Analysis: Pittsburgh's economy is better than you might think
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Hope for a more robust job market in the Pittsburgh area received something of a setback with the announced merger of Mellon Financial with the Bank of New York. True, there have been welcome statements regarding the likelihood of job increases in the local area over the coming years. But only time will tell whether the merger will have a positive, negative or neutral impact on the Pittsburgh economy.
So far as the current job market is concerned, the latest employment statistics show a slow but relatively steady improvement. As one example, service-related jobs at the end of 2006 were up 6 percent over the January 1999 level of activity. Admittedly, this gain was little better than half the national increase of 11 percent, but Pittsburgh fared much better than most other major metropolitan areas in the Fourth Federal Reserve District, including Cleveland and Dayton and Toledo, Ohio. Service-producing employment in Cleveland, for example, was up a minuscule 1 percent at the end of last year from January 1999.
A similar pattern is visible with respect to manufacturing jobs. While the 15 percent decline in Pittsburgh's goods-producing employment between January 1999 and the end of last year was considerably higher than the 9 percent drop recorded in the nation as a whole, it was still significantly less than the cutbacks reported in Cleveland, Dayton and Toledo, all of which were hard hit by work force reductions in the motor vehicle industry and its suppliers.
Looking ahead, the 2007 employment outlook for the Pittsburgh area still looks positive, with modest gains in service-related jobs but little if any change in the level of manufacturing employment. I'm expecting an increase of roughly 10,000 over last year's figure of 1,145,900.
Positive signs
Given the sluggish gains in payroll employment, it is surprising -- and encouraging -- to find that the growth of personal income in the Pittsburgh area has matched or exceeded not only that reported in other manufacturing areas but in the nation as a whole. In 2005 -- the latest year for which data is available -- the per capita income in the Pittsburgh area was $36,000, slightly above the U.S. average of $35,000.
Even more impressive was the fact that in 2005, Pittsburgh ranked 54th in the nation as compared with a ranking of 60th in 1999. This performance compares very favorably with a sizable drop in the rankings of all the other major metropolitan areas in the Fourth Federal Reserve District. Cleveland, which ranked 42nd in the nation in 1999, fell to 61st place in 2005. And Columbus, Ohio, which placed 59th in the country in 1999, ranked 68th in 2005.
The statistics on unemployment tell a very similar story. Last year, the jobless rate in the Pittsburgh area averaged 4.8 percent, slightly above the 4.5 percent rate recorded in 1999 and very close to the national average of 4.6 percent. Elsewhere in the Fourth Federal Reserve District, however, the increase in the jobless rate between 1999 and 2006 generally ranged between one and two percentage points.
For instance, last year's unemployment rate in the Cleveland area was 4.7 percent, up from 2.7 percent in 1999. And in Lexington, Ky., the jobless rate climbed from a very low 2.1 percent in 1999 to 4.6 percent last year. To a degree, of course, Pittsburgh's low jobless rate can be attributed to the lack of growth in the area's labor force. But in addition, it can be argued that Pittsburgh now has a more stable -- and secure -- economic base than it did in prior years.
Turning for a moment to the housing market, it is clear that the national boom in home-building activity that has now collapsed bypassed the Pittsburgh area, which saw the trend of building permits issued for new residential construction remain essentially flat from 1999 through 2004. During the same time period, the number of building permits issued in the nation as a whole advanced nearly 25 percent.
Solid foundation for future
The Pittsburgh market has not entirely escaped the slump in new residential construction activity as evidenced by the significant decline in the number of permits issued in both 2005 and 2006. But this downturn appears relatively insignificant when compared with the much larger declines expected in many areas of the country, including California, Florida, Arizona and Nevada.
To sum: While the forthcoming Mellon/Bank of New York merger raises a number of unsettling questions, we continue to take the position that Pittsburgh has finally shaken off the negative effects of a steadily deteriorating industrial economy. While many other regions and metropolitan areas are still struggling to cope with the decline of their once dominant manufacturing industries, Pittsburgh has completed the painful transition from an industrial economy to one increasingly based on service-related activities, including health care, information technology and financial services.
With strong and farsighted political leadership that recognizes the need for a hospitable business climate and, among other things, encourages the forces of innovation and change, Pittsburgh is now well-placed to build on what in our opinion is a much more solid economic foundation.
First Published March 11, 2007 12:00 am
