Tag Archives: Pittsburgh economy

Estimates of employment impacts of coronavirus in the Pittsburgh MSA

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Summary: The economic deterioration resulting from the coronavirus plague worsens daily in the U.S., in Europe and here in Pennsylvania and the Pittsburgh metro area (MSA).  Based on data through the end of March, a rough estimate of the unemployment levels for the region can be calculated.

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The calculation looks first at the household data for the number of people newly out of work as measured by unemployment claims.   Since March 15, Pennsylvania has recorded 844,000 new unemployment claims. That represents roughly 13.6 percent of the number of Pennsylvanians working as of February.  Assuming that percentage also applies to the Pittsburgh MSA (which is reasonable in light of the governor’s mandated statewide business closing orders) there would have been 155,600 unemployment claims in the MSA. The unemployment rate which stood at 5.2 percent in February—the latest official number—could be close to 18 percent as of the end of March and will almost certainly worsen further in April.

No doubt the claims will continue to rise in the weeks ahead, perhaps more slowly since the mandated closings have already had their heaviest impact.  However, the situation will continue to worsen as the effect of rapidly rising unemployment in many sectors not under the governor’s mandate begins to push unemployment claims upward. Travel-related sectors such as hotels, airlines, taxicab services, etc., will almost certainly be much worse off in the days ahead.

A rough estimate of the job losses by business sector can be made by focusing on the businesses ordered closed by the governor and the ones allowed to remain open. The Bureau of Labor Statistics provides MSA data for the broad industry sectors, including retail, leisure and hospitality, goods producers, transportation, wholesale, education and health, finance and professional services.

However, within the broad sectors there are many subcomponents for which there are no data.  In several cases involving retail components some are under mandated closure orders and some are not. By applying the retail subcomponents’ percentages of national retail to Pittsburgh MSA total retail jobs, a reasonable approximation of the area’s employment in the subgroupings can be obtained.  For example, nationally, pharmacies make up 4.5 percent of all retail jobs and grocery stores account for 17.5 percent.

Using the national percentages means that in the Pittsburgh MSA for businesses still open, there are close to 6,000 jobs in pharmacies, 21,000 in grocery stores, 7,000 in gas stations (including attached convenience stores) and 14,500 in super centers. And there are others such as building supply, pet supply stores, auto parts and non-store businesses, including electronic (internet, etc.) ordering services that could add another 10,000-12,000 to those allowed to remain at work.

All told, employment in retail likely stands at about 59,000 jobs while approximately 57,000 are out of work, including motor vehicle dealers; clothing stores; appliance and electronics; sporting goods and hobby; furniture and other “non-essential stores”.

Note that some grocery stores and supercenters have added jobs but that number is not available. To the extent that is occurring, the 57,000 out of work figure would be a little lower.

The other very hard-hit sectors are in the leisure and hospitality group. In February this group had 118,000 jobs.  Of that number, eating and drinking establishments employed 88,500; accommodations (hotels, motels, and others) had just under 10,000 employees, and the arts, recreation and entertainment group had roughly 20,000.

Eating and drinking establishments were ordered closed but many restaurants are offering take out. It is reasonable to assume that no more than 40 percent of these employees are required (note about 35 percent of eating places’ employees work at fast food restaurants that are less affected by the closing order) that would mean about 52,000 food and drink workers are not working. Meanwhile, hotels have been hard hit by the enormous drop in travel. One can assume that with the occupancy rate at 23 percent nationally for the week of March 22-28 (Pacific Business News, April 3, 2020) that the rate in the Pittsburgh MSA would be fairly close to that figure. In that case, there would most likely be some serious layoffs of personnel, perhaps as many as half so far. That would mean 5,000 fewer jobs.

Finally, the arts, entertainment and recreation component of 20,000 jobs has also taken a major hit owing to mandated closings. Assuming that 20 percent or so of these employees are office workers and can work from home, this component would add another 16,000 to the unemployed roll.

In total, leisure and hospitality would have around 73,000 workers off the job.  And with 57,000 off the job in retail there are an estimated 130,000 fewer jobs in the region owing to the coronavirus in just these two industry groups. And the number of people not working are being added to daily by local and state government employees being sent home. Some may be working from home and some will be on layoff status.

Moreover, other sectors are being affected by the economic slowdown including airports, local trucking, and wholesalers.  However, there is no direct or reliable indirect way as-of-yet to estimate the number of layoffs. 

Education and health, a very large sector of 260,000 employees, has likely not yet been significantly affected.  Education, including public education, continues by remote instruction at least until the spring semester is over.  Health and public assistance might well be adding help. There is no news on that.

Mining and logging and most of the construction sector were locked down on March 20th but extraction industries are now open again.  Construction employment in the MSA stood at 69,000 in February.  Some manufacturing (mostly durable goods except for primary metals) is closed by edict amounting to roughly 50,000 employees, as are many business services and legal services.  However, since many of these business services jobs can be carried out from home, the numbers actually out of work cannot be reliably estimated although the total affected by the mandatory closing order is at least 150,000.

