Despite a flat trend of employment, the Pittsburgh Metropolitan Area has continued to move up the ladder in terms of gains in per capita personal income. Thus, according to the latest (2006) data released by the U.S. Department of Commerce, the per capita personal income in the Pittsburgh area was $38,717, up 6 percent over the prior year and exceeding the average gain of 5.4 percent reported for all metropolitan areas in the United States.

Even more significant was the fact that in 2006 Pittsburgh's per capita personal income ranked 48th out of 363 metropolitan areas in the United States, up from 54th place in 2004 and 60th in 1999. This striking improvement compares with a decline in the ranking of other metropolitan areas in the Fourth Federal Reserve District. For example, the Cincinnati area placed 78th in 2006, down sharply from a ranking of 42nd in 1999. Likewise, most people probably would be surprised to find that the per capita income in the Pittsburgh area was essentially on a par with the Los Angeles area ($39,011 vs. $38,717).

Without painting too rosy a picture, we believe that these statistics signal the emergence of Pittsburgh as an energized economic area with considerable potential for future growth and expansion. At the very least, they should dispel the familiar but outdated stereotype of Pittsburgh as a near-stagnant economic region still struggling to cope with the loss of steel production and employment.

While the growth of per capita income in the local area has outpaced the national average, gains in employment have continued to lag well behind those recorded in the nation as a whole.

To be sure, the area's jobless rate is currently (August 2007) the same as the national average of 4.5 percent and, it might be noted, appreciably below the jobless rates reported for other metropolitan areas of the Fourth Federal Reserve District. On this point, it should be noted again that the relatively high unemployment rates in Cleveland, Dayton and Toledo, Ohio, are related in large measure to the recent problems of the automobile industry -- and its suppliers.

On the employment front, however, nonfarm payrolls in the Pittsburgh area are just about the same as they were five years ago. While the region's employment showed steady gains from 1997 to 2001 -- rising from 1,093,000 to 1,153,900, the subsequent two years showed a loss of some 20,000 jobs. Over the past four years, moreover -- between 2003 and 2007 -- nonfarm payrolls in the Pittsburgh area have remained essentially unchanged while those at the national level were up more than 8 million, representing a solid increase of 6 percent. Plainly stated, the nationwide recovery in employment over the past few years has bypassed the local area.

Turning to the economic outlook for 2008, we are not in the camp of those who believe that the U.S. economy is headed for a recession. We do agree, however, that the level of uncertainty regarding the economic outlook is probably at its highest level since the 2001 recession. To start with, the unexpectedly severe decline in home building activity has still not run its course. Indeed, the housing sector's negative impact on GDP growth seems likely to continue through a good part in 2008.

As matters now stand the persistence of unstable and turbulent conditions in the financial markets remains a formidable obstacle to an early recovery in residential construction. Looked at another way, the heightened aversion to risk -- as evidenced for example by the tightening of lending standards and a much reduced availability of credit -- is unlikely to dissipate any time soon.

At risk is the possibility that a severely depressed housing market coupled with a marked tightening of financial market conditions will have a negative impact on consumer spending, which has been the primary engine of economic growth in recent years. Needless to say, any curtailment of consumer and business spending would increase the risk of a recession in the broader economy.

Even though credit market conditions have shown some improvement since the July-August meltdown, they have by no means returned to normal and, in our judgment, remain a threat to the sustained expansion of overall economic activity. Another worrisome factor in the 2008 outlook is the recent upward pressure on the price of oil, which at the time of writing is in the neighborhood of $90 a barrel with no clear indication that the peak has been reached.

While recognizing the downside risks to the outlook we believe that the odds are still in favor of continued economic expansion through 2008. On the critical assumption that today's financial market turmoil will gradually subside we are forecasting that the U.S. economy will continue to grow during 2008, albeit at a rate which will almost certainly run below its potential. For now we expect that next year's gain in real GDP will be in the vicinity of 2¹/₄ percent, which would represent a small improvement over the 2 percent increase in sight for this year.

What are the economic implications for Pittsburgh of a national economy that in all likelihood will be less than robust? While strong gains are not expected in the Pittsburgh region, we believe that in contrast to many other areas of the country, the Pittsburgh area is not facing the economic disruptions associated with the boom-bust cycle in residential construction activity, the cutbacks in automobile related production and employment, and the closing of some large military bases.

Now that health care, professional and technical services, and scientific research have become increasingly important sources of economic growth in the Pittsburgh area, we believe that the local economy is now much less vulnerable to cyclical declines than it was when steel dominated the region.

All in all we continue to take a positive view of the Pittsburgh economy in 2008. But next year's outlook is so clouded by a multiplicity of uncertainties and imponderables that any predictions regarding next year's economy must be considered very tentative -- and subject to change.