Pittsburgh is one bright spot amid the economic gloom -- for now
March 17, 2009 4:00 AM
Bank of New York Mellon, the result of a deal two years ago between the New York bank and the longtime Pittsburgh fixture, has added 800 jobs in Pittsburgh since the merger and is still on pace to meet its commitment of adding 1,000 to 2,000 by 2012.
By Bill Toland Pittsburgh Post-Gazette
It was less than three years ago when the Post-Gazette published an account of Charlotte, N.C.'s, ascension from anonymity to banking powerhouse, a city that was second only to New York in terms of bank assets. With that new wealth, though, came new risk.
As Charlotte bypassed Pittsburgh and other cities as a financial center, some were concerned the city hadn't diversified other sectors of its economy, leaving it susceptible to a Big Steel-type of collapse should U.S. markets ever encounter serious trauma, or should one of its corporate titans collapse or be sold.
That trauma came in 2008.
Wachovia, Charlotte's second-biggest employer and bank, was sold to San Francisco's Wells Fargo. Bank of America, also based in Charlotte, is cutting 42,500 jobs nationally.
By the end of the year, unemployment hit 8.9 percent in and around Charlotte, 9.5 percent for the 16-county region. A job fair last month drew 1,500 people, with a line that snaked through the lobby, out the door and around the hotel where the fair was staged; a job fair this month drew 3,200.
"In North America, our primary growth center is in Pittsburgh," said Barrie Athol, who managed the merger between Pittsburgh's Mellon Financial and Bank of New York two years ago.
The resulting company, Bank of New York Mellon, has added 800 jobs in Pittsburgh since the merger and is still on pace to meet its commitment of adding 1,000 to 2,000 jobs in Pittsburgh by 2012, despite the gruesome recession.
The story is rote by now: Pittsburgh transitioned, though not by choice, away from manufacturing and toward more recession-resistant fields such as health care and education, while still dabbling in energy, finance and bio-technology. Growth has been slow and steady (if not stagnant some years), but these days, slow and steady wins the race.
When a team is on a winning streak, a good coach tells his players, Don't believe your own hype. But what is Pittsburgh to make of the weekly bounty of fawning headlines?
Cleveland Plain Dealer: "THE STEEL CITY'S NEW STRENGTH; Our longtime regional rival now had big economic influence here."
Time magazine: Pittsburgh is "One Economic Bright Spot on Main Street."
Business Week: Pittsburgh is one of "The Best Cities for Riding Out a Recession."
New York Times: "For Pittsburgh, There's Life After Steel."
So how did we pull this off, anyway?
"It's a global economy," said Rob Stephany, executive director of the city's Urban Redevelopment Authority. "Thank God we have local lenders."
Banks are the plumbing of the economy, and while everyone else is springing leaks, local banks still have their own cash to spread around. Mellon and PNC Financial Services don't have thousands of bad loans on their books, unlike so many of their counterparts. That's partly because of their conservative underwriting nature, and largely because both PNC and Mellon had gotten out of the mortgage origination business by the time the housing sector collapsed (PNC sold its mortgage unit to Washington Mutual in 2002, and Mellon sold its retail unit in 2001).
Peel the onion a bit, and you have a layer of regional banks that are also still lending -- First Commonwealth Financial, Allegheny Valley Bank, Dollar Bank.
"We have a pretty strong local financial services industry that has its own cash and is making its own decisions," Mr. Stephany said. That's why, he says, when he attends URA meetings, he still sees projects that are moving ahead, despite the economy.
That wouldn't be happening if the lending decisions were being outsourced to bankers in Philadelphia or Florida.
But it's not just that Pittsburgh is surviving the recession, relatively outperforming other cities by default. What's remarkable is that, by some measures -- and amid the worst economic meltdown in generations -- the region is actually thriving, especially when it comes to real estate, the sector that's getting hammered nationally.
Total foreclosures -- on a dramatic upswing nationally -- have fallen for two straight years in Pittsburgh's five-county region. Moody's says Pittsburgh will be the only city out of the largest 100 metropolitan regions in the U.S. to post a gain in housing prices one year from now.
