Pittsburgh’s recovery will lag behind the nation’s

Gus Faucher is the senior vice president and chief economist of The PNC Financial Services Group. He shares his insights on the regional economyeach month.

Economic conditions are improving, both in the U.S. and in the Pittsburgh metropolitan area. Consumers are spending more thanks to vaccines and stimulus payments, and businesses are hiring. In fact, the biggest complaint I hear from business people is that there aren’t enough workers to fill their open positions. That problem will fade as the pandemic recedes further in the rearview mirror, and job growth, which already is strong, will pick up further inthe second half of 2021.

But the recovery so far in the Pittsburgh area has lagged the rest of the U.S., and that gap will continue to grow. The problem is a demographic one, with weak local population growth making it difficult to attract the businesses that will create opportunity in the Pittsburgh area over the longer run.

There’s no question that the Pittsburgh area economy took a harder hit from the pandemic than the U.S. economy as a whole. (I’m referring to the Pittsburgh metropolitan statistical area as defined by the Census Bureau: Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmorelandcounties.)

Between February 2020, before the pandemic’s economic impact, and April 2020, when job losses were at their worst, employment fell in the Pittsburgh area by 19%, while it was down 15% nationally. This wasn’t due primarily to Pittsburgh’s economic structure — the shareof local employment in industries most exposed to the pandemic, like travel and tourism, was actually slightly below the pre-pandemic national average. Instead, restrictions on economic activity were tighter in Pennsylvania than they were in many other parts of the country, and it could also be that Pittsburgh-area residents were more cautious aboutventuring out.

This is not to say that the commonwealth’s actions were too much or too little — that’s not my call to make. But it is true that those actions did lead to larger-thanaverage local job losses.

Of course, economic activity has picked up since then. In the early stages of the recovery, governments adjusted their mix of restrictions, consumers responded, and businesses adapted. Employment started to pick back up in May 2020, both locally and nationally. With stimulus payments in the spring of 2020 and increased access to unemployment insurance, as well as a legislated increase in unemployment insurance benefits, household income jumped in the spring of 2020. This allowed for growth in consumer spending, which makes up about two-thirds of the U.S. economy — even after the loss of 22 million jobs nationally.

Income increased further with two rounds of Economic Impact Payments in early 2021. At the same time, vaccinations have led to a huge decline in coronavirus cases. Pennsylvania dropped almost all of its coronavirus restrictions in June. The result has been an unprecedented economic rebound, and the U.S. economy in the second quarter of this year likely was larger than before the pandemic. Through June, the U.S. economy has added back about 70% of the jobs lost during the pandemic. Not surprisingly,much of the job growth has come in industriesthat were hit hard, such asrestaurants and hotels.

The local picture is mixed.

Through May, the Pittsburgh area has only added back about 64% of the jobs lost during the pandemic. Job growth in mid-2021 was somewhat above the national average, but it has been right around the nationalaverage since then.

There has been a strong recovery in industries most exposed to the pandemic, but Pittsburgh employment in leisure/hospitality services is still well below its pre-crisis level.

Construction has done very well with the region experiencing a homebuilding boom,despite high prices for buildingmaterials.

And employment in the region’s very important education/health services industry is within spitting distance of its pre-pandemic level.

However, the recovery in manufacturing employment inPittsburgh has lagged that in the nation; it could be that a drop in auto production, due to the global shortage of semiconductors, has crimped demand for locally producedsteel.

Pittsburgh job growth should pick up in the second half of 2021.

A strong national recovery and continued household spending growth, as consumers make up for lost opportunities and gradually spend down the stimulus payments they have saved,

will drive strong labor demandlocally.

Many Pittsburgh businesses are reporting it difficult to hire workers, particularly for lower-wage positions. Some people have dropped out of the labor force since the pandemic, including parents due to child care problems or virtual schooling, and some due to concerns about contracting the coronavirus. Presumably those issues will fade later this year as schools and day care centers reopen and as coronavirus cases continue to decline. It also could be that extra unemployment insurance benefits of $300 per week, as part of the American Rescue Plan, have made some currently unemployed workers choosier in taking a job. But those benefits are set to expire in September, both in Pennsylvania and nationally, which should spur more job seeking.

Higher wages, as businesses compete for workers, also will encourage local labor supply.

PNC expects labor shortage concerns to dissipate through the rest of this year, allowing for larger local employmentgains.

The longer-term job picture for Pittsburgh is not as sanguine. The biggest problem for the labor market is the same as it was pre-pandemic: a declining population.

Between 2000 and 2020 the Pittsburgh-area population declined by 5%, while the national population increased by 17%. Falling population creates a number of problems for an economy. It means fewer available workers, discouraging potential employers. Consumerindustries experience weak growth with fewer customers. And a falling population limits demandfor homebuilding.

As a result, Pittsburgh will lag the national economic recovery as the pandemic fades. The area does have some structural advantages: world-class educational and health care facilities, cutting-edge tech industries and associated highly skilled workers, and leading companies across a variety of industries. Pittsburgh will need to build on those advantages to spur the population growth necessary for a vibrant economy over the longer run.