PittsburghToday

Take that Indicators! (By John G. Craig Jr.)

The regional indicator project was criticized this week from the Allegheny Institute for the recent addition to its Economy indicator package – the 18-part report on wage levels for occupations in the region and how pay here compares with comparable pay levels in other benchmark regions.

I am not of a mind to argue with their conclusions, only to call your attention to this piece from their web site. Also read the remarks from the Three Rivers Workforce Investment Board on the same subject and then look at the indicators themselves with the annotated text.

Then judge for yourself whether pay levels in the Pittsburgh region are or are not a proper subject for further comment and examination.

Wages by Occupation and Pittsburgh (by Kelleigh Boland and Ron Painter)

The wage data by occupation provided by the Three Rivers Workforce Investment Board (TRWIB) on the Economy section of the PittsburghToday website has created a lot of questions/comments on how the data is compiled, what is included, and what will the region do about the results. The answers to those questions can be found below.

How is the data compiled?
The data utilized is housed at the Bureau of Labor Statistics (BLS) and is part of the Occupational Employment Statistics (OES) Program. The OES program produces estimates of the number of people employed in certain occupations and the estimates of wages paid to them for over 800 occupations.

The data can be broken out to national, statewide, metropolitan, and non-metropolitan levels. The OES is a semi-annual mail survey and surveys approximately 200,000 establishments per panel (every six months), taking three years to fully collect the sample of 1.2 million establishments. The May 2007 OES estimates referenced on the Pittsburgh Today website are benchmarked to the average of the May 2007 and November 2006 reference periods.

What is included in the data?
The OES data includes all part-time and full-time workers who are paid a wage or salary. Self-employed persons are not included in the data. The occupations that are highlighted were chosen as a result of TRWIB’s prior research and recommendations of the Pittsburgh Today Economy committee. The occupations are categorized using a Standard Occupational Classification (SOC) system used by federal statistical agencies to classify workers into occupational categories. All workers are classified into one of 820 occupations according to their occupational definition. On the Pittsburgh Today website, you will find 18 of those 820 occupations and their wages.

What are next steps for the Pittsburgh region?
An article written by David Guo in the Pittsburgh Post Gazette on June 17th starts, “Pittsburgh employers wondering why jobs in finance or nursing go unfilled may need to look no further than one fact—poor pay.” It is true that of the 18 occupational wages TRWIB compared across cities, Pittsburgh does not fare well. At the highest end of the scale Pittsburgh comes in fourth for family physicians and general practitioners, fifth for hotel clerks, and sixth for plumbers.

So what does this all mean? In a region that has more out-migration than in and has 50,000 more older workers and 50,000 few younger workers than other cities, it could mean everything.

As a region, we have to be realistic in what we are and what we are not. We will never rival LA, New York, or Washington, DC, because of the plethora of opportunities available there that we can’t produce here. A lot of attention has been paid to the region’s efforts at attracting and retaining young talent. Young people do and will continue to leave for a particular city that has a willingness to hire fresh-out graduates and offers high wages. We are told this repeatedly through surveys and through the amount of young people leaving our region.

For some young people, the “cost of living” is a vague concept in deciding where to live; other amenities are more important. Low wage offers in a city that struggles with diversity and risk is not the most attractive choice. However, efforts are being made to better connect students, both high school and college, to career opportunities in our region.

Tying what youth learn in school to real life career opportunities in our region is one way to step up the talent attraction and retention goal. Organizations like Smart Futures, Youthworks, Junior Achievement, Urban Youth Action, The Boys and Girls Clubs of Western PA, Allegheny Intermediate Unit, The Consortium for Public Education, Allegheny Conference, Coro Center for Civic Leadership, and TRWIB have all made career education for students a priority.

TRWIB alone, through the Employers and Educations Engaged for Excellence (E4) program, has already assisted 4,601 students with career exploration/interest assessment activities. In addition, the Pennsylvania Department of Education has created the Career Education and Work Standards to ensure each youth has a career exploration journey prior to graduation.

