The Rise of Vacancy - Part I (by Jeffery Fraser)

East Liberty Development, Inc. was still figuring out how to jump-start the housing market in the Pittsburgh neighborhood when it built 10 houses on Mellon Street across from a handful of vacant and blighted buildings. At $105,000 for three bedrooms, a bath and a half, a two-car garage and a zero-percent second mortgage for income-qualified buyers, the new homes were priced to sell.

None of them did. 

“Nobody was willing to buy on that block until we were able to tell them a good story, something concrete, about what was going to come about across the street,” said Kendall Pelling, project manager for the community development corporation. “We learned from experience that vacant and abandoned properties have a terrible impact on the housing market.”

Others are getting a similar education. Vacant and blighted properties are increasing across southwestern Pennsylvania, the state and the nation, robbing local governments of desperately needed tax revenue, consuming millions of tax dollars, eroding housing values, posing health and safety risks and complicating the already challenging job of reviving distressed neighborhoods.

In Allegheny County, a program for turning tax-delinquent vacant properties into community assets doesn’t come close to keeping pace with the rate at which properties become vacant. And the story is the same throughout southwestern Pennsylvania.

In Homewood, mapping routes to get children to and from school without exposing them to mean streets littered with vacant lots and abandoned buildings is one of the first steps the Homewood Children’s Village is taking as it attempts to improve the educational outcomes and overall well-being of children in one of Pittsburgh’s most distressed neighborhoods.

In Philadelphia, one of the few studies of the price that communities pay for vacancy and blight reports that housing values fall by 6.5 percent citywide and that at least $22 million a year is drained from the city in lost tax revenue and to cover maintenance, police and fire costs.

In Flint, Mich. and Cleveland, Ohio, land banks seize thousands of vacant tax-delinquent properties using laws Pennsylvania doesn’t have, and sells, rehabilitates or tears them down following comprehensive blight redevelopment strategies that haven’t been developed in southwestern Pennsylvania.

If there is a bright side to the growing problem, it lies in the opportunity vacant properties offer to redesign neighborhoods in ways that are better suited to their down-sized populations, such as widening narrow lots found in many former industrial towns to accommodate fewer, but more marketable parcels, and turning empty lots and buildings into greenways, community gardens, recreational space and other amenities that give local housing markets more appeal.

“Any community that has blighted and abandoned properties and sees them only as a strain and a drain is undervaluing the real estate,” said Court Gould, executive director of Sustainable Pittsburgh, which last year published a comprehensive report on vacant property in southwestern Pennsylvania. “We need to be thinking about those properties as stranded economic assets.”

East Liberty Development, Inc. got the message. The new houses on Mellon Street sold after the nonprofit bought the vacant properties across the street and came up with a plan to renovate some of the vacant houses and build new ones on the other lots.

Recent Pennsylvania legislation offers municipalities, community organizations, and even residents a more expansive menu of legal options for dealing with neglectful landlords, absentee owners and the vacant and blighted properties next door.

But when dealing with tens of thousands of vacant properties, effective intervention comes down to a question of scale. And in southwestern Pennsylvania, local government attempts to combat vacancy and blight fall far short of recovering anything but a fraction of the vacant lots and houses found along city, borough and township streets.

Over the past seven years, the Allegheny County Vacant Property Recovery Program has helped put some 500 vacant, tax-delinquent properties into the hands of buyers interested in turning them into side yards, small parks and other neighborhood-friendly uses. At that rate of recovery, the program barely makes a dent.

The percentage of vacant housing in the county jumped from 6.8 percent to 9.4 percent over the past two decades – a trend experienced in every county in the region, according to U.S. Census data. More than 55,000 housing units, including apartments, stand vacant. And the Census Bureau doesn’t count vacant lots, which greatly outnumber vacant houses.

“Even if we did 1,000 properties this year – and we won’t – I would have a job for life,” said Richard Ranii, who oversees the program as manager of the Housing and Human Services Division of the Allegheny County Economic Development Department.

A creeping crisis

Shifting, aging or declining population, weak housing markets, poor housing stock, crime, underperforming schools and other factors that make some communities less than desirable places to live -- all of these factors contribute to vacancy and blight. High mortgage foreclosure rates, decimated job markets other consequences of recession have exacerbated the problem.

Antiquated tax foreclosure systems can take years to move against delinquent properties, and many accrue several years’ worth of delinquent taxes and penalties. In depressed markets, such Homewood, where the average price paid for residential property was $9,060 in 2009, back taxes and penalties can easily exceed the market value of a house, encouraging owners to ignore its upkeep or to walk away from it entirely.

“There isn’t a place I go where someone doesn’t talk about a problem property they are frustrated with,” said Irene McLaughlin, an attorney and consultant on vacant property issues for the Housing Alliance of Pennsylvania and others.

More than 11 percent of the houses and apartments across the United States are vacant, according to the 2010 U.S. Census. In states hit hardest by the mortgage foreclosure crisis, the rate is much higher – 17.5 percent in Florida, for example, and 16.3 percent in Arizona.

Nine percent of the housing in the seven-county Pittsburgh Metropolitan Statistical Area is vacant, up from 6.8 percent in 1990.

Cities tend to have higher concentrations of vacant property, and Pittsburgh is no exception with nearly 13 percent of its houses and apartments standing vacant. Higher rates are found in several nearby cities. The vacancy rate is 19 percent in Cleveland and Youngstown, Ohio. And 15 percent of Steubenville’s housing is vacant.

