Halting and uneven jobs recovery in the Pittsburgh region

Summary: May payroll jobs numbers for the Pittsburgh Metropolitan Statistical Area (MSA) have been reported by the state. As expected, the May data continue to show the economic devastation from the lockdown ordered by the governor in response to the coronavirus. Despite a loosening of restrictions in May with all counties in the metro area being moved into the governor’s yellow phase by mid-month, ongoing dramatic job declines from pre-virus levels continued.

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In the yellow phase, the stay-at-home restriction was eliminated while some in-person retail resumed (though curbside pickup was recommended). Note that several retail categories including grocery, pharmacy, gasoline stations and other so-called essential items were allowed to remain open. Several big box chains remained open throughout the lockdown, mitigating the hit to retail jobs. Other types of businesses were given permission to resume with the requirement of following building safety orders (though telecommuting was still encouraged).  Indoor recreation, health and wellness facilities, education facilities, hair salons and all entertainment remained closed.  Restaurants and bars were limited to carryout.   

An April Policy Brief (Vol. 20, No. 18) demonstrated the severity of the lockdown’s red phase wherein only a select number of firms were allowed to open. The methodology of that Brief is also used in this analysis. As noted in that Brief, seasonally adjusted data are not available for many of the subsectors of major interest so the year-over-year differences in the unadjusted values will constitute a reasonable estimate of the virus’ lockdown impact.  Thus, the May 2020 job counts compared to May 2019 will serve as a good measure of the impact of the virus closings. 

May 2020 nonfarm jobs in the MSA dropped by 175,800 or 15 percent from May 2019.  This represents some improvement compared to the April number which saw a year-over-year loss of 214,000 (18 percent).  The smaller loss in May reflects the gradual reopening of some segments of the economy and some pickup in sectors that were not in full lockdown. Nonetheless, employment is still suffering a huge decline and the most recent data point to a long road ahead to a full recovery for many sectors of the economy.  

Bear in mind that nonfarm jobs include government employment. Unfortunately, the private sector has borne the brunt of the job reductions. From May 2019 to May 2020 MSA government employment fell by only 5,000 from 116,000 to 111,000, with local governments accounting for all the decline. Federal and state employment was not cut.

Earlier Briefs have argued that the MSA’s jobs performance has been restrained by bad public policies such as onerous regulations and high taxes along with a generally unfriendly business climate.  Prior to the virus lockdown, nonfarm jobs year-over-year grew 0.5 and 0.6 percent in January and February.  Going back even farther, the year-over-year growth for each month in 2019 (vs. 2018 levels) ranged from 0.6 percent (November) to 1 percent (January). 

Compared to national job growth, the Pittsburgh MSA’s performance has been lackluster. Nationally, during the 2020 pre-virus period of January and February, total nonfarm jobs climbed 1.5 and 1.6 percent, respectively, above year-earlier levels. In 2019, national monthly jobs gains ranged from 1.2 percent to 1.7 percent.  After the virus impact arrived, nonfarm jobs nationally fell 11.7 percent in April and 8.7 in May, much smaller declines than in the Pittsburgh MSA.  

Goods-producing sectors

Goods-producing sectors, mining and logging, construction and manufacturing, accounted for 146,800 of the 1,024,500 MSA nonfarm jobs (14 percent) in May.  Employment in those three sectors combined fell 17,700 from a year earlier, an 11 percent decline and represented 10 percent of the MSA’s total nonfarm job losses (175,800).  Manufacturing, which had been on the upswing over the last couple of years (2.5 percent growth from 2017 to 2019), lost the most jobs (9,400 or 10.7 percent) while mining and logging suffered the largest percentage drop (21 percent or 2,600 jobs).  Construction jobs were down 5,700 from May 2019 (8.8 percent).  This sector rebounded substantially from April’s job count when the employment loss was 40 percent lower than the year-ago level.  In the yellow phase construction projects were given permission to resume.  

Service-producing sectors

Service-producing sector jobs have been hardest hit, accounting for 90 percent of MSA nonfarm job losses. In a sign of some improvement in job markets, the May 2020 decline of 158,100 jobs from the May 2019 reading was significantly smaller than the year-over-year loss in April (201,500) and evidence that jobs were being added as the lockdown loosened up slightly in the yellow phase.  

