its 2.9 percent rise in non-farm jobs, was led by a stunning 20 percent jump in Education services employment and a seven percent pickup in eating and drinking establishment jobs.  Neither of these are credible numbers and downward revisions are a virtual certainty. Gains across many sectors in the two percent or better range were also in play.

 

This excursion into the details of the job gains in these three metro areas is done to point out the volatility in small area sampling where variety in sizes of firms by industry is less than in the state as a whole. Errors are bound to work their way into the final estimates where “blow up factors” are used to go from sample levels to aggregate industry levels. And of course the data are self-reported by the employers so that small errors in their reports can lead to mistaken estimates for the industry.

 

By way of contrast, the statewide growth in the sectors showing outsized gains in these three metro areas is far more subdued. For example, Professional and Business services statewide posted a moderate 1.1 percent rise—well below the numbers posted in Scranton-Wilkes Barre and Pittsburgh; food and drinking services was up three percent but well below the Harrisburg gain of 7.8 percent.  Likewise, the state’s 1.9 percent increase in Leisure and Hospitality employment was far behind Pittsburgh’s reported rise of eight percent. Nor was the statewide growth of 1.4 percent in Health and Education jobs in the same ballpark with Scranton-Wilkes Barre’s eight percent or Harrisburg’s 20 percent.

 

These few examples illustrate an important cause of the big difference in state non-farm job growth and the metro area gains over the twelve months between July 2014 and July 2015. The temptation is to blame inaccurate estimates of local jobs. Normally, the bigger state sample will produce a more accurate picture than the smaller metro and county samples.  In that case, it is reasonable to expect major downward revisions in some metro and micropolitan employment growth when the new figures are released early next year. But that having been said, one wonders if there is not a systematic bias toward over-estimating metro area employment.

 

In any event, all this points out, once again, the need to treat the initial releases of monthly jobs data with some skepticism. Indeed, sometimes more than one year of rebenchmarking of data is necessary before the Department of Labor settles on what it believes to be accurate employment figures.