Moody's also named Pittsburgh the best commercial real estate market in the country (although the city, according to Bloomberg, had the fourth-highest percentage of mortgage delinquencies on commercial properties, perhaps a sign of foreclosures to come).
The city's rental apartment market has a tiny vacancy rate, around 2.5 percent at the end of 2008, and the city was tops in the country last quarter in terms of rental price growth for office space.
On jobs, unemployment is below the national average and the labor force has been growing. The Pittsburgh region also seems well-positioned to capture new energy jobs in coal, natural gas and nuclear research, thanks to Westinghouse's Cranberry campus.
That's a lot of data points aiming in the right direction, even if you're a skeptic of Pittsburgh's alleged buoyancy.
"Some of it is good relative to other cities," said Chris Briem, the University of Pittsburgh demographer and economist who tracks many of these data points on his blog, Null Space.
"Some of it is an absolute good. And some of it is in between, big -- but temporary -- projects, keeping thousands of contractors busy in an otherwise bad construction market. We're not the biggest of regions. It doesn't take many bright spots to prop things up."
But what happens, he wonders, when construction finally wraps on the new casino, the new PNC skyscraper, the new Penguins arena, the North Shore Connector, and the various condo and hotel projects that have come online, fortuitously, in the last few years?
"No place is recession-proof," Mr. Briem said. "If investment dries up, if access to credit is non-existent, [are] we going to fare better than elsewhere?"
A rising tide lifts all ships -- but a low tide could bring them all down and Pittsburgh has not been immune to bad news. Universities here are freezing wages, and there have been scattered layoffs at big firms across the city. Downtown condo sales have slowed dramatically. PNC Financial Services Group economist Stuart Hoffman told a real estate panel that the region could lose 25,000 jobs this year.
And Pittsburgh is still under state budget control with a looming pension crisis. And, like many medium-sized cities, Pittsburgh has arranged its economy around sectors -- health care and university research -- that are not-for-profit and are exempt from paying property taxes.
In that light, it all seems so unsustainable, doesn't it?
"God, this a very physically attractive city, it's really affordable. Where's the dynamism?" asked Joel Kotkin, author of "The City: A Global History" and an urbanism fellow at Chapman University in California. "It's one of the few places in the country where the suburbs are losing population. ... It keeps telling itself how successful it is, and because of that, it may never be successful."
He pointed to nagging workforce issues -- the Pittsburgh region still can't draw the immigrant underclass that's arguably needed, long term, to fill service industry jobs and occupy the housing stock that has emptied out over the last 20 years.
And like many college hubs, Pittsburgh turns out lots of students with advanced degrees but that doesn't always match the needs of the labor force. Consol Energy is constantly looking for miners, and the region has hundreds of unfilled nursing and medical field positions.
So the region's fortunes could easily change. Few thought in the 1950s that Big Steel would ever evaporate. Who knew that US Airways would turn out to be such a disastrous investment?
But for now, the grass really does seem to be greener here, which brings us back to Charlotte. After two decades of losing residents and talent to places like Charlotte -- growing, sunny cities to the south and west -- now we're poaching from them, or at least we're trying to.
First Commonwealth, based in Indiana, Pa., has been advertising in the Charlotte area the past few weeks, hoping to draw banking employees who are nervous about their jobs (which is to say, all of the bankers in all of Charlotte).
"Uncertainty in your future?" the ad begins. "First Commonwealth may be the place for you. We are seeking talented individuals to join our team in Western/Central Pennsylvania."
Banking expert Tony Plath told the Charlotte Business Journal, "It's like shooting fish in a barrel to recruit bank talent in Charlotte." So why not take a shot and recruit them north, along with any money they might have saved up?
"If I had a ton of money sitting in a bank account," said Mr. Stephany, the URA chief, "Pittsburgh would be a place to start making investments."
But then, would you expect the head of Pittsburgh's urban economic development agency to tell you otherwise?