Leisure and hospitality suffered the biggest employment decline. The sector lost 58,700 jobs in May compared to May 2019 but that was a slight improvement from April’s 66,000 drop. Activity at some of the affected component categories picked up in the yellow phase.  Still, the 64,300-job count in this sector was the lowest May level since the 91,800 jobs reported for 1990, the earliest year for which the U.S. Bureau of Labor Statistics reports MSA leisure and hospitality numbers.  

The leisure and hospitality sector is divided into two major subsectors: arts, entertainment and recreation and accommodation and food services.  Prior to the virus, arts, entertainment and recreation accounted for only 20 percent of the leisure and hospitality jobs, however in May 2020 they accounted for an even smaller percentage (15) as most sports, theaters, concerts, amusements, museums, etc. were still unable to open in the yellow phase. In May 2019 there were 22,900 jobs in this group.  But in May 2020 that number had plummeted to just 9,900—a drop of 13,000 or 57 percent. With this subsector opening very slowly, even under the green phase where large gatherings are still forbidden, these enormous job losses may linger longer than in other sectors.  

Meanwhile, accommodation and food services jobs remained very depressed in May.  While the drop to jobs of 45.7 percent was smaller than the 54.7 percent slide in April, it points to a long road ahead before this group returns to the 2019 level.  Full-service restaurants took the brunt of the losses, dropping 34,300 jobs (a 75 percent plunge) while limited-service restaurants lost 7,100 jobs (20 percent).

The next hardest hit sector was education and health services which lost 38,600 jobs or 15 percent in May 2020 compared to a year ago and was slightly higher than the 34,000 year-over-year loss in April. Education services are defined by the BLS as all colleges, universities, training centers and private k-12 schools.  Public k-12 schools are reported under the category of local government education services.

Education services posted 43,500 jobs in May, down 8,200 or 16 percent from last May—similar to April’s losses of 8,300 or 15 percent.  Bear in mind, however, that college and university jobs make up the bulk of education services (37,200) and suffered only a minor loss of 500 jobs from May 2019 to May 2020.      

Surprisingly, in the midst of a pandemic, health care and social assistance suffered the heaviest losses in the “eds and meds” sector with a plunge of 30,400 from May 2019 to May 2020, accounting for 79 percent of the overall decline.  Part of this huge drop can be attributed to the governor’s orders to shut down non-essential medical practices which included elective procedures at hospitals and outpatient centers.  

Ambulatory healthcare services—practitioners not providing inpatient services such as doctor’s offices and outpatient service facilities—were hardest hit losing 18,300 jobs (25.5 percent) from a year ago, falling to 53,400 jobs.  This represents the lowest May level in 15 years (2005, 51,900).  

Hospitals, protected by the lockdown to prevent them from being overrun, also suffered losses falling 3,100 jobs or 5 percent.  

The remaining job losses in the healthcare and social assistance subsector occurred in nursing and residential care facilities (2,100) and social assistance jobs (6,900).  The year-over-year losses to both nursing homes and social assistance jobs were greater in May than in April (1,800 and 6,500 respectively).

The trade, transportation and utilities group posted a decline of 27,400 jobs (13 percent) from May to May to stand at 180,800.  While this represents an improvement over April’s loss (35,000 jobs), it still shows just how far the economy has to go.  It is worth noting that the number of jobs in this sector has been declining steadily since 2000 when the sector employment reached 242,300.   

The retail trade component’s 15,600-job decline (13 percent) was the largest. Transportation, warehousing and utilities posted a loss of 7,400 with truck transportation accounting for 2,700 of those losses.

May-to-May declines were also seen in professional and business services (13,400), almost the same as April’s drop. The sector known as “other services” saw employment fall 13,000 (23 percent), most heavily in personal services such as barber shops and salons.

Meanwhile, finance sector employment was slightly higher in May 2020 than May 2019 (76,600 to 76,300) after recording a slight increase from April-to-April as well. Incredibly, in May 2020 there were 11 times more jobs in finance than in full-service restaurants. 

