Revisions Wipe Out 2015 Pittsburgh Area Job Gains

Every month the Pennsylvania Department of Labor and Industry and the U.S. Bureau of Labor Statistics release details about the previous month’s employment totals for the Pittsburgh metropolitan statistical area (MSA).  These releases elicit responses from analysts who try to make sense of the numbers one way or another.

 

But what hardly ever gets mentioned in the media is that these figures will be revised at least twice as the original release represents preliminary estimates which will be adjusted in the subsequent month.  And then every March the entire previous year, and sometimes two preceding years, are re-benchmarked resulting in dramatic changes.  Yet the media only focuses on the preliminary releases which are oftentimes very misleading, especially for policy makers trying to assess the state of the economy.

 

And now, right on schedule, numbers for 2015 have been re-benchmarked and the final tally is quite different from those preliminary figures.

 

The count of total nonfarm jobs for 2015 reported on the original releases (1,177,483) placed the average yearly increase compared to 2014 (1,161,125) at 16,350—a rise of 1.4 percent.  The monthly increases compared to the twelve month earlier figures ranged from 4,800 (March) to 32,800 (July).  February (9,200) and March were the only months to post year-over-year increases of less than 10,000 total nonfarm jobs.  On the surface, it was a respectable year for job growth. But that was before the re-benchmark.

 

March 2016 revisions lowered the number of nonfarm jobs in 2015 (1,161,177), compared to 2014 (1,159,575), to an annual average gain to just over 2,140 jobs—an uptick of only 0.18 percent.  The after-revision gains range from a low of negative 1,500 (December) to a high of 5,400 (January).  There were three months with year-over-year decreases—December, November (-1,000), and June (-400). Thus the re-benchmarking wiped out nearly 14,000 of the presumed job growth in 2015 turning the year from respectable to anemic.  Again long after the media reported the rosier picture painted by the preliminary releases.

 

The re-benchmarking also affected the number of total private jobs.  The yearly average difference, based on the original press release data, came in at 16,925 jobs—a growth rate of 1.62 percent over the 2014 reading.  The range spanned a low of 6,000 (March) to a high of 33,500 (July).  Only March had an increase of less than 10,000 jobs.  After re-benchmarking the data, that average has fallen to just over 3,280—increasing only 0.32 percent over the 2014 figures. The range now covers a low of 100 (December) to a high of 7,300 (January).

 

Revisions by industry groups were once again mixed, with a few having their job counts being revised upward, but most with downward adjustments.  As reported by the original releases the goods producing groups—mining and logging, construction, manufacturing—had an average annual increase of 2,208 jobs compared to 2014—a rise of 1.42 percent.  Unfortunately, the re-benchmarked data shows an average monthly decrease of 1,200 jobs. This swing of over 3,400 jobs shows the degree of volatility there is between the originally released data and the final re-benchmarked data.

 

Of the three industry groups in the goods producing sector, mining and logging went from having average monthly year-over-year gains of 1,158, to having average monthly year-over-year losses of 525.  This may be in large part due to the sharp drop in the price of natural gas which has hampered development and drilling in the Marcellus Shale formation.

 

The construction industry and the manufacturing industry also had reductions to their jobs counts, but not nearly as wide a swing as in the mining and logging sector.  Based on the original releases, the average monthly 2015-over-2014 difference for construction was 1,325.  However, after re-benchmarking the data for 2015 and 2014, this industry’s average annual growth was reduced by more than 930 jobs on a year-over-year basis in 2015 to 392.  The manufacturing sector, based on the original press releases, had shown average monthly year-over-year losses of 275 jobs.  The re-benchmarked data not only confirmed these losses, but expanded them to 1,075 jobs.

 

For the service providing industries, nearly all sectors showed reductions to their average monthly year-over-year jobs totals.  Overall the service providing industries had shown an increase to the number of average monthly year-over-year jobs of 14,150.  With the re-benchmarking of the data, those gains fell sharply to 3,350.  The growth rate fell from 1.4 percent to 0.33 percent.  We will look at some of those sectors below.

 

The one sector that had increases to its average monthly year-over-year jobs totals is the professional and business services sector.  Based on the original press releases, the average monthly year-over-year gains to employment for 2015 compared to 2014, was 583.  After the March 2016 re-benchmarking, that number increased to 2,950.  This was aided by an increase to the re-benchmarked data for both the 2015 and 2014 data, with the average monthly increase to 2015 jumping by 3,250 and for 2014 by more than 880 jobs.

 

On the other end of the spectrum is the education and health services industry group.  Based on the original press release data from 2015, this industry group had a monthly year-over-year average increase of 4,658 jobs.  However with the March 2016 re-benchmarked data that difference became a decrease of over 830 jobs.  Thus a nearly two percent increase in education and health jobs became a loss of 0.35 percent with the re-benchmarking of the data.

 

The two main sectors in the industry group, education services and health care and social services, both took sharp losses with the revised data.  The education services sector had an average monthly boost of 650 based on the original 2015 press releases to having a monthly average drop of 725 –a swing of 1,375 jobs for 2015 compared to 2014. The health care and social assistance sector took an even bigger hit.  Based on the original press release data, this sector had an average monthly year-over-year rise of 4,008.  However, after the re-benchmarked data, that monthly year-over-year average is now a negative 108—a swing of more than 4,100 jobs.

 

For most of 2015 the leisure and hospitality sector accounted for a large share of the job growth in the area.  We warned numerous times that the growth being reported was untenable and the re-benchmarking would likely wipe out most of that growth.  We were correct.  The average monthly jobs in leisure and hospitality in 2015, based on the original press releases, came in at 120,675.  This was revised downward to 116,333 in the re-benchmarking.  The data for 2014 was also re-benchmarked slightly, dropping from 114,633 to 114,325.  Thus, the original difference dropped from 6,042 to 2,008—a fall of over 4,000 jobs.  While this is still respectable growth, these are typically lower paying jobs and not in the area where you would want to see the strongest growth.