Even higher concentrations are found in poor urban neighborhoods and municipalities that have endured decades of economic decline. In other words, the places shouldering the heaviest burden are the most fragile and the least likely to have the resources to do something about it.

Many pay the price

While those living on blight-ridden streets are the most directly affected, studies suggest the economic and social costs of long-standing vacancy are widely shared.

What those costs amount to in southwestern Pennsylvania is unclear. Pittsburgh’s year-old Land Recycling Task Force, planning department and others are working on an analysis of the economic impact on the city, which is expected later this year. And there is no countywide or regional accounting of the total cost of vacant property.

Philadelphia is one of the few places that examined those costs. Its study found that vacant properties reduce market values by 6.5 percent citywide and by as much as 20 percent in high-vacancy neighborhoods, resulting in an average loss in value of $8,000 for each city household. Tax-delinquent vacant properties in Philadelphia owe an estimated $70 million in back taxes, a sum that grows by $2 million every year. And vacant properties consume $20 million in city services a year, including $8 million spent on code enforcement and maintenance.

When housing values plummet, those who are hurt the most include long-time homeowners, many of them senior citizens – the very people who tend to hold together what is left of declining neighborhoods.

“We got a call last year from an elderly woman in one of those neighborhoods,” said Rob Stephany, director of the Pittsburgh Urban Redevelopment Authority. “She had a $9,000 bid from a contractor to replace her roof, which had started to leak. Her next-door neighbor’s house had sold for less than that, about $7,000. Here was a responsible, salt-of-the-earth-Greatest-Generation senior citizen asking whether she should repair her roof or just ride it out. That is loss of equity.” 

Vacant and blighted properties also play a role in unraveling of the quality of life in a neighborhood and dimming the outlooks of those who live there.

For Malik Bankston, one of the more challenging aspects taking control of vacant properties in Pittsburgh’s Larimer neighborhood and then creating gardens, parks and a safer and more vibrant place to live was convincing residents that it could be done. “It was tough getting a conversation going,” said the Kingsley Center director. “For so long, the neighborhood watched a deliberate kind of disinvestment play out, which resulted in us having one of the highest incidence of vacant and blighted property.”

More than 42 percent of the lots, houses and buildings in Larimer are unoccupied. And, like most neighborhoods with high rates of vacant and blighted property, crime rates are higher than citywide averages – in Larimer’s case, 30-50 percent higher.

In Homewood, where nearly 44 percent of the lots and 28 percent of the houses are vacant, finding ways for school children to avoid them is a priority of the Homewood Children’s Village, which is based on a program in New York’s Harlem neighborhood that concentrates community support and services on mending the social fabric and improving children’s outcomes.

“The impact of vacant and abandoned properties on kids is a real concern,” said John Wallace, a University of Pittsburgh associate professor of social work who spent several years planning the Homewood initiative. “These properties are risk factors for crime, they’re a safety risk and they’re a health risk.”

The “broken window” theory argues that is not by coincidence. The theory, introduced by social scientists James Q. Wilson and George Kelling in 1982, has become widely accepted by law enforcement. It suggests that vacant and blighted houses, abandoned cars and other visible evidence of neglect send the signal that nobody cares, erode community controls and leave neighborhoods more vulnerable to crime.

Southwestern Pennsylvania police departments don’t track the relationship between crime and vacant property. And the few local studies that looked at the relationship offer contradictory, inconclusive findings.

Evidence elsewhere suggests the relationship is not benign. Philadelphia spends close to $6 million a year on police and fire calls to vacant properties. A study published by the Federal Reserve Bank of Chicago reported violent crime rates in the city rose 2.3 percent with every 0.01 percent increase in mortgage foreclosures. After a sharp rise in foreclosures and vacancy, the Charlotte-Mecklenburg Police Department in North Carolina analyzed its records and found that high neighborhood foreclosure rates predicted higher crime rates, including violent crime, which rose steadily in those neighborhoods, but stayed much lower in places with few foreclosures.

Whether residents of neighborhoods with a high percentage of vacant, boarded-up stores and homes, litter and graffiti have a higher incidence of disease and premature death was a question RAND researchers looked at in 2003. Even after controlling for poverty, they found that those who live in deteriorating neighborhoods have higher rates of premature death and death by cardiovascular disease and homicide than people in neighborhoods that are not in decline.

That was not the only troubling effect they noted. In neighborhoods where residents were seen as willing to work toward a common good, the rate of premature deaths was lower. The one exception was in neighborhoods with a high number of vacant homes and other signs of decline, where the willingness of residents to help out made no difference.

Liabilities to assets

The flip side of vacant and blighted properties is that under the right circumstances they can be used to improve conditions in the neighborhoods they helped lead down a path of decline. In southwestern Pennsylvania, both public and private sector interest in reclaiming vacant property to add elbowroom and a little green to crowded urban neighborhoods is growing.

“With a lot of liabilities, your only option is to eliminate or reduce them. To be able to turn a liability into a asset is a unique opportunity,” said Frederick Thieman, executive director of the Buhl Foundation, which funded the Sustainable Pittsburgh report on vacant property in southwestern Pennsylvania. “Vacant property provides us with such an opportunity.”

Demolition is a common municipal response to abandoned houses. Clarksburg. W.Va. took a low-interest state loan to finance a campaign against the blight that had accumulated during decades of economic decline, tearing down nearly 300 homes. More than half of the 900 vacant houses acquired by a public land bank in Cuyahoga County, Ohio last year have been razed.