Career education and showing students the opportunities available in southwestern PA will not stop them from leaving completely, but it is a way to engage them in what we have to offer and if they see something they like, they just may decide to stay.

Kelleigh Boland
Three Rivers Workforce Investment Board
Research and Planning Coordinator

Ron Painter
Three Rivers Workforce Investment Board
Chief Executive Officer

The Recession Starts to Arrive in Pittsburgh (by Harold D. Miller)

The preliminary May jobs figures for the Pittsburgh Region show that the slow U.S. economy is starting to affect our region.  The bad news is that our rate of job growth has slowed dramatically; the good news is that we're still creating jobs, whereas many other regions are actually losing jobs.

As of May, 2008, there were 3,200 more jobs in the Pittsburgh Region compared to a year ago (May, 2007).   In the earlier part of the year (January through April) we were up between 7,000 and 9,000 jobs each month.  Our rate of job growth (0.28%) was only half or less what it has been for the past year, so that's a very significant slowdown.

However, we're not alone in experiencing a slowdown; the U.S. job growth rate is only 1/10 of what it was at the end of 2007, and all but 3 of the top 40 regions have experienced reductions in their job growth rate.   Pittsburgh's job growth, although lower than it has been, was three times higher than the U.S. job growth rate (0.28% vs. 0.08%) in May.

Most striking, though is the fact that 14 of the top 40 regions have fewer jobs today than they did a year ago.  It's not just places like Cleveland and Detroit, which have been losing jobs for the past two years;  San Diego, Los Angeles, Las Vegas, Phoenix, Miami, and Tampa all lost jobs over the past year.  The Pittsburgh Region had the 23rd highest job growth rate among the top 40 regions in May, higher than Orlando, Chicago, and Cincinnati, as well the regions that lost jobs.

Why are we doing so well?  One out of every 5 jobs in our region is in health care or higher education, and those are reasonably recession-resistant industries.  (By way of comparison, only one out of every 14 jobs in Las Vegas is in health care or higher education.)  And while we're continuing to lose manufacturing jobs, we're holding on to them better than many other regions are -- we lost 1.3% of our manufacturing jobs over the past year, while the U.S. as a whole lost 2.5% of its manufacturing jobs, i.e., almost twice as many.

The next few months will likely be critical.  If the U.S. economy recovers, Pittsburgh's recesssion-resistance may enable it to ride out the dip without actually losing jobs.  If the U.S. economy worsens, then we may well start to lose jobs, too, as more and more sectors are affected more and more severely by economic woes.

(The May job numbers will be posted on PittsburghToday next week.)

Pittsburgh recognized as a startup hotbed! (by Gary Rosensteel)

John Foley, editor of InformationWeek, wrote an article, "Penguins, Pirates, Steelers, and Startups" that not only talks about the high level of startup activity occurring here, but also provides a series of interesting videos featuring local entrepreneurs and leaders of our entrepreneurial community.

InformationWeek is the top industry journal in the information technology industry covering activities around the globe.  For Pittsburgh to be so highly (and thoroughly) recognized by this well known publication is a great boost for our area; putting us in front of thousands of top decision makers.

However, my purpose with this post is to encourage everyone here to check this out.  It is critically important to the future of our region that WE start seeing ourselves in a different light - a place fostering success, and providing an environment conducive to 'the good life'! 

This is one of the challenges the Help Startups organization has been addressing since we founded it four years ago.  The need to get our population on board with supporting entrepreneurial activities, and realizing this is a GREAT place to live and work!

Resisting the Recession in Pittsburgh (by Harold D. Miller)

Although the economic recession has caused a dramatic drop in the rate of job growth nationally over the past six months, job growth in the Pittsburgh Region has remained remarkably stable. The number of jobs here increased by 0.74% between the first quarter of 2007 and the first quarter of 2008, which was exactly the same as our job growth rate from 2006 to 2007. In contrast, the national job growth rate so far this year was less than half the rate last year (0.55% during the first quarter of 2008, versus 1.13% for 2007). In fact, you may be surprised to learn that jobs are now growing faster in the Pittsburgh Region than the U.S. as a whole and faster than many of our benchmark regions.