The Pittsburgh MSA’s economy was dealt a huge blow by the virus-related lockdown of businesses and citizens.  The impact will be long-lasting and is leading to a slow recovery related to the slow release from the lockdown.  But as earlier Briefs have noted many times before, the area’s economy has seen sluggish growth for the last few years and has been unable to keep up with national growth rates.  The business-unfriendly high-tax and regulatory environment in the state and area that was responsible for the pre-virus sluggish growth will also hamper the economy’s recovery.

Estimates of employment impacts of coronavirus in the Pittsburgh MSA

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.

Pittsburgh region’s October payroll jobs fall

Summary: The October 2019 jobs report for the Pittsburgh Metropolitan Statistical Area (MSA) showed the number of non-farm jobs had fallen by 3,000 from the count posted for October 2018—a decline of 0.3 percent.  This year-over-year loss is the first since August 2016 when jobs dipped 1,900 from the 12 month-earlier reading.  This Policy Brief compares the Pittsburgh area to other metro areas. All data are from the U.S. Bureau of Labor Statistics.  In a word, the Pittsburgh region’s employment looks very weak compared to other metro areas.

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For the nation as a whole, non-farm jobs rose 1.4 percent from October 2018 to October 2019, i.e., year-over-year. This gain was much higher than in Pennsylvania, where statewide year-over-year growth was just one-half percent.  Meanwhile, the Philadelphia metro area (Pennsylvania counties only) had a year-over-year increase that just exceeded the national rate (1.48 percent). 

Other non-Pennsylvania metro areas include Charlotte, Cincinnati, Cleveland, San Antonio and Indianapolis. San Antonio led the group with an October year-over-year gain in non-farm jobs of 3.4 percent.  This was followed by Charlotte (2.3 percent) and Cincinnati (2 percent).  These metros also outpaced the national rate.  Cleveland (0.9 percent) and Indianapolis (0.8 percent) trailed the national growth but easily outpaced the Pittsburgh area. Pittsburgh’s 0.3 percent drop stands in stark contrast to these similarly sized metros.

Jobs are divided into two broad categories—goods-producing and service-producing.  The former includes mining and logging, construction and manufacturing.  The latter includes sectors such as professional and business services, retail, financial, transportation, education and health services and leisure and hospitality. 

Goods-producing jobs typically have a higher multiplier effect on jobs in other industries and are prized for higher rates of pay. 

Nationally, the October year-over-year growth rate of goods producing industries was just under one percent.  This was better than Pennsylvania’s rate (-0.5 percent) and far ahead of the Pittsburgh MSA’s decline of 2.4 percent.  Two other metros in this small sample—Cleveland (-0.1 percent) and Charlotte (-0.8 percent)—had declines as well but not on the magnitude of the Pittsburgh MSA.  San Antonio and Indianapolis had strong year-over-year growth in goods-producing jobs (4.4 percent and 4.1 percent, respectively) while Cincinnati had nearly 2 percent growth.  The Philadelphia metro also had a very small gain of 0.2 percent.

For the service-sector industries, the national job count grew by 1.5 percent year-over-year in October while Pennsylvania’s service-sector industries grew at a slower pace (0.7 percent).  Among the MSAs in the comparison group the jobs gains range from a high of 3.3 percent (San Antonio) to a low of 0.1 percent (Pittsburgh).  Charlotte, Cincinnati and Philadelphia outpaced the national rate while Cleveland and Indianapolis fell below.

Two industry classifications in which the Pittsburgh MSA has performed well in recent years are education and health services and leisure and hospitality. 

The education and health industry sector, also known as “eds and meds”, includes colleges, universities and private schools.  It does not include public k-12 schools.  The health care portion includes hospitals, physician offices and social assistance. 

Nationally, jobs in “eds and meds” grew at a 2.6 percent rate from October 2018 to October 2019.  Statewide, the sector grew by 0.5 percent, well below the national rate.  Among the metro areas being examined in this Brief, the top performers were Cincinnati and Charlotte (3.7 percent).  Indianapolis and Philadelphia both had year-over-year gains of less than one percent.  Of the areas in the sample only the Pittsburgh MSA posted a decline (-1.0 percent) in the “eds and meds” sector. 