“It’s like cleaning the cancer cells out of the body so the rest can be healthy,” said Frank Ford, vice president for research and development at Neighborhood Progress, Inc., a Cleveland neighborhood development agency. “It’s hard for me to say that. Like most of my colleagues, I was a preservationist 20 years ago. We rehabbed houses. That’s not feasible now. The market isn’t going to come back until we clear out the bad stuff and allow it to come back.”

“Greening” vacant lots is an increasingly popular strategy for helping turn around distressed neighborhoods.

In Pittsburgh, the city’s Green Up Pittsburgh program has put hundreds of vacant lots in the hands of community groups and residents who use them as neighborhood green spaces and side yards. Before Larimer residents decided to reinvent themselves as a green community, nonprofits used vacant lots to introduce them to ideas such as community gardens and urban farming. And in Homewood, a community group that began gardening vacant lots a decade ago established its own urban landscaping company and youth training program.

But before any house is rehabilitated or lot seeded with sunflowers, those interested in doing the work must take title of the property, which can be a time-consuming and costly process. In some cases, their local government lends them a hand.

Allegheny County, for example, helps municipalities and others acquire vacant properties through eminent domain-like powers granted in the state’s Urban Redevelopment Authority law and pays for clearing the title, which costs about $3,000.

And Pittsburgh takes tax-delinquent properties through treasurer’s sales, “quiets” the titles and holds them in its land reserve until community groups arrange financing to buy them. But financial and staffing constraints cap acquisitions at 300 properties a year, which represents about 1.5 percent of the vacant houses and lots in the city.

Pennsylvania added a number of legal tools to help combat vacancy and blight in recent years. The state’s new conservatorship act, for example, allows community groups and others to petition courts to appoint a third party to take temporary possession of a blighted property, rehabilitate or demolish it, and then offer the property back to the owner for the cost of the work done or sell it under court supervision to someone else.

But the consensus best practice for tackling vacant property on a large scale is not available in Pennsylvania. Genesee County, Mich. and Cuyahoga County in Ohio are showing how land banking and property tax reform can be used across entire counties to take control of thousands of vacant tax-delinquent properties, keep them out the hands of slumlords and speculators and manage them as community assets.

In June, legislation to empower land banks was introduced in the Pennsylvania House of Representatives by state Rep. John Taylor (R-Philadelphia). The bill, which received the endorsement of Pittsburgh Mayor Luke Ravenstahl, is under consideration in the House Urban Affairs Committee.

But costs are an issue. Genesee County and other land banks are able to recover much, if not all, of their operating costs through sales and the collection tax liens and penalties.

Start-up costs are another matter. While a land bank in Pittsburgh is estimated to cost $3.7 million a year to operate, it could take another $15 million to clear the titles of the more than 7,500 vacant properties in the city’s inventory, according to an unpublished report prepared for the city Land Recycling Task Force.

Spending that kind of money makes many municipal officials nervous, particularly when most face serious budget shortfalls. “We run into that all of the time,” said Dan Kildee, a former Genesee County treasurer who now directs the Center for Community Progress, a nonprofit that specializes in vacant property issues. “But it ignores the costs taxpayers already pay for vacant property and abandonment. You have to measure the cost of change against the cost of the current path that we’re on. Anybody who argues that the current path we’re on is the right one isn’t examining the full cost of vacant and abandoned property.”

(Matt Stroud of PittsburghTODAY.org contributed to the reporting for this article).

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Losing Ground Before the Holidays (by Harold D. Miller)

The more than 90,000 unemployed workers in the Pittsburgh Region aren’t getting much of a holiday gift from the economy this year. We actually lost private sector jobs in the region between October and November, only the sixth time in the past two decades that private sector jobs declined in November. As a result, the region has now gone over six months without making any significant headway in restoring the more than 26,000 jobs we’ve lost over the past 3 years.

JobChangebyIndustryinPghOct-Nov2010 Although there were 1,300 more total jobs in the region in November than in October, that was due to the 1,600 net new jobs in local school districts, one of the largest increases in government jobs from October to November in the past two decades. In contrast, there were 300 fewer private sector jobs in November than October, whereas in many previous years, the economy added between 800 and 4,000 private sector jobs in November. If it hadn’t been for the 2,500 seasonal jobs added in the retail sector (a smaller increase than the typical seasonal growth), things would have been even worse, because the small growth in most other sectors would have been inadequate to offset the loss of 5,000 jobs in construction and in the leisure and hospitality industry (which had a slightly higher loss of jobs than the typical seasonal decrease).

TrendinNonFarmJobsPgh2007-2010 This makes six straight months in which the region has failed to regain any of the ground it lost during the recession. Compared to three years ago (2007), before the recession began, we had 26,100 fewer jobs in November, only 600 better than the same shortfall in May (26,700 jobs). The primary reason that the unemployment rate is lower now than it was in the spring is that fewer people are searching for work, not that unemployed workers have found jobs.

Pittsburgh is not unique in this stagnation. The U.S. as a whole had only 600,000 more jobs in November than it did in May, a long way from restoring the more than 7 million jobs it has lost since November, 2007.

BenchmarkRegionsPrivateSectorMay-Nov2010 However, our region ranked only 9th among our benchmark regions in the rate of private sector job growth between May and November.

There’s one bit of good news in this otherwise gloomy report, though. The biggest progress we’ve made in the past six months has been in the place we’ve most needed it – manufacturing. In November, there were 1,200 more manufacturing jobs in the Pittsburgh Region than in May, a 1.4% increase. In fact, we’ve had the 6th highest growth in manufacturing jobs among our benchmark regions between May and November. We still have 13,900 fewer manufacturing jobs than we did 3 years ago, but the fact that manufacturing has been slowly adding jobs throughout the summer and fall is very good news.