A major reason is that more than one out of every five of our jobs is in higher education or health care, and those are sectors that typically don’t decline in a recession. Between March 2007 and March 2008, the education and health care sectors created 5,000 net new jobs in the Pittsburgh Region, which was more than any year since 2002. We have the highest proportion of jobs in education and health care of any of our benchmark regions (and second highest among the top 40 regions, after Providence), making us more resistant to recessionary downturns than other communities.

Our biggest recent job losses have come in retail (1,500 fewer jobs in March 2008 than March 2007), government (1,500 fewer jobs), and manufacturing (1,100 jobs). The reductions in retail and government jobs have a simple explanation – our lack of population growth means we don’t get job growth in sectors that depend primarily on the local population. Our population has been declining, so we need fewer stores, fewer public schools, fewer police, etc., which means we need fewer retail and government jobs, too.

If you look at job growth in the sectors that aren’t so population-dependent, you see a very different picture. Our private sector job growth in March 2008 was 0.94%, the third highest among our benchmark regions. And our private, non-retail job growth (i.e., jobs other than in government or retail) was 1.25%, more than 4 times the 0.29% average growth experienced by benchmark regions.

Where is our private sector job creation coming from? In addition to Education and Health Care, the primary contributors to job growth in March were Professional and Business Services (3,700 net new jobs), Construction (2,400 net new jobs), and Leisure and Hospitality (2,500 net new jobs).

The loss of 1,100 manufacturing jobs over the past year – 1.1% of the total –is troubling, since manufacturing is still our largest economic sector in terms of income generation, and since it supports many of our professional and business service jobs. But fortunately, the decline in manufacturing jobs here was smaller than what most of our benchmark regions experienced. For example, Detroit lost nearly 10% of its manufacturing jobs in the past 12 months, and St. Louis lost over 5% of its manufacturing jobs during the same period.

This stable performance doesn’t mean that all is well in Pittsburgh’s economy, though. Despite our improved job creation in 2007 and our steady growth into the first quarter of 2008, we still have 10,000 fewer jobs than we did in March, 2001. We need to address our serious competitiveness problems – starting with the worst state business taxes in the nation – in order to keep our existing jobs in manufacturing and other sectors and to capture new growth when the U.S. economy turns around.

Job Growth in Pittsburgh Doubles in 2007 (by Harold Miller)

New figures from the Pennsylvania Department of Labor and Industry and the U.S. Bureau of Labor Statistics show that the Pittsburgh Region created 8,400 jobs in 2007, almost double the number created in 2006 (4,300).  And despite the looming recession, the job growth rate in January 2008 stayed almost as high.  The region had 7,600 more jobs in January 2008 than January 2007. 

Why are the numbers so much better than previous reports?

Each March, the Bureau of Labor Statistics adjusts its employment statistics, through a process called benchmarking, so that they more accurately reflect true job levels and changes. (The monthly reports are based on surveys, and can undercount jobs in some sectors or for small businesses.) In some years, job growth in the Pittsburgh Region has looked better after the benchmarking, while in other years, it has looked worse.  This year, we look dramatically better.  (Whereas previously it was reported that December 2007 had only 900 more jobs than December 2006, the revised number is 5,200.)

The 7,600 jobs in January compared to January 2007 represents a 0.68% increase in jobs. By comparison, jobs nationally only increased by 0.72% in January, so Pittsburgh's job creation rate was almost equal to the U.S.

How do we compare to other regions?  Although the Pittsburgh Region is still below average, it's improved considerably from where it had been.  Our job growth rate in 2007 over 2006 was 0.74%.  12 of the top 40 regions had slower growth, including some that may surprise you -- we had faster job growth than sunbelt cities like Los Angeles, Miami, San Diego, and Tampa, as well as Cleveland, Detroit, Minneapolis, and St. Louis.  In January 2008, the Pittsburgh Region had faster job growth than 14 of the top 40 regions, including Baltimore and Chicago.