The leisure and hospitality sector includes food services, accommodations and arts and recreation firms.  Nationally, the sector had a strong job gain of 3.9 percent from October 2018 to October 2019.The metros of San Antonio (5.3 percent), Charlotte (4.9 percent) and Philadelphia (4 percent) exceeded the national growth rate, with Cincinnati (3.2 percent) not far behind.  Despite Philadelphia’s success, statewide jobs were down in Pennsylvania (-0.4 percent) and in the Pittsburgh MSA (-0.6 percent). 

The Pittsburgh MSA’s best-performing sector was professional and business services with a 1.3 percent gain. By comparison, Indianapolis posted an increase of only 0.9 percent, the same as Pennsylvania statewide. However, Pittsburgh trailed other metro area gains badly led by San Antonio’s 7.8 percent, followed by Cleveland (5.6 percent), Charlotte (3.1 percent) and Philadelphia (2.4 percent).  Nationally, the growth was 2 percent. 

The Pittsburgh area’s year-over-year October job growth was negative for the first time in years.  Although October is the only month with a decline in jobs thus far in 2019, recent months’ have shown sluggish growth. Indeed, Pittsburgh metro gains have fallen behind the national rate and, when compared to other metros, fall far short.

This outcome is not surprising.  As we have noted for years, the constant interference with the market and generally unfriendly attitude toward the private sector and employers have tamped down growth prospects.  Of late, proposals have come out of Harrisburg that would massively increase the statewide minimum wage and change the overtime rules to allow more salaried workers to claim extra pay.

Locally, City of Pittsburgh officials have also lobbied for higher mandated wages and have offered a host of regulations that would hinder private businesses.  These ideas, when combined with the already unfriendly business climate, and if enacted, will make the state and region even less competitive. Even proposing them signals a bias against employers. The effects of market-interfering regulations and anti-business attitudes are clearly manifested in this jobs report.  Without substantial changes to the regulatory and tax environment, slow to no job growth will be the status quo for the foreseeable future.

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.

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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.

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.

Pittsburgh Metro’s December jobs report disappointing

Summary: The latest employment figures for the Pittsburgh Metropolitan Statistical Area (MSA) is once again disappointing.  The area’s total private job gains fail not only to match the national growth rate, but also the growth rates of comparable metros.

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The employment figures for December 2018 recently released for the Pittsburgh MSA (Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmoreland counties) were not encouraging.  Private sector payroll employment (not seasonally adjusted) rose by just 8,100 (0.75 percent) between December 2017 and December 2018. This continues a trend of relatively weak growth that defined the local economy in 2018.  Seasonally adjusted data are not available for payroll data at the metro level. However, the 12-month-ago comparison eliminated most if not all seasonal effects and is a good measure of year-to-year gains.

To provide perspective, this Brief will compare employment growth in Pittsburgh to jobs gains in the metro areas of Columbus, Ohio, Indianapolis, Ind., Nashville, Tenn. and the national performance.  Data in all comparisons will be private employment changes from December 2017 to December 2018. Comparisons are presented for total private jobs, jobs in goods production and private service sector production as well as in the focused areas of manufacturing, education and health, and leisure and hospitality.

Nationwide total private jobs grew 2.02 percent from December 2017 to December 2018.  Indianapolis’ and Nashville’s MSAs job counts topped that by rising 2.31 and 2.14 percent, respectively, while Columbus’ MSA fell just short (1.72 percent).  Meanwhile, the 0.75 percent pickup in the Pittsburgh MSA was well short of not only the national growth but also the gains in the sample of comparable metros.

In the goods-producing super sector (which includes mining and logging, construction and manufacturing) employment nationally posted a solid 3.13 percent gain.  The highest jump among the metro areas belongs to Indianapolis (5.67 percent) with Pittsburgh coming in a distant second at 1.41 percent but not too far above Columbus (1.33 percent).  Nashville had a decline to its number of employees in the goods-producing super sector (-0.88 percent).  Much of Pittsburgh’s pickup, 80 percent, was in the construction sector.

At the same time, manufacturing employment rose 2.11 percent from December 2017 to December 2018.  While the Pittsburgh MSA had positive growth in manufacturing jobs (0.12 percent), it was not only well behind the national rate, it was much slower than Columbus (1.49 percent), and Indianapolis (1.41 percent) but ahead of Nashville, which was the only metro in this sample to see a decline in manufacturing jobs (-1.56 percent).