BenchmarkRegionsManufacturingMay-Nov2010

In the Doldrums (by Harold D. Miller)

No news is bad news when you’re hoping for a strong recovery from the recession, and there was essentially no news in the job growth data for Pittsburgh in October. At first glance, the news might appear good, because there were 5,000 more jobs in the region in October compared to September. But jobs always increase from September to October due to seasonal factors, and this year’s September-to-October growth was actually somewhat weak compared to prior years. Indeed, last year, in the depths of the recession, 6,200 jobs were added in the region in October, 20% more than this year.

TrendinNonFarmJobsPgh2007and2010 In fact, throughout the summer of 2010, jobs in the Pittsburgh Region have been growing and declining in a fairly typical seasonal fashion, with no net growth to restore what we lost during the recession. Compared to three years ago (2007), before the recession began, we had 26,500 fewer jobs in October, almost exactly the same shortfall we had in May (26,700 jobs). We need to do better than that – a lot better – if we’re going to help the 90,000 individuals in the region who are still unemployed get back to a more normal life.

TrendinNonFarmJobsPgh1999and2010 The challenge we face is even more starkly demonstrated by comparing job counts today to job counts over a decade ago. In October 2010, we had over 6,000 fewer jobs than in October 1999, and that shortfall has actually gotten worse, rather than better, over the course of 2010.

JobsLostbyIndustryPghRegion2007-2010 Over half of the jobs we’ve lost over the past three years have been in manufacturing. That’s a bigger share than any of our benchmark regions, where only a third or fewer of the jobs losses were in manufacturing.

ShareofJobsLostinManufacturingBenchmarkRegions This means that even if our other economic sectors begin growing at above-average rates, it will be years before we can return to pre-recession job levels if we don’t find a way to restore many of the 14,100 manufacturing jobs we’ve lost since October 2007. Moreover, job losses in manufacturing have a disproportionate impact on our economy because they are some of the highest-paid jobs in the region. Consequently, supporting the manufacturing sector needs to be a top priority for the new Administration in Harrisburg as well as for local leaders.

Dead Calm (by Harold D. Miller)

Job growth in the Pittsburgh region appears to have been on hiatus over the summer. After a couple of months of strong job growth in the spring, no real progress was made in rebuilding the region’s job base over the summer. In September, we had 2.5% fewer jobs than two years earlier (before the recessionary job losses began to hit here), exactly the same shortfall as we had in June. PghvsUSJobs24MoSept2010 

Compared to other regions (using seasonally adjusted figures), our lackluster job performance over the summer is about average. Denver, Indianapolis, Milwaukee, and St. Louis added net jobs over the summer compared to seasonal norms, whereas Charlotte, Cincinnati, Cleveland, Kansas City, Minneapolis, and Philadelphia lost ground and did worse than Pittsburgh. BenchmarkRegionsSAJuneSept2010

The net result of the job growth we experienced in the spring and the lack of significant change over the summer is that we had 7,000 more jobs in September than a year earlier (September, 2009). About half of the region’s industries added net jobs over the past twelve months, but the other half lost jobs, meaning that significant dislocations have continued to occur for many workers. The biggest job generator over the past year has been in the broad category of “administrative, support, waste management, and remediation,” which includes everything from janitorial services to temporary employment. There has also been a significant recovery in the retail sector; Pittsburgh has seen higher job growth in retail over the past year than most regions in the country, which is likely due to the fact that the region did not have the retail overbuilding that occurred in many areas of the country. PittsburghbyIndustrySept09Sept10

Although having 7,000 more jobs in the Pittsburgh Region than a year ago is progress, it’s far short of what we need to recover from the recession. There are still over 29,000 fewer jobs here than two years ago, so it’s not surprising that there are still over 30,000 more people unemployed than two years ago. Most of our industries continue to employ several thousand fewer workers than before the recession; the only exceptions are health care, higher education, mining, and the leisure and hospitality industries. Manufacturing remains the hardest hit, with 13,600 fewer jobs than two years ago. The only good news about manufacturing is that employment has been steady throughout 2010 – no gains, but no more losses. It will be extremely difficult for the region to recover if it cannot regain many of those manufacturing jobs.PghByIndustrySept08Sept10

Slipping Into Mediocrity (by Harold D. Miller)

After hopeful signs earlier in the spring that Pittsburgh’s economy was recovering better than other regions, the most recent data suggest that we may be slipping into the type of mediocre growth we experienced in the years prior to the recession. Over the past 3 months, jobs in the Pittsburgh Region have been growing more slowly than the majority of our benchmark regions in most sectors of the economy.

In July, there were 15,300 fewer jobs in the Pittsburgh region than a month earlier. Losing jobs in July is not itself a cause for concern; we experience a similar seasonal change every year due to summer layoffs in public and private schools and colleges. In fact, even losing 15,000 jobs in July is not unusual; we’ve seen reductions of 14,000 to 17,000 jobs every July for the past decade. But therein lies the problem – if we had been experiencing a significant recovery from the recession this year, we would have seen smaller job losses this July than what we typically see, because growth in other sectors would have offset the losses in the education sector.

To see this more clearly, take a look at Cleveland. In each of the years from 2006 and 2008, Cleveland lost 12,000 to 15,000 jobs between June and July, similar to the seasonal reductions in the Pittsburgh Region. But this year, Cleveland lost only 5,000 jobs in July, one-third as many as Pittsburgh lost, because of the growth it has been experiencing in sectors such as construction and manufacturing.