Although the data still indicate that job creation here slowed significantly in the last quarter of the year compared to the summer, the reduction in the growth rate of the U.S. economy was greater, and so Pittsburgh's job growth moved from being well below the national rate to almost identical to it. That suggests that rather than leading the way into the recession, as the unbenchmarked numbers in December indicated, Pittsburgh's economy is being more resistant. This is similar to what happened in the 2001 recession, when Pittsburgh moved more slowly into the recession than the U.S. as a whole, although it also recovered more slowly when the U.S. economy began to improve. The difference between Pittsburgh and the U.S. is partly a function of the strong role that education and health services play in our economy, since those are non- or even counter-cyclical industries.

The biggest job creator from January 2007 to January 2008 was administrative support services (which includes a lot of call centers, temp agencies, etc.), where 3,800 net new jobs were created, followed by colleges and universities, with 2,600 more jobs, and construction, with 1,800 more jobs. Health care continued to grow, but at a slower pace than in the past (creating 1,500 net new jobs). Manufacturing jobs continued a slow decline, losing 1,400 jobs between January 2007 and January 2008.

Although Pittsburgh's job growth in 2007 is good news, it's important to note that the total number of jobs in Pittsburgh is still over 8,000 below the levels in 2000-2001, i.e., we still haven't fully recovered from the 2001 recession. However, we have some interesting company -- the same is true of Boston, Chicago, San Francisco, and Silicon Valley, as well as Cleveland, Detroit, and Milwaukee

The complete dataset, including comparisons to benchmark regions, will be available soon on the PittsburghToday website.

2007 Pittsburgh venture capital totals (by Matt Harbaugh)

For several years, Innovation Works (IW) has been tracking data about venture investment in the Pittsburgh region, which we view as one of the most objective ways to measure the health of the local early-stage tech community. Our 2006 year-end report noted that the region's 2006 VC investment total of $230 million was the highest amount received by local companies in the post-bubble era, and gave Pittsburgh one of the fastest 10-year growth rates for VC investment among all regions in the United States. At the time, however, we were cautious in our enthusiasm due to the fact that $100 million (43%) of the 2006 VC investment came from a single deal.

So, how did the region do in 2007? According to data from the PWC MoneyTree Survey, 2007 was Pittsburgh's second-highest year in the post-bubble era, with 43 companies in the Pittsburgh region obtaining a total of $206 million in venture investment. Here's a chart showing the total amount and number of companies receiving investment in the Pittsburgh Metropolitan Statistical Area since 2002 [note that MoneyTree is now showing the 2006 total as $242 million]:

Unlike 2006, no single deal dominated the results in 2007. The largest investment was a $47 million investment in Millennium Pharmacy Systems, Inc., which accounted for approximately 22% of the total for the year. Including Millennium, four local companies attracted investments larger than $20 million, six companies obtained investments of $5-20 million, seven companies received investments of $1-5 million, and the remaining 26 companies received investments of less than $1 million each (23 of which were seed investments).

Despite the fact that the total amount of venture investment was down from its post-bubble high, the total was still well-above the region's prior 5-year average ($139 million), and the investments seem to be spread more broadly across a large number of companies without one big deal skewing the results. The average investment per company declined from an average of $6.4 million per company in 2006 to $4.8 million in 2007, which was still above the prior 5-year average of $3.9 million per company.

In the next post, I'll talk about the trends we're seeing in venture funding by tech sector.

This post was originally published on Pittsburgh Ventures.  Matt Harbaugh is the Chief Investment Officer for Innovation Works, Inc. 

Keeping an eye on engineers (by John Craig)

Employment numbers in science and engineering occupations for 2006 are now available from the State Science and Technology Institute and they are very much worth our attention. Pittsburgh ranks more highly in total employment in this key area than it does in the percentage of the work force so employed, but before you make too much of its relative position I want to share a few ideas that might give you pause.

