Financial Outlook 2021 – Pittsburgh Quarterly

E.Economic prospects for recovery in the The Pittsburgh metropolitan area is challenging for 2021. Government-mandated business closures and capacity constraints have put the metropolitan workforce in disproportionate decline, undermining the ability of existing household consumption and business spending to re-stimulate economic gains in the short term.

New impetus from the federal government could limit the free fall and vacuum that both households and companies are confronted with. The recovery of the local economy will be based on its ability to restore jobs and incomes once business and consumer activity can fully resume. The Pittsburgh labor shortage will pose higher economic hurdles to solving this problemr.

Job creation in Pittsburgh ceased to close around 2020. Due to the renewed closure of companies due to government restrictions, employment in the metropolitan region was 7 percent below 2019 as of the data publication in November 2020 (available from this point in time at the latest). That compares to the national average of 6 percent year-on-year, and the U.S. labor market posted further declines in December, which are likely reflected in Pittsburgh.

However, the Pittsburgh labor market is facing more acute concerns than other Pennsylvania or nationwide markets. The Pittsburgh labor force (workers and job seekers) shrank to more than 4 percent year-on-year at the end of 2020, while the national labor force trend has declined 2.5 percent year-over-year since mid-2020. Philadelphia saw a year-over-year workforce surge through September, only to see that number eventually tumble into negative territory (-2.3 percent) when state officials reintroduced company closings and capacity restrictions late last year.

With job restoration nearing a standstill and fewer people looking for work, Pittsburgh will be overwhelmed to create new jobs in 2021. Compared to national trends, Pittsburgh has already seen below average growth rates since mid-2018. The commitment of the Hamstrung workforce and discouragement of workers add to the near-term outlook for the metropolitan economy.

Small businesses were likely less willing to endure the business disruptions suffered through 2020. Companies will spend 2021 planning ways to get back to pre-pandemic business as usual. This is an incentive for consumers to buy their goods and services compared to the competitive economic environment offered by competitors for decades.

However, you also need to budget for the prospect of rising minimum wage requirements as the current political gossip grows in importance. Both the legislature and the executive branch of the federal government have advocated such a move, which makes it a real consideration for small businesses despite having to bounce back from lost revenue over the past year. In short, Pittsburgh’s small business community faces a maze of short-term and long-term challenges this year.

If pre-pandemic conditions predict the wage growth potential in Pittsburgh’s economy this year is less likely. The average hourly wage ended slightly negative in 2019 based on growth a year ago. While pre-pandemic trends offer little predictive power given the likely volatility of the 2021 recovery, they offer some perspective on what the Pittsburgh labor market can do at near full capacity.

Here, too, the structural weakness of the workforce arises. Subpar workforce growth – even if the effects of the pandemic have subsided – means that Pittsburgh’s job seekers, or those looking to move between positions in the local economy, do not have the bargaining power that their counterparts have in more competitive markets.

Pittsburgh’s low cost of living is a helpful compensation for those already established in their careers. However, this often touted benefit of the Pittsburgh economy is little for those looking to enter the labor market and quickly achieve household financial stability, especially when their financial burdens include student loan debt or other obligations that carry the same cost regardless of day-to-day business affordability a particular market. Nonetheless, Pittsburgh’s low-cost qualities may never see a more opportune time to bring new talent to the region than this year – as the local economy seeks to get out of the economic swamp of 2020.

Looking at Pittsburgh’s recovery by industry, corporate and professional services, the Pittsburgh recovery was on a stronger recovery path in the latter half of 2020 than the nation as a whole. This makes sense as many jobs in this sector can be done from home. The above-average performance in this segment of the local labor market – and thus the income from these jobs – has not, however, been reflected in the creation of jobs in consumer-oriented sectors.

The number of jobs in the leisure and hospitality industry remains well below the national average (-28.8 percent year-on-year in Pittsburgh versus -19.6 percent in November 2020 at the national level). Pittsburgh job incomes that remain in Pittsburgh and recover in the future therefore have greater potential to spur growth in 2021, but only if businesses are safely allowed to reopen on a broader basis as vaccines become more widespread.

Other high-income industries in Pittsburgh remain below the national average in terms of job restoration. Local jobs in manufacturing, construction, and transport and supply were also below the previous year’s level in November 2020 than at the national level.

Health, social services and government jobs were ahead of the pace of recovery in the US, but are still below prior year levels in November 2020. Only employment in financial services in Pittsburgh was above the previous year’s level in November (+0.6 percent) and exceeded the national average growth rate. The recovery in disposable income, and with it consumer confidence and willingness to spend, will only return so quickly as these higher paying industries can rebuild their payrolls and, through consumer spending, create the demand that drives retail hiring and in leisure time and hotel business.

Overall, Pittsburgh’s economy will lag behind the national recovery pace in 2021. A diverse industrial base will help Pittsburgh restore pre-pandemic economic conditions, but to do so before full national recovery is unlikely. For markets like Pittsburgh, where internal deficiencies prolong recovery efforts and support, the federal fiscal stimulus-centered policy will become increasingly important. As a result, the economic damage caused by the pandemic will continue for much longer in this region.

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