At some point employers might decide to lay off business service employees as opposed to letting them work from home because of reduced demand for their services and falling revenue as the economy slows dramatically. In that case unemployment claims will swell further and the unemployment rate in the April report will rise to a catastrophic level.

The obvious question has become crucially important. When is the cure worse than the disease? There should be much more effort to find ways people can work safely at their regular workplace. Otherwise the downturn becomes a self- sustaining downward spiral as incomes dry up and demand plunges.  While the massive federal spending plan will soften somewhat the effects of the jobs lost because of the mandated closings by replacing some of the lost wages and business revenue, it will not replace the massive loss of output that is occurring.  The economic damage is real and enormous.

Short and Long Term Looks at the Pittsburgh Region’s Economy

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Summary: Pittsburgh’s seven county metro area’s (MSA) economy has little to boast about for the period since 2000 in terms of job and income gains. There have been some notable bright spots, including Marcellus shale, but overall the picture is one of very slow growth.  And while the latest August figures for payroll employment show some strengthening compared to 2016, the strongest pickup was in leisure and hospitality, a sector that has seen initially reported gains subsequently revised downward significantly. There was also some bounce back in hourly and weekly earnings following a big and unexpected drop in 2016. But as will be seen these latest modestly better numbers cannot mask the longer term trend of very sluggish job and income gains in the region.

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The Bureau of Labor Statistics compiles data on two measures of employment. One is based on a monthly survey of households that ascertains information that is used to estimate the number of people in a market area who say they are working or, if not working, if they are looking for a job.  The second is an estimate of the number of employees on payrolls obtained through a survey of businesses in a market area.  Thus, the two measures of employment do not necessarily line up exactly because workers can commute to a market where they do not reside and workers can have more than one job and can therefore be counted more than once in the payroll total. For example, many workers from gas producing states came to work on Marcellus drilling rigs.

The longer term picture

Compared to August 2000 when the MSA labor force stood at 1,207,707 the August 2017 count was at 1,204,546. There was a modest rise in labor force of 31,000 recorded from 2000 through 2012 but that has been completely reversed over the last five years. Meanwhile, the number of area residents employed posted a net decline of 12,290 from 1,154,192 in 2000 to 1,141,899 in 2017.  There was an increase of 14,500 employed residents from 2000 to 2007, but like the labor force pattern, that growth has been completely reversed. In sum, the Pittsburgh MSA has gone 17 years with no net growth in the number of residents working.

Meanwhile, private-sector establishment payroll jobs pushed marginally higher over the 17 years rising from 1,026,800 in August 2000 to 1,062,800 in August 2017. The 36,000 increase represents a 3.5 percent gain—or a compound annual growth rate of a mere 0.2 percent. This anemic rate represents a significant slowing from the 1990 to 2000 decade when jobs grew by one percent per year and boosted private-sector payrolls by 101,000 jobs.

And unfortunately, if history is any guide, the 2017 figure is likely to be revised downward because half of the 11,000 gain in private jobs over the last year has been in the leisure and hospitality sector that has regularly seen big revisions in years past.

In terms of major industry shifts over the last 17 years, goods producing jobs, mostly in manufacturing, are down by 48,000 since 2000 while service producing employment is up 84,000 jobs.

Meanwhile, by comparison U.S. private job growth was 11.5 percent over the 2000 to 2017 period which, like the slowing trend experienced in the MSA, was well below the 21.9 percent rise from 1990 to 2000.

During the 15 years 2000 to 2015, the latest MSA income data available, personal income (adjusted for inflation) growth was also relatively weak at 1.2 percent per year, about half the national real income increase of 2.1 percent per year. Bear in mind that both nationally and regionally, the recession of 2008-2010 produced extended periods in which real incomes remained lower than the 2008 prerecession high points.  The national economy was extremely hard hit by the recession with several states taking six or seven years to recover fully. Overall, the US economy took almost three years to climb back to the income peak of May 2008, reaching it in March 2011.  Pittsburgh MSA income data are not available monthly so a comparative time frame is not possible. But data show that real incomes fell from the 2008 level and remained below that level in 2009 and 2010.

Recent jobs performance

To look at a more recent performance—August 2015 to August 2017—payroll employment and real weekly earnings of private-sector employees are reviewed.

Over the two year period, the private-sector job count rose 10,600 to stand at 1.0628 million, a mere one percent pick up in two years.  The long slide in goods-producing jobs was still in evidence the past two years as employment fell by 9,300 to stand at 149,500 in August 2017.  Private service jobs, meanwhile, rose by 20,000 to reach 913,300 and offset the ongoing goods producing slide.

Of the 20,000 increase in service employment, 7,500 were in leisure and hospitality payroll gains—a sector that makes up about one eighth of service jobs and one tenth of all private sector employment.  Food services and drinking places climbed 5,800 representing the bulk of the overall sector rise.

The 7,500 jump in leisure and hospitality is a gain of 6.1 percent. However, there are two problems with the latest jobs number. First, it is likely to be revised downward. And second, jobs in the sector are low wage with very low weekly earnings because of the average 25-hour work week. Thus, these jobs are weak contributors to income and output compared to manufacturing or professional service employment.