A recent paper from Desmond Beckstead, W. Mark Brown and Guy Gellatly explores development strategies tied to a single employment sector and examines the factors that influence the number of scientists and engineers in cities. In Cities and Growth: The Left Brain of North American Cities: Scientists and Engineers and Urban Growth, Beckstead et al. find that cities characterized by diverse mixtures of people with degrees, combined with science and engineering employment, experience the highest rates of long-term employment growth.

The authors use census data on 242 Canadian and U.S. cities to track employment numbers from the early 1980s to the early 2000s. According to their research, the concentration of people in a city with a cultural background is comparatively less influential than the concentration of people with a broad range of degrees for effecting the employment growth of scientists and engineers. That is not to say some things such as openness and amenities do not have an impact, just that a diverse pool of human capital from many sectors has a larger impact. Even when controlling for other urban characteristics such as climate and housing prices, cities with larger concentrations of non-science and non-cultural jobs have a more vigorous growth of scientists and engineers.

The study also found that cities are not likely to experience sustained relative increases in the number of scientists and engineers over an extended period. Often, cities with larger numbers of S&E employees witnessed a slower growth in the number of scientists and engineers a decade or two later. Additionally, the authors report that cities with more immigrants, regardless of their educational background, encountered stronger growth of scientists and engineers in the 1990s.

There is an echo here of a point made below by Charlie Humphrey: One of the best things for the arts community is not more arts as much as it is a more vibrant overall economy. This in turn suggests an eclectic strategy: the big bang comes when a diverse assortment of employed, educated and accomplished citizens interact with each other.

Have you hugged an entrepreneur today? (by Gary Rosensteel)

OK, so it’s a little over the top, but have you, at least, encouraged an entrepreneur today? It’s a running joke in our Help Startups organization that the first thing friends and family say to someone thinking of starting their own business is, “Are you sure you want to do that? Wouldn’t you rather have the security of a job?”

This is one of those real Pittsburgh attitudes – get a job with a large company and work until you retire. Unfortunately, that reality ceased to exist decades ago, but most ‘Burghers are still stuck there mentally. Almost all the large corporations that ruled our town are long gone, and there aren’t going to be any rising up to take their place.

Yet people still cling to the corporate mind set that ruled our area for most of the twentieth century. You graduated (mostly from high-school; who needed college), got a job at the mill, the shop or the mine, and worked there until you retired. In the process you did NOT take any risks. You protected your job by always taking the safe route; going with the status quo and repulsing any new ideas.

When I think back on my life, I honestly did not know there was any such thing as an entrepreneur until I was into my adult years. It simply was not something that was addressed in our education, or discussed at any level by anyone. Yet the irony of this is that Pittsburgh is the great city it is BECAUSE of entrepreneurs.

From the 1880’s until around 1920, Pittsburgh was the Silicon Valley of that era. Carnegie and Frick were entrepreneurs who knew how to create wealth through business operations. Westinghouse was almost as prolific an inventor as Edison. Mellon was the country’s premier venture capitalist, and these are but a few of the luminaries of that time.

Businesses were being started by entrepreneurs and inventors in, basically, sheds all over our area. Many of these became very successful and grew into international corporations, to the point that into the 1970’s Pittsburgh was the third largest Fortune 500 headquarters city in the United States.

That was the Good News, the Bad News was that we became the epitome of corporate bureaucracy – take NO risk. Now this is exactly the opposite approach of Carnegie, Mellon, et al. They took massive risks – no risk, no reward. Being an entrepreneur is all about taking risks.

Although most or our population isn’t aware of it, we actually still have that entrepreneurial spirit embodied in many of our citizens. The population isn’t aware because our major media (daily papers, TV and radio) don’t acknowledge that entrepreneurship is alive and well in our town. They only cover BIG business, even though over 60% of the jobs created in our area are produced by startup companies.