 

The re-benchmarking of the 2015 data has wiped out most of the originally reported job gains from the press releases—total nonfarm and total private jobs grew by only 0.22 and 0.32 percent respectively.  What could be the reason for such anemic growth?

 

Two reasons come to mind.  As we wrote in a previous Policy Brief (Volume 15, Number 28), the Kauffman Foundation’s Index of Startup Activity ranked the Pittsburgh area second to last in startup density, rate of new entrepreneurs, and opportunity share of new entrepreneurs, placing the region last overall amongst the forty largest metro areas in the country.  Furthermore, the Pittsburgh area, and Pennsylvania overall, has fared poorly on business friendly indicators for decades.  This does not bode well for job growth and that is manifesting itself in the actual data.

 

Secondly the latest Census data shows that the Pittsburgh region has lost population since the last official census in 2010.  Is the contraction of the area’s population driving the weak job gains or is it the other way round. Is it more appropriate to say that the weakness in job growth is more responsible for the outflow of migrants from 2014-15?  After all, people are typically drawn to an area for economic opportunities more than for any other reason, including environmental amenities.  Maybe policy makers should address the factors inhibiting business startups and business expansion.  Marcellus Shale activity must not be depended upon exclusively to pull the region forward.

What Happened to Pittsburgh Area Jobs Strength?

The Department of Labor and Industry recently released preliminary employment data for February. Unfortunately, the latest numbers for the Pittsburgh metro area are not very good, especially coming on the heels of last month’s release of revised 2013 employment counts that basically wiped out all the gains initially reported for the year. Further, based on the updated data set, February’s numbers showed both total nonfarm and total private employment falling from their year earlier readings for the third consecutive month.

 

To be sure, many will cheer the ongoing decline in the unemployment rate that slipped from a seasonally adjusted 6.3 percent in December 2013 to 6.0 percent in January and was down again to 5.8 percent in February.  That’s the apparent good news. Sadly however, the principal reason for the rate decline reflects the slide in the labor force rather than it does people finding jobs.   Note that the number unemployed in February fell by 22,900 from February 2013’s count.  At the same time, the number claiming to be employed increased only 4,000—an almost negligible and perhaps not even statistically significant amount considering there are more than 1.17 million people employed in the area. Meanwhile, the number in the labor force plummeted by 18,900.  Thus, more than 80 percent of the reduction in the number unemployed is due to shrinkage of the labor force.  Not a ringing endorsement of the area’s labor market strength.

 

This weakness is corroborated by the employer survey.  The preliminary count of total nonfarm jobs in February dipped 5,000 below the year earlier posting. Private employment was short of last year’s total by 2,900 jobs. This continues the trend begun in December’s report, wherein the revised data showed a 2,900 drop in the year-over-year nonfarm jobs and private jobs down by 1,500. January’s final numbers likewise revealed a year-over-year loss of 3,900 nonfarm jobs and 3,300 private jobs.

 

Job losses were widespread throughout both the goods producing and service providing super sectors.  In the goods producing super sector the only area of growth is in mining and logging, posting year-over-year gains of a couple hundred jobs for the last three months.  In fact that component has not 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.  Although spin off jobs in other related sectors as a result of drilling activity are almost certainly contributing significantly to the area’s jobs total. Or said another way, absent the Marcellus activity, the jobs picture would be even weaker.

 

Finally, it is worth nothing that both the construction and manufacturing sectors have been sliding over the last three months with manufacturing’s streak stretching back to August 2013.

 

Perhaps the biggest surprise of all has been the sudden falloff in the growth of jobs in the education and health sector.  Long a strong contributor to employment growth in the Pittsburgh region, the preliminary February data show no growth from the year earlier count. This sector saw its year-over-year job numbers decline for the entirety of 2013 and into January 2014.

 

For the first two months of 2014 the sector displaying the most robust job gains has been leisure and hospitality with year-over-year increases of more than 1,000 in each month.  This growth pattern extends back through all of 2013 as well.  Oddly enough the largest subsector, accommodation and food services, has recently not been a source of growth as they were for quite some time.  The latest data reveals a distinct weakening as it posted year to year job losses.

 

What is truly shocking is that since accommodation and food services accounts for 80 percent of leisure and hospitality jobs, all the gains in leisure and hospitality come from the group that makes up the other 20 percent. The growth in arts, recreation and entertainment is so strong that it not only offsets losses in the accommodation and food services component it lifts the leisure and hospitality sector jobs total. Unfortunately, breakdowns by subcomponent are not available to reveal where the exceedingly robust gains are coming.  And that always creates a problem in trying to understand what is driving regional employment.  That is to say, if one does not know which subcomponents are growing rapidly it is extremely difficult to say whether that trend is likely to continue or whether it is a short lived phenomenon.

 

To sum up, the February jobs report for the Pittsburgh area must be viewed as a disappointment.  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 lack of economic vigor in the national and state economies. It might be that a much more lively national economy will be necessary to renew the much better trend in employment the region enjoyed a couple of years ago. In the meantime, regional political leaders should do all they can to make the area more business friendly through lower tax rates and a less obstructive regulatory environment.

 

The state can help as well by dealing with the problems that cause spending to be higher than it ought to be and tax burdens higher than they ought to be. Recently published results from the Tax Foundation show the Commonwealth ranking very low on indicators of business tax burdens such as corporate taxes and property taxes. There is plenty of room for improvement at both the state and regional level.  Now is the time to get moving with initiatives aimed at boosting the business climate and a free market driven economy. Top down, crony capitalism is not going to produce the lasting, long term strength the area and state need.