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.

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[John Burke]

Pittsburgh Sounding America's Economic Alarm

Pittsburgh has been a leading indicator of the nation's economic health for some time, but this became acutely apparent during the recession of 1980-82. Steel companies downsized dramatically on the early 80's creating a cascading impact throughout the service sectors that depended upon them as an economic engine.

What happened in Pittsburgh, however, foretold a negative paradigm shift that is still unfolding across the nation. The computer's impact on the speed of information flow and decision making shifted power from old, vertically structured organizations to young, lean, quick vertical management structures.

The 20th Cenury was the Century of America's economic dominance. Unfortunately, success of local institutions like big steel and big Pittsburgh banks fueled a management complacency punctuated by caution and slow decision making. It is only natural that those in comfort resist change.
The rapid impact of the computer and the internet helped accellerate the growth of a world economy. The structures and policies that built success in the early 1900's became hinderences as marketplace rules began to change. Quicker, leaner and new organizations began eating our lunch and challenging our leadership.

Unfortunately, as market leadership began to crumble, so did most of the benefits that were once thought to be the entitlements of success--job security, health insurance, steady pay raises, inflation adjusted pensions, stable real estate values, solid tax ratables, etc. Myopic politicians continued to burden them with costs as if the gravy train would roll on forever...like the Penn Central.

But what happened to Bethlehem and National Steel in the early 80's subsequently happened to IBM and AT&T and Sears and all of the other great market leaders of the previous century. They calcified and reacted too slowly to new marketplace dynamics that demanded speed and competitive efficiencies.

Yesterday we were losing "manufacturing" jobs to lower-cost, higher quality producers overseas. Our leaders either failed to or refused to recognize the deeper and broader implications of the trend. They chose to believe that manufacturing jobs were separate from the interdependent fabric of employment in our nation's economy.

Today, we are exporting accounting, computer, and medical research jobs just as we did steelmaking jobs three decades ago. Pittsburgh was US ground zero then and still is today. What happened to Pittsburgh as a US economic microcosm in 1982 has spread to other economic sectors like a debilitating fungus.

What our national leaders need to recognize is that Pittsburgh's economic performance provides us an early warning system. It is sounding an alarm bell and offering a glimpse into the future for economists and managers and policymakers who are astute enough to recognize it.

Although I don't live in Pittsburgh today, part of my heart is still trapped between three rivers there. Pittsburgh was once considered the frontier of our new nation. It was there that our nation's first president got his first taste of battle. It was a difficult and sour taste at that. He lost.

But from that humiliation George Washington learned. It tempered his ability to command and provided an important foundation for his subsequent victories. Our freedom today owes its roots to violent leadership lessons learned in Pittsburgh before our political revolution.

Today we need strong leadership to wage an economic revolution. I believe that the lessons we need to learn in order to win are waiting for us to find them in Pittsburgh once again.

jjb