You can see what’s going on in terms of economic recovery more clearly if you just look at private sector jobs, since most of the seasonal losses occur in the public sector (local school districts). Looking at our neighbors on Lake Erie again, the number of private sector jobs in Cleveland increased by 500 in July, whereas the Pittsburgh Region had over 4,000 fewer private sector jobs in July. In fact, Pittsburgh had the fourth worst rate of private sector job growth between June and July among our benchmark regions. Like Cleveland, half of our benchmark regions had a net increase in private sector jobs between June and July, whereas Pittsburgh lost private sector jobs during July.

BenchmarkRegionsPrivSectorApril-July2010 The region has been experiencing more and more mediocre economic performance over the past several months. After having best-in-the-nation job growth in April, the region slipped backward in May, regained a bit of ground in June, but then slipped again in July. Cumulatively, between April and July, we’ve added 14,200 private sector jobs. That’s a higher rate of growth than the majority of large regions in the country have experienced, but it’s behind what a number of our benchmark regions have achieved. Cleveland, which has a smaller economy than Pittsburgh, added over 24,000 private sector jobs over the past 3 months, and Denver, with the same total number of jobs as Pittsburgh, added nearly 30,000 private sector jobs during that time period.

SectorGrowthApril-July_Pgh-Benchmark Looking at individual sectors, job growth here has been above average among our benchmark regions in Leisure and Hospitality, Professional and Business Services, Retail Trade, and Other Services. However, growth in Mining & Construction and Finance has been below average, and we’ve lost jobs in Manufacturing and Transportation/Utilities while most of our benchmark regions have added them.

The fact that we lost fewer jobs during the recession means that even if we continue to have only modest growth for several months, we’ll still be better off than most regions in terms of total jobs lost since the recession began. However, with over 100,000 people still unemployed in the region, we need better than average job growth if we’re going to significantly reduce unemployment. And if other regions continue to add significantly more jobs than we do over a longer period of time, ultimately workers may conclude there are more and better opportunities elsewhere than here.

Another Step Forward (by Harold D. Miller)

Like an engine that isn’t quite in tune yet, the Pittsburgh Region’s economy has been recovering in fits and starts. On balance, however, it’s improved during the first half of the year, and the improvement here has been greater than in most of our benchmark regions. PghvsUSJobs24MoJune2010

Here are the facts: The region added 7,700 jobs from May to June. Although that sounds like lot, much of that is due to typical seasonal hiring; the region typically adds between 4,000 and 8,000 jobs in June due to seasonal factors. In fact, the only year the region didn’t add thousands of jobs in June was last year, and even then, in the depths of the recession, the region only lost 100 net jobs.

What is really news is that total jobs went up so much in June despite the fact that the region lost 1,400 federal jobs due to the end of short-term Census employment. Total jobs increased because of a strong showing by the private sector: private businesses added 9,300 net new private sector jobs in June, the 6th highest rate of growth in private sector jobs in Pittsburgh between May and June in the past 20 years. That’s also above average performance compared to our benchmark regions; only Baltimore, Cincinnati, Cleveland, Denver, and Minneapolis had stronger private sector job growth in June than Pittsburgh. PrivateSectorJobsMayJune2010

But even that ranking is actually better than it appears. Because the Pittsburgh Region lost fewer jobs during the recession than other regions, merely average growth during the recovery will keep us ahead of them, and above average growth will further widen our lead. In fact, if you compare where we stand today to two years ago (June 2008), before the recession really took hold, the Pittsburgh Region has lost fewer jobs than any of our benchmark regions. Perhaps more dramatically, most other regions have lost at least twice as many jobs (in percentage terms) as we have. For example, while Pittsburgh still has 28,000 fewer jobs today than it did two years ago, Charlotte has 54,000 fewer jobs, Denver has 80,000 fewer jobs, and Detroit has lost over 200,000 jobs.

However, looking ahead, we can’t take for granted that our above-average performance will continue. For example, the major layoffs announced by the West Penn Allegheny Health System will make it unlikely that the health care sector can continue to offset losses in other sectors the way it has for the past two years.

And although it’s good news that our manufacturing sector added 200 jobs between May and June, that growth rate pales in comparison to most of our benchmark regions. We can’t expect to continue to stay ahead of other regions if our manufacturing sector doesn’t recover, because half of the jobs the region lost over the past two years have been in manufacturing, a higher share by far than any of our benchmark regions. ShareofJobLossesDuetoManuf

Two Steps Forward, Then One Step Back (by Harold D. Miller)

Statistics on jobs in May throw a bit of cold water on hopes that a strong economic recovery is underway in the Pittsburgh Region. After two straight months of improvement in March and April, including #1-in-the-nation growth in April, job creation in the Pittsburgh Region retreated in May.

The fact that May represented bad economic news for the region won’t be immediately obvious from the way the state releases job information or the way that the news media typically report statistics. What you’ll likely hear trumpeted is the fact that there were 10,000 more jobs in the region in May than there were in April. However, there are always about that many more jobs in May than in April, due to seasonal factors, particularly hiring in the construction and leisure and hospitality sectors. Even last year, in the depths of the recession, the Pittsburgh region added 9,000 jobs in May.

So even though the Pittsburgh region added 10,000 jobs this year between April and May, compared to pre-recession job levels, the region was actually worse off in May than in April. In March 2010, our region had 35,600 fewer jobs (3.1%) than in March 2008; in April 2010, we had 32,200 fewer jobs (2.8%) than in April 2008; but in May 2010, we fell back to having 33,800 fewer jobs (2.9%) than in May 2008.

