In 2015, Pennsylvania’s strong foundation for growth helped the state steadily regain ground lost during the recession. This should keep up in 2016 and beyond.
Smart Business spoke with Chase Commercial Banking’s Head Economist Jim Glassman about how Pennsylvania should continue to mirror nationwide trends of stable growth and employment gains, as well as a firming real estate market.
What does 2016 hold in store for the Pennsylvania and Pittsburgh economies?
Pennsylvania will likely continue moving back into alignment with national trends, and Pittsburgh stands to further improve its position relative to the rest of the state.
Pennsylvania was insulated from the worst excesses of the housing bubble, and, as a result, its economy had fewer losses to recover from in the past few years. For example, in 2008, the U.S. economy contracted 2.8 percent, but Pennsylvania’s gross domestic product (GDP) only fell 0.5 percent. This explains why the state’s growth has lagged behind national averages throughout the recovery — compared to other regions Pennsylvania had significantly less economic slack to take up.
Pittsburgh has been at the forefront of the state’s recovery. The city regained the GDP lost during the recession by early 2011 — a full two years earlier than the state as a whole. And since 2008, Pittsburgh’s growth trajectory has been significantly steeper than the rest of the nation’s. While the city’s economy is unlikely to return to the extraordinary rate of growth seen during the height of the gas boom, Pittsburgh should continue to surpass the national average GDP per capita.
Now that the national economy is returning to normal, Pennsylvania should reflect broader trends in growth and employment. The state’s service-heavy workforce will continue to be a moderating influence on employment gains.
In Western Pennsylvania, the past year’s relatively stable drilling activity is a sign that oil and gas exploration has fallen back to a sustainable level, and increasing natural gas production should continue to fuel growth for the petrochemical and energy sectors.
Will the state’s labor market continue to make gains?
Employment growth in Pennsylvania has fallen behind the national average, but this is largely a consequence of the rapid hiring that accompanied the shale gas boom. The state’s unemployment rate never reached the peak seen in the rest of the nation, so the labor market has had to add fewer jobs to return to normal.
Pittsburgh may have experienced a brief period of labor market tightness in April 2015, when the unemployment rate fell to 4.6 percent. As discouraged workers returned to the labor market over the summer, however, unemployment soon pushed back above 5 percent. In the coming year, the city’s labor market should converge with national norms, seeing steady — but not spectacular — improvement.
Despite adding jobs more slowly than the nation as a whole last year, Pennsylvania’s labor market is now closely aligned with conditions nationwide. On the local level, 12 of the state’s 13 largest cities, including Philadelphia and Pittsburgh, are enjoying steady employment gains. The state should continue to follow the nation’s lead in 2016 and gradually close in on full employment.
What can we expect for real estate in 2016?
Similar to the state’s employment picture, Pennsylvania’s housing gains have been relatively muted. Again, the state simply didn’t have as much lost value to recover. Pittsburgh’s market suffered almost no losses during the recession — home prices were buoyed by the gas boom, and remained flat as the nation’s housing values plummeted.
Pittsburgh’s residential real estate market is now back in alignment with national averages and should be primed to respond to the steady growth and employment gains that are buoying housing prices nationwide. New construction across the state is still below pre-recession norms, but the most recent reports show an uptick in housing starts that may finally signal a revival.
Commercial real estate also seems to be moving back into alignment with the national market. Pittsburgh’s market for office space has been relatively tight since the recession, but a recent uptick in vacancy rates will move that city’s market closer to national averages.
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