Health care and social assistance jobs climbed from 189,400 in 2015 to 195,200 in 2017, an increase of 5,800.  Social assistance employment notched higher from 32,000 to 35,200 or 3,200 jobs (a 10 percent gain) meaning this category that represents only one sixth of the sector total accounted for well over half of the sector job gain.  Health care accounted for only 2,600 new jobs.

Somewhat surprisingly, nursing home jobs decreased slightly. Modest increases in employment in doctors’ offices, hospitals and ambulatory services combined to produce the rest of the health care growth.

Substantial growth was registered in the professional and business services sector which saw a 4,900 gain in employment, a 2.7 percent rise over the two years. This sector is among the highest paid service jobs and is therefore a principal contributor to earnings growth in the MSA. The financial services category (1,700 jobs) and colleges and universities (1,400) were the only other service sectors to post meaningful gains. Employment in all the other major service categories including retail, wholesale, transportation and utilities, and information was flat to slightly lower.

Earnings changes

Finally, a review of the growth in hourly and weekly earnings since 2007 (the earliest MSA data available) and since 2015. The Labor Department provides data for all private workers including data for average hours worked per week, average hourly earnings and average weekly earnings. Hourly earnings and weekly earnings were adjusted for inflation using the national Consumer Price Index.

Average hours worked per week in the MSA have been on a slowly declining trend since 2007, falling from 34.5 to 33.7 hours in 2017, a drop of 2.3 percent. Average hourly earnings rose from $19.86 in 2007 to $25.10 in 2017 (2.4 percent per year) resulting in an increase in average weekly earnings from $685.17 to $845.57, a gain of 23.4 percent (2.1 percent per year). However after adjusting for price increases, weekly earnings were up a mere 4.5 percent over the ten years, an annual growth rate of just 0.44 percent.

Over the past two years, August 2015 to August 2017, weekly earnings are up 2.7 percent or 1.35 percent per year. With prices higher by 3.0 percent, that means MSA real weekly private sector earnings are basically flat since 2015.

These very slow income growth rates for the two periods reflect in large measure the ongoing shift away from goods producing jobs to lower paying service sector employment, especially in the categories of leisure and hospitality and social assistance.

Summing up: Notwithstanding a few positive developments including Marcellus shale, the seven county Pittsburgh MSA has seen a 17-year period since 2000 in which there has been no net growth in the labor force or number of residents working.  Payroll employment managed to register a paltry 3.5 percent increase over the 2000 to 2017 period, less than a third of  U.S. gains.

Meanwhile, real personal income for all residents from all sources including dividends, rent, interest and transfer payments edged upward at a 1.2 percent annual rate between 2000 and 2015, half the U.S. rate. And since 2007, average weekly earnings for private-sector employees rose a skimpy 0.4 percent rate since 2007.

No Boom, No Bust, No Surprise

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"It’s not Pittsburgh’s way to boom or bust"

"Pittsburgh has avoided many of the housing-related problems that plague the larger economy because home values here did not boom or bust during the mortgage bubble"

"Pittsburgh’s many years of ‘slow and steady’ job growth…insulated us from economic cataclysm and a boom-bust housing market cycle"

"Its housing market, which famously went boom-bust elsewhere, has been a portrait of stability"

"The Pittsburgh area did not see a building boom over recent years like that seen in other areas across the country — and it’s also not seeing a strong decline in recent months in new construction"

"Steady, manageable growth is better than a boom waiting for the bust. One need only look at the plummeting housing market in Las Vegas — the fastest growing metro region over the past five years — to understand that"

"The good news about Pittsburgh missing the nation’s recent housing boom is that, so far, it’s missing the bust, too"

The above quotes provide a sampling of opinion from November 2007 to mid-2010 and are predicated on the theme that Pittsburgh weathered recessionary times quite well because it never had the rapid growth experienced by other regions. In sum, Pittsburgh never boomed, so it never busted.

That’s great news when things go south, but not so much when there are signs of growth.

A new study from the Brookings Institution that points out Pittsburgh is lagging behind world economies and stands at 129th in a survey of 150 regions in what the report identifies as the recovery period when measured by gross value added, employment, and population. That’s one place lower than where it stood pre-recession but lower than where it was in the recession (41st out of 150). Given the nearly three years of consensus opinion the ranking, if accurate, should not come as a shock.

One of the study’s authors noted "standing still was a good place to be. Standing still now is not something a city should be doing."

But is the region poised for growth? What was a bad economic and labor climate prior to the recession has been made worse by the City passing new mandates for prevailing and living wages, the resistance to explore privatization and outsourcing as a way to lower the cost of government and the taxes and fees charged to businesses, and the fealty to public sector unions has not waned. Not positive signs that the region will make strides.

And the danger is this: if the region thinks it will always be in the middle of the pack with slow and steady growth then the resistance to bad public policy becomes even lower than it already is. What does that do for the relative standing of the region in comparison with other areas?