PrivateSectorJobsinPghvsUS You might think this was just a minor setback until you learn that over 25% of the jobs added in May were 2,800 temporary Federal jobs with the Census. In fact, the last time the region saw a large increase in Federal jobs in the spring was in May, 2000, i.e., during the last Census. If you take out government jobs and just look at private sector jobs, 2010 had the smallest increase in private sector jobs between April and May since 2001, and the fifth smallest May job growth in the last 20 years. In percentage terms, we’re further behind 2008 than we were in January.

Why compare jobs in 2010 to 2008 rather than 2009? Because what we really want to know is the extent to which we’ve recovered the jobs we lost during the recession (which started in 2008), not just whether we’re doing better than we were in the depths of the recession (in 2009). If you compare the 12 month change in jobs in May vs. April, it looks like we’re doing better – in May 2010, we had 0.7% fewer private sector jobs than in May 2009, compared to 1.4% fewer private sector jobs in March 2010 vs. March 2009. But that doesn’t mean job growth was twice as high in May as in March; most of that difference is due to the fact that we were losing jobs between March 2008 and May 2010, i.e., the denominator decreased, rather than the numerator improving. You can always make yourself look better if you compare yourself to a point when you were doing particularly badly.

So how does Pittsburgh’s weak performance in May compare to other regions? In April, we were #1 in the country in month-to-month job growth. In May, we were only 10th among our benchmark regions. We weren’t alone in dropping; many regions with high rates of job growth in April relative to their peers slowed down considerably in May, and many of those with low job growth rates in April improved considerably. In part, this demonstrates that month-to-month changes can be highly volatile and very dependent on local conditions.

PrivateSectorBenchmarkJanMay2010 If one looks over a multi-month period, Pittsburgh is doing above average among other regions. Between January and May, total jobs in the Pittsburgh Region increased by 3.35%, the fourth highest growth among our benchmark regions, and private sector jobs in the Pittsburgh Region increased by 3.1%, the fifth highest growth among our benchmark regions.

The Pittsburgh Region has outperformed our benchmark regions in about half of the major subsectors of the economy so far this year. Our region has underperformed our benchmark peers in manufacturing, the information sector (which consists of businesses such as newspapers, television and radio stations, internet providers, etc.), education and health services, financial services, and “other services.”

PghvsAvgBenchmarkJanMay2010 The biggest gap in terms of absolute numbers of jobs is in education and health services. Jobs in these sectors increased by only 0.2% (one-fifth of one percent) in the Pittsburgh Region between January and May, whereas they grew by an average of 1.8% -- 9 times as fast – in our benchmark regions. If these sectors had grown here at the average rate they grew in other regions, we would have had over 3,000 more jobs here in May than we actually did.

This gap is a combination of two things. First, job growth in the health care sector here was modest compared to other regions – an 0.8% increase in jobs, compared to job growth that was more than twice as large in regions as diverse as Cincinnati and Denver. Second, the Pittsburgh Region actually lost jobs in the private education sector between January and May, one of only a few regions in the country to do so. This included a loss of 1800 jobs in colleges, universities, and professional schools.

These gaps help to make clear that some of the economic characteristics that helped the region lose fewer jobs during the recession could actually slow its recovery. The health care sector was the only sector that consistently added significant numbers of jobs nationally during the recession, and because so many of our region’s jobs are in health care, that “recession-proof” quality meant that we lost a smaller proportion of our total jobs than other regions. However, growth in the national economy after the recession does not automatically translate into larger growth in healthcare, particularly in a region that is not adding new residents.

Significant job creation in the post-recession economy is more likely to occur through growth in other sectors, particularly manufacturing. Consequently, supporting the manufacturing sector should remain a top priority for the region and the state if we are to going to recover all of the jobs we lost during the recession and add net new jobs to attract new residents.

Pittsburgh Region: #1 in U.S. in Job Growth in April (by Harold D. Miller)

PrivateJobsBenchmarkMar-Apr2010 The Pittsburgh Region just achieved a new #1 national ranking: it had the largest percentage growth in private sector jobs of any large region in the country in April. The region added 17,800 total jobs, including 16,700 jobs in the private sector, between March and April. That’s a 1.6% increase, higher than any of our benchmark regions, higher than any of the 40 largest regions in the country, higher than the state as a whole, and nearly twice as high as the nation.

Seasonal hiring in the spring means that jobs always increase from March to April; even in the midst of last year’s recession, there were more jobs in the Pittsburgh Region and the U.S. in April than in March. What is significant this year was how big the March-April increase was –more jobs were added in the Pittsburgh Region in April, both in absolute and percentage terms, than in any April in the past 15 years. Seasonal changes alone would have resulted in over 7,000 fewer jobs than we actually had.

PghbyIndustryMar-Apr2010 Where did these jobs come from? The leading job creator by far was the construction industry, which had 5,600 more workers in April than in March. Construction jobs typically increase in the spring, but that has not been a foregone conclusion by any means this year. What is remarkable is that construction jobs increased here by 12% in April, a bigger increase than any region where construction jobs are measured separately, and triple the growth rate nationally in construction. Part of this is likely due to stimulus spending, but some of it is also likely due to a housing market that didn’t crash here the way it did in most other regions.

The second biggest job creator was the leisure and hospitality sector, which added 4,300 jobs in April. This, however, was just a normal seasonal change – the leisure and hospitality sector adds about 4,000 jobs every April.