In the private service-providing super sector, employment nationally recorded a rise of 1.81 percent—a much slower pace than the goods-producing super sector.  In the group of metros, only Nashville exceeded the national pickup (2.64 percent).  Columbus’ (1.77 percent) was just below that of the nation closely followed by Indianapolis’ MSA (1.71 percent).  The Pittsburgh MSA followed well behind all areas with a mere 0.64 percent jobs gain.

A key private service-providing subsector is the education and health subsector, often known as “eds and meds.”  The Pittsburgh MSA prides itself on being strong in this area with its many hospitals and universities.  However, the employment gain in “eds and meds” from December 2017 to December 2018 was the lowest for all comparison areas at a paltry 0.47 percent. Nationally these jobs climbed 2.25 percent over the 12 months with the highest growth posted by Columbus (3.21 percent).  While the Indianapolis and Nashville MSAs came in below the national gains (1.86 and 1.72 percent respectively), the gains were far stronger than in the Pittsburgh MSA.

Leisure and hospitality job growth is the last sector examined. This sector includes the accommodation and food services subsectors (the largest subgroup) as well as the arts and entertainment subsectors.  The Pittsburgh MSA did quite well in the leisure and hospitality group posting growth of 2.33 percent from December 2017 to December 2018.  This was much better than the national growth of 1.18 percent and handily besting Columbus (1.06 percent), Nashville (-0.79 percent) and Indianapolis (-3.83 percent).

However, as has been explained in previous Policy Briefs, this is the one sector that perhaps does the least to boost economic growth because of very weak multiplier effect and low wages.  For example, statewide (timely wage data are not available by sector below the state level) the average weekly wage of all employees in the manufacturing sector was $881.50 in December 2018—a 2.17 percent increase over the weekly wages rate one year ago.  By contrast, the statewide average weekly wage for employees in the leisure and hospitality sector was just $385.79—up just 1.45 percent from its year-earlier posting. Manufacturing wages are more than twice as high as leisure and hospitality wages in Pennsylvania and contribute more to the state and MSA’s tax coffers, as well providing stronger multiplier effects.

Average weekly hours worked for each sector show workers in the manufacturing sector have much longer work weeks and far beyond those in the leisure and hospitality sector (41.6 hours vs. 25.1 hours).  It’s not hard to see why manufacturing jobs are more sought after than are those in leisure and hospitality—yet the latter sector is where the Pittsburgh MSA excels.

A primary reason that jobs growth continues to languish in the Pittsburgh MSA, and even statewide, are economic policies that make the business climate less friendly than other areas and consequently making it a less desirable place for startups and for existing businesses to grow.

The latest salvo aimed toward business is a plan announced by the governor to raise the minimum wage in Pennsylvania from the national minimum of $7.25 per hour to $12 per hour in 2019 with the ultimate goal of increasing it to $15 by 2025.

Apparently, no amount of evidence of the negative effects of large increases in mandated minimum wages will deter politicians who prefer to look concerned about incomes, as opposed to helping their states and regions grow businesses and employment with higher wages and produce strong demand for workers. Strong sales and good profits lead to higher wages in a competitive labor market. Avoiding this truism is not a good way to boost economic prosperity.

As long as Pennsylvania, and the region, continues to ignore the impact of policies on business friendliness—which seems to be the case—job growth will remain stunted and future disappointing jobs reports will be the norm.

Pittsburgh MSA Out of Sync with U.S. Labor Market Performance

Summary: The April jobs numbers were released for the Pittsburgh Metropolitan Statistical Area (MSA) and the results are not too encouraging.  While growth was positive, it does not keep pace with the nation overall and underscores just how much work needs to be done to boost the area’s economy.

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Recently released labor force and employment data for the seven-county Pittsburgh metro area show the region trailing the nation for the April 2017 to April 2018 period.  In April 2018, the Labor Department survey of households show the region’s labor force tumbled by 17,600 (1.5 percent) and household employment (persons employed) slipped by 8,500 (0.7 percent) from the April 2017 level. Meanwhile, over the same 12-month period, the U.S. labor force climbed by 1,346,000 (0.8 percent) and the number of people counted as being employed rose 2,020,000 (1.3 percent).

