How did the Pennsylvania Labor Market Perform in 2016

Last Friday, The Pennsylvania Department of Labor and Industry released preliminary estimates of December payrolls which show Pennsylvania created 32,000 jobs in the last 12 months. Payroll growth was especially weak in the 2nd half of 2016, which is likely one reason state revenue collections through December are $300 million below projections. Despite this weakness, payrolls still grew more in 2016 than they did in 2012 and 2013 when deep budget cuts weighed on job growth in Pennsylvania.

With the overall U.S. economy still in the midst of a broad economic expansion that is generating rising wages (though that growth is still slower than we would like to see), the relative weakness in Pennsylvania in the last few months is likely temporary.

A breakdown of employment trends by industry over the last seven years reveals where job growth has underperformed recently:

  • The inevitable bust that follows a natural resource extraction boom has, since 2015, cost Mining and Logging just over 15,000 jobs.  Employment in this sector is now near its levels that prevailed before the start of fracking in Pennsylvania. In a sign that we may be at the bottom of this bust the Energy Information Agency (EIA) is predicting natural gas prices will move higher in 2017 and 2018, and energy exports and rising consumer demand will outstrip production and imports. Rig counts in the U.S. and Pennsylvania in the last several months are also rising, suggesting that more wells are being drilled in response to recent natural gas price increases (here are annual average rig counts which provide another picture of the shale bust).
  • Weakness in Wholesale and Retail trade weighed on job growth in the last 12 months as these sectors combined shed 4,000 jobs.
  • In 2016, growth was present (4,100 jobs), but at a slower pace in Transportation, Warehousing & Utilities (the six year average gain is 6,600 jobs). 
  • Information (publishing and telecommunications) had a worse year than normal shedding 3,100 jobs.  
  • Leisure and Hospitality added 6,400 jobs this year, but that growth was well off the six-year annual average for this sector of 11,000 jobs.
  • Accommodation & Food Services, which on average generated 9,200 jobs a year in the previous six years, lost 900 jobs in 2016.
  • The public sector shed 4,600 jobs, with most of those losses coming from a combination of state government and school district employment. The public sector in Pennsylvania is the only major sector to have lost jobs every year for the last seven years. Something to remember every time the purveyors of “alternate facts” claim public spending is out of control.

Much of the weakness in Pennsylvania job growth in the last year looks to be part of national patternsweakness in energy, a broad shake out in retail and wholesale trade, weakness in publishing (2016 saw hundreds of layoffs at the Pittsburgh Tribune-Review), consolidation in Accommodation & Food Service after years of very healthy growth, and finally tight public sector budgets pushing down on public employment. 

The only other statistic of note is the Pennsylvania Labor Force, which grew by 72,900 in the last 12 months. That spike is a mixed bag. It’s good that people are being drawn into the labor force, likely by a combination of rising wages and employers recruiting for new workers more aggressively. But on the downside, labor force growth was much faster than employment growth, and that helped drive the unemployment rate up from 4.7% last December to 5.6% in this December (the U.S. unemployment rate was 4.7% in December). The rapid run up in the Pennsylvania labor force stopped in June of this year, so the unemployment rate will likely start falling again if the national economy remains in an expansion.

The outcome of the election has introduced a fair amount of uncertainty, as President Trump appears to be somewhat unpredictable. If his stated priorities, infrastructure spending and tax cuts, become law this year we can expect to see labor markets tighten, which given where we are in the expansion should further boost job and wage growth. We prefer deficit spending for infrastructure to deficit spending for tax cuts aimed largely at high-income households and corporations, but in the short run the economy doesn’t care who spends the money that pushes up demand. Trump’s unpredictability could also hurt the economy, so we would put a little more weight on how the next couple of months in Washington unfold than we normally would in evaluating the outlook for the economy over the next year.

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