The third biggest contributor was professional and business services, which added 3,700 jobs in April. This was an above average increase in this sector, but most of the increase came from the “administrative and support services” subsector, which includes a wide range of jobs, from telemarketing to janitorial services and landscaping to temporary employment. Detailed data aren’t available for Pittsburgh, but national data suggest that the biggest sources of hiring have been in building-related services such as janitorial and landscaping services.

The primary explanation for our unusually high growth compared to other regions was simply that almost every economic sector in the region added jobs. Only two major sectors lost jobs in March – financial services and transportation and warehousing.

ManufBenchmarkMar-Apr2010 Even our manufacturing sector added 100 jobs, the second month in nearly two years that it has added, instead of cutting, jobs. Compared to our benchmark regions, our manufacturing performance was below average; 9 of of our benchmark regions had bigger percentage increases in manufacturing jobs than we did, but we did better than the 4 regions which lost manufacturing jobs between March and April.

Does the large growth in April mean the region is finally on its way out of the recession? It’s still too early to say for sure, but April represented the first time in two years that the region has seen two consecutive months of job growth above seasonal norms. Two months does not make much of a trend, but it’s certainly better than we’ve seen so far.

JobsinPghApril2010 However, it’s important to recognize that the jobs created in April, while large in historical terms and large relative to other regions, added back only a small portion of the jobs that were lost during the recession. The Pittsburgh Region still has 32,500 fewer jobs than it did two years ago, and 7,000 fewer jobs than it did over a decade ago in 1999. We’ll need many more Aprils before every worker who lost their job over the past two years can find stable employment here again.

An Idling Economy (by Harold D. Miller)

New data on the number of jobs in March suggest that the Pittsburgh Region’s economy is still traveling in the slow lane, while some other regions have started to accelerate on the road to recovery. After a significant dip from January to February, jobs increased here in March by almost 10,000, but that’s not really good news, because jobs always increase in March due to seasonal factors. Although 10,000 jobs is a lot, that was fairly typical of the seasonal increase in jobs we experience in most years between February and March. And experiencing a typical seasonal change means that there is little sign of a strong recovery pushing through.

PghvsUSJobs24MoMar2010 In fact, for five straight months, the number of jobs here has been consistently between 34,000 and 37,000 lower than in the same month two years earlier (before the effects of the national recession began to kick in). It now seems clear that the small bit of non-seasonal job growth that appeared in a couple of those months was more likely random variation than any true indication that a significant recovery was getting underway, since the job gains one month disappeared the following month. Similarly, the job losses in other months, such as February, also seem to be just temporary fluctuations.

ChginPrivSectBenchmarkJan-Mar2010 Compared to our benchmark regions our performance over the past few months has been about average. The country as a whole is also still idling in terms of job creation. We’re doing a little worse than average on private sector jobs, however – our economy is being disproportionately supported by growth in government jobs. A number of major regions have started to see more significant acceleration in private sector job creation than we have.

ChginAllJobsBenchmarkMar2008-2010 Although our overall 34,000-37,000 job loss isn’t improving the way we’d like, it’s still the envy of most other major regions. In percentage terms, we’re 3.1% below where we were 2 years ago, while all of our benchmark regions lost a bigger share of their jobs during that period. So even if other regions start growing significantly faster than we do, it will take them a long time just to get back to the lower level of losses that we’ve experienced.

PghbyIndustryJan-Mar2010 Nonetheless, we have to be concerned about how to get job creation underway here if we’re going to reduce the unemployment rate, which was almost 10% in February. Some of our industry sectors are doing better than other regions, while others are doing worse. For example, we had over 2,000 more construction jobs here in March than in January, the largest increase of any region that reports construction jobs separately. Conversely, our region actually lost jobs in the healthcare and social assistance sector between January and March; only 3 of our benchmark regions lost job in this sector. Although the loss was relatively small (100 jobs), other regions added hundreds or even thousands of jobs in healthcare over the past few months, which has helped offset losses they’ve experienced in other sectors. What was at one point our only growing sector has now also fallen into the loss side of the ledger.

PghbyIndustryMar2008-2010 Our biggest focus needs to be on manufacturing, since over the past two years, our region has lost twice as many manufacturing jobs as in any other sector, and 40% of all the jobs we lost in the past two years were in the manufacturing sector. Moreover, the loss of high wage jobs in manufacturing has likely contributed to job losses and slow recovery in other sectors. Here, March brought a little good news – after 20 straight months of job losses in manufacturing, the preliminary data indicate that we added 200 manufacturing jobs between January and March, while 5 of our benchmark regions lost manufacturing jobs during that period. However, that 200 jobs is only 1% of the 13,900 manufacturing jobs we’ve lost in the past two years, so we have a long way to go to rebuild our manufacturing base.

Potholes on the Road to Economic Recovery (by Harold D. Miller)

Like Pittsburgh drivers dodging potholes on their way to work, occasionally hitting one that causes some damage, the Pittsburgh Region’s economy hit a pretty big pothole last month on its road to economic recovery.

PrivSectBenchmarkRegJanFeb2010 The region lost 5,200 private sector jobs between January and February, which is the second biggest private sector job loss between those two months in the past two decades. The job loss was so big that it gave Pittsburgh the third worst private sector job performance in the past month among our benchmark regions, losing jobs when five benchmark regions (Charlotte, Cleveland, Indianapolis, Milwaukee, and St. Louis) and the U.S. as a whole actually added net new jobs.