Data from the Establishment survey, which counts the number of payroll jobs as opposed to the number of persons working, indicate private payroll employment in the Pittsburgh region rose 14,300 (1.35 percent), driven largely by gains in education and health, leisure and hospitality along with professional services. There were modest pickups in the goods sectors as well.

However, nationally, private payrolls jumped by 2,271,000 (1.8 percent) during the period, a 33 percent faster gain than the Pittsburgh region.  Note, too, that the national growth rate reflects both fast growing and slower growing states.  For instance, North Carolina comes in at 2.1 percent, Texas at 3.2 percent and Florida at 2.2 percent. These and other rapid-growth states are propelling the country to faster growth than the Pittsburgh MSA as well many other states.

The region’s 1,069,700 million payroll jobs represent the highest April level for the last ten years (2018-2008).  Still, the ten-year growth was only 4.7 percent or well under one half percent per year. The highest recorded amount in any month over the last decade occurred in November 2017 when the survey showed 1,078,200 people were on total private payrolls.

The April to April increase represents the smallest gain thus far in 2018.  In January, the 12-month increase was 17,500, for a rise of 1.7 percent, while the February gain was 15,700 and March posted a 12-month pickup of 15,300.

In the Pittsburgh MSA, leisure and hospitality added 3,500 new jobs from April 2017, a gain of just under three percent.  That was the smallest 12-month gain so far this year. The national April to April gain was 1.6 percent and has been gradually declining since January’s high rate of 2.09 percent.

Education and health provided the Pittsburgh region with the largest number of jobs, adding 5,400 jobs in April 2018 compared to the year ago reading—a 2.2 percent rise. Of this total, the health care and social services sector contributed 5,000 of the new jobs, while educational services added only 400.

Nationally, the education and health services sector did not grow quite as fast as the Pittsburgh area, increasing by only 1.87 percent.  The national growth lagged Pittsburgh’s in hospital, nursing facilities and social assistance.

The trade, transportation and utilities group was the weakest sector in the Pittsburgh MSA, losing 1,400 jobs over the year (-0.66 percent).  The monthly year-over-year losses stretch back to December 2017.  The decline was led by a fall in retail trade employment of 2,200—a drop of 1.8 percent.  That being said, not enough information is available to figure out exactly where the losses happened.  There was an increase in building materials and general merchandise stores but losses in food and beverage stores as well as in clothing and department stores.

Meanwhile, in stark contrast, the trade, transportation and utilities sector nationally had an April year-over-year pick-up of 1.11 percent.  It has been picking up steam as 2018 progressed ranging from a low of 0.58 percent in January to a high of 1.17 percent in March.  At the national level, retail trade is also picking up momentum.  After a decline in January, the year-over-year growth rates have been increasing every month since.

The April 2018 jobs and labor force numbers show that Pittsburgh lags the national labor market pace of improvement. As we have been writing for years, reducing taxes, repealing onerous regulations and curtailing the power of unions would go a long way boosting the business climate which in turn will lead to better labor market numbers. Curbing the desire and willingness to subsidize development and highly questionable ventures that should fund themselves would be a giant step toward relying on the free market to drive the economy.

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

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.

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.

Monthly Metro Area Jobs Reports Short on Reliability

The December jobs report for the Pittsburgh metro area was just released.  At first glance, the report on balance seems quite positive. Data from the household survey show a lower unemployment rate, while the employer payroll survey shows a 14,000 increase in nonfarm jobs compared to December 2014. But do the data in the report paint an accurate or reliable picture of the area’s labor market?

 

A deeper look into the household data indicates there might be questions regarding the validity and reliability of the report. In December 2012 the initially reported civilian labor force for the region (not seasonally adjusted) stood just over 1.261 million people, later revised in the spring of 2013 to 1.227 million—a drop of 34,000. Then the initially reported figures for December 2013 showed labor force to be to 1.245 million. Again that number was revised downward, this time to 1.201 million—a decline of 44,000. Then in keeping with the pattern, the initial report twelve months later showed the labor force count for December 2014 to have risen once again to a year to year jump of more than 20,000 to 1.229 million. And once again, a downward revision reduced that number to just 1.195 million, a drop of 34,000.

 

Amazingly, from an initially reported 1,261,000 participants in the labor force in December 2012 to a revised December 2014 count of 1,195,000 the Pittsburgh metro area in just two years has seen the reported number of labor force participants slide by 66,000.