This is still a wonderful area with lots and lots of things to be proud of, but we need an attitude adjustment. Everyone needs to encourage entrepreneurs, not tut-tut behind their backs about how foolish they are.

Don’t fret if a startup company doesn’t last, it’s just part of the process. The people involved will learn from their mistakes and go on to form another company, one that may prove to be a major success. Giving everything you’ve got to try to build a company, is NOT considered a failure in Silicon Valley,  Boston or Austin.

Our corporate types need to awaken to all the opportunities they are missing by totally ignoring the wealth of innovations percolating throughout our area. All our local entrepreneurs have ever asked is for our corporations to just consider the possibilities. They may be pleasantly surprised to find something that could produce major operational efficiencies and cost savings.

For our city to reclaim its greatness we need to get behind our startup community, listen to what they are saying, help them make connections. The overwhelming majority of our population would be amazed to know of all the exciting and diverse innovations that are being developed here by the next generation of Carnegie’s, Mellon’s, Westinghouse’s, Frick’s.

With some TLC we can nourish them into successful companies that will provide many well paying jobs throughout southwestern PA.  So, please encourage and assist those entrepreneurs who are working tirelessly to reclaim the economic success we enjoyed a hundred years ago.

Gary Rosensteel is the Principal of NuCoPro, which provides strategic advisory services to startup companies. Gary also serves as Executive Director of the Help Startups organization, which is responsible for HelpStartups.com, the web portal for entrepreneurs.

Is Pittsburgh Ground Zero for the Recession? (by Harold Miller)

The preliminary job statistics for December show continuing bad news about the Pittsburgh Region's economy. The November job totals were revised downward from the preliminary figures (instead of 3,000 net new jobs between November 2006 and November 2007 as the preliminary figures had showed, there were actually only 2,100 net new jobs created here during that period). The December figures are even worse -- there were only 900 more jobs here in December 2007 compared to December 2006.

   In fact, Pittsburgh had the fourth worst job growth rate in December of any of the top 40 regions in the country. The job growth rate in the Pittsburgh Region for December was only 0.08% (less than 1/10 of 1 percent), down from .18% the prior month, and down from .71% in December a year ago. That's an almost 90% drop in job creation from a year ago.

Not surprising, you may say -- everybody knows the country is teetering on the brink of a recession, if it hasn't already entered one. And indeed, the U.S. job growth rate dropped below 1% in December (to 0.92%), the lowest rate of job creation since 2004.

But the Pittsburgh Region seems to be falling harder and faster than other places in the country. Whereas Pittsburgh's job growth rate was about 20-30% of the U.S. growth rate during the summer, in December it fell to under 10% of the U.S. growth rate -- the lowest ratio since April 2006.

Moreover, the Pittsburgh Region had the second largest drop in the job growth rate compared to the prior year of any of the top 40 regions in the country. A number of regions continued to grow faster in December than the previous year (including regions similar to Pittsburgh, like Baltimore, Cincinnati, Cleveland, Milwaukee, Philadelphia, and St. Louis), and even in previously fast-growing regions like Austin, Charlotte, Orlando, and Silicon Valley, the job growth rate declined by only 33%-40%. The 89% drop in Pittsburgh's job creation rate was exceeded by only one other major region - Providence, Rhode Island, which had a 90% drop.

What's causing our poor performance? Several sectors have lost a significant number of jobs over the past year -- construction is down 900 jobs, manufacturing is down 2,100 jobs, and retail is down 1,100 jobs. And the health care sector, while it is still growing, is growing at only half the rate it was a year ago. The only sectors that have experienced improved job growth are wholesale trade and professional and business services.

Pittsburgh's economy has been growing at a snail's pace for most of the year, and now it looks like the recession may hit us harder than most other areas. It's too soon to know for sure how bad things might get, but it calls for redoubling efforts to make our business climate as competitive as possible, so our existing businesses can retain as many jobs as possible and to take advantage of growth opportunities that do exist.