Total jobs in the region declined, but not quite as badly, however, because of the addition of nearly 3,000 government jobs in February, two-thirds of which were state government jobs (which includes state universities). Some of this is likely a result of the federal stimulus spending, although the Pittsburgh Region saw the second highest increase in state government employment among our benchmark regions (only Cleveland had a bigger increase).

Combining both private and public sector jobs, the region had 2,300 fewer jobs in February than in January, making Pittsburgh one of only 5 regions among our benchmark regions that had a net loss in total non-farm jobs between the two months. Moreover, revised figures for January show that we lost 700 more jobs that month than the preliminary data released a couple of weeks ago had indicated.

Although it had appeared that regional job losses had peaked in December at 36,700, February now holds the record – we had 38,800 fewer jobs in February 2010 than two years earlier (February 2008), just before the national recession hit. The loss of jobs was so big that it wiped out more than a decade of job growth here – the region now has 10,000 fewer jobs than it did in February 1999.

PghRegionbyIndustryJan-Feb2010 What caused the big job loss here in February? Although the biggest contributor was the loss of 2,700 retail jobs, that’s a typical seasonal change between January and February. What was far from typical was the loss of 900 jobs in the health care and social services sector, one of the few times in the past 20 years that health care jobs haven’t increased and one of the largest monthly losses during that period. An even bigger negative was the leisure and hospitality sector, which lost 1,300 jobs, the largest January-February job loss in two decades, and the third-largest decrease among our benchmark regions.

At the other end of the spectrum, higher education was the only non-governmental sector that added jobs. Although the number was large – 2,300 jobs – that’s a pretty typical seasonal change for February, and the increase was below average compared to other regions around the country.

The total number of manufacturing jobs in the region didn’t increase or decline in February, but that’s actually pretty good news after 19 consecutive months of job losses. Some manufacturing subsectors grew slightly, but others declined.

PghvsUSJobs24MoFeb2010 So unfortunately, despite hopes that the Pittsburgh Region was finally on the road to economic recovery, the road is pretty rough and at the moment, we’re losing ground rather than making progress. We’re still better off than many other regions – although 38,800 jobs lost is a lot, it represents 3.4% of the jobs that were here two years ago, and that’s the smallest loss among our benchmark regions. But unless we start to see more private sector job creation here soon, the regions that have begun growing again will keep narrowing that gap and ultimately leave us behind, as they have in the past.

Thirty Years Later, the Steel Industry Still Has a Major Impact on Our Economy (by Harold D. Miller)

Revised data issued last week on the number of jobs in the region reveal that the recession hit the Pittsburgh Region somewhat harder than originally thought. Instead of a peak job loss from December 2007 to December 2009 of 33,600, the number was actually almost 10% higher – 36,700. The health care sector added fewer jobs than earlier estimates indicated, while higher education added more, but it remained the case that those two sectors were the only major job generators during the year. Professional and business services lost significantly more jobs than originally believed as did both construction and manufacturing. Leisure and hospitality lost significantly fewer jobs than earlier data indicated, as did the financial sector. PghRegionbyIndustry2007-2009

One thing that didn’t change was the fact that the biggest loss of jobs by far occurred in the manufacturing sector. Nearly half (46%) of the jobs lost here between 2007 and 2009 were in the manufacturing sector. In fact, manufacturing represented a bigger share of private sector job losses in the Pittsburgh Region than any major region in the country other than Austin, Texas.

Why have we lost so many manufacturing jobs? A key reason is the kind of manufacturing jobs we have in the region. Although many people believe that the steel industry is “gone,” the fact is that the steel industry is still a major part of the region’s economy. In 2007, over 14,000 jobs in the Pittsburgh Region were in primary metals manufacturing, which includes steel mills and steel manufacturing. That’s one of out every seven manufacturing jobs (14%), the highest percentage of any major region in the country.

An even larger number of manufacturing jobs in Pittsburgh have been in fabricated metal manufacturing – 16,000 jobs in 2007, or nearly 16% of all manufacturing jobs in the region. Another 11,400 jobs in 2007 were in machinery manufacturing. And finally, another 7,000 jobs were in “nonmetallic mineral product manufacturing,” which includes glass, bricks, and cement. The Pittsburgh Region has a higher concentration of its manufacturing jobs in each of these sectors than most regions in the country. TypeofManufJobsBenchmarkRegions

These four sectors, totaling nearly 50,000 jobs, represented almost half of all of the manufacturing jobs in the region in 2007. In fact, Pittsburgh has the highest concentration of manufacturing jobs in these sectors of any large region in the country. But nationally, most of these sectors suffered more than others during the recession.

The Pittsburgh Region lost one-seventh of its jobs in these four sectors between 2007 and 2009, a total of 7,000 jobs, representing more than half of the region’s manufacturing job losses and more than a quarter of all the jobs lost in the Pittsburgh Region during the recession. How these four sectors fare during 2010 will have a major impact on the speed of recovery for the region as a whole.

Is there any good news on the horizon? Preliminary data for January indicate that jobs are finally starting to increase again in most industries. Although there were nearly 28,000 fewer jobs in the region in January than in December, that’s a seasonal phenomenon. There are significantly fewer jobs in January than December every year, even when the economy is growing. The good news is that the decrease from December to January this year was smaller than in prior years, which means that jobs are beginning to be added. Every industry sector improved or was stable with four exceptions: construction, manufacturing, utilities, and transportation and warehousing. Pittsburgh’s improvement was about average among major regions, but any improvement is a good way to start 2010 after the continuous stream of bad economic news throughout 2009.