 

Now comes the initially reported figures for December 2015 that place the labor force at 1.222 million.  Given the pattern of downward revisions to the numbers reported over the last three years means the latest labor force count is almost certainly going to be revised to a lower number. However, even if the  December 2015 labor force is not lowered by a benchmark revision later this year it will be very close to the revised 2012 level, which means there has been no net increase in the metro area labor force for three years.

 

If the pattern of downward revisions continues this year, it will mean that in three years, the area’s labor force has actually gone down, assuming of course the revised figures are more reliable than the initially reported numbers. At this point who can be sure? One thing is certain, putting a lot of confidence in the initial reports on the labor force and household employment numbers as a good indication of the state of the labor market is simply not warranted because of the pattern of large revisions.  Of course this is a problem inherent in a methodology that relies on a small monthly sample of households on which to base the estimates.

 

Meanwhile, in addition to the problems in the household survey, there are several glaring issues in the establishment (employer) payroll survey, especially in some of the service producing categories.

 

For December 2015, the recently released report indicates a gain of 17,500 private sector service jobs over the twelve months since December 2014. The largest employment gain occurred in the leisure and hospitality sector (which represents about 11 percent of all private jobs) with a 7,700 rise that accounted for a hugely disproportionate 53 percent of all private job growth between December 2014 and December 2015 (14,500). The initial monthly reports of rapid jobs growth in leisure and hospitality is a long standing trend for this sector.  Sadly, major downward revisions in these jobs are also a long standing trend as we have documented in earlier Policy Briefs (Volume 14, Number 14 and Volume 15 Number 23).

 

Part of the problem is that much of the employment pickup is accounted for by arts, entertainment, and recreation for which there is not enough sampling to provide reliable estimates, so the Labor Department is truly guestimating the job count. As a result substantial downward revisions are necessary almost every year. This has gone on so long it would seem someone at the Labor Department would acknowledge and deal with the problem rather than simply continuing this monotonous pattern of reporting huge gains and then taking them away later with revised data.

 

Another area of questionable data occurred in the education and health services group which added 5,100 jobs over the twelve months ending in December 2015. Education services (does not include public K-12 schools) employment rose by 1,200 jobs while health care and social assistance rose by 3,900 jobs.

 

However, the education services job count looks suspiciously high and warrants closer inspection.  While this sector is up 1,200 jobs year-over-year, its largest and most reliably documented component, colleges and universities, showed a drop of 2,100 jobs.  Thus, employment in the combined remaining education services components (data for individual components are not published) must have risen by 3,300 to offset the decline in college jobs. This group is made up principally of private K-12 schools, education support services firm, and technical schools.  As just mentioned, this group is reported to have had year-over-year growth of 3,300.  This is quite astonishing considering that this group would have had to grow from 14,300 jobs in December 2014 to 17,600 jobs in December 2015—a rise of 23 percent in only twelve months. The absence of any explanation of exactly where such growth is occurring and why it’s so strong makes it hard to accept the numbers as credible.   Downward revisions would seem to be inevitable.

 

Another concern about the jobs data and one we documented in a Policy Brief (Volume 15, Number 44) last year is the fact that the combined employment gains in Pennsylvania metro areas is almost twice as large as the state as a whole.  And adding in the micropolitan area labor markets and county job markets makes the picture even worse with the sum of all the individual labor markets greatly exceeding state totals. Obviously, sampling problems are at the heart of the issue. But the upshot is that downward revisions in most metro area numbers are virtually certain.

 

Finally, it is noteworthy that state government employment across the Commonwealth was reported to have risen by 5,900 jobs from December 2014 to December 2015 after 4,000 job increases in both October and November. In the Pittsburgh metro area state government employment climbed by 700 jobs over the year ended December 2015. Ironically, the state government jobs growth has occurred even though there was no state budget during the last six months of 2015.  It is bad enough that the state continued to spend on all departments and kept everyone employed but it was actually adding to staff and no doubt giving raises while the state funding for public schools in the state was on hold.

 

In summary, the monthly labor market and jobs reports for the Pittsburgh metro area—and doubtless most others across the Commonwealth —must be used carefully because of all the flaws and the enormous amount of revision that occurs every year in the preceding year’s data.