Thursday, July 21, 2011

The Ride Down Mount Parnassus

It's like the Groundhog Day of economic impact reports released again yesterday. I guess this will be an annual event.

I guess I really need get back to my Marcellus Shale experiment from last week. Last week I had put up a chart, deliberately unlabeled in part with some data on employment. The horizontal/time axis was unlabeled because I had intentionally put the most recent data on the left. The purpose was to free the interpreter from some preconceptions and then see what they thought. I had said the data was the time series of ‘new hires’ in the industry which is a metric that had been in the news of late, but the data I pulled was inadvertently the total employment numbers which I then scaled incorrectly because I thought it was quarterly flow data. So I pulled the chart down to avoid confusing those who read it. At least I gave the social media gnomes on retainer something to read all weekend long.
Alas. Redone properly, and without the temporal inversion this is the trend in total employment statewide in NAICS code 21 industries (Mining, Quarrying, Oil and Gas Extraction), which should capture the direct employment resulting from new Marcellus Shale related activity.
So the questions were how big a deal is this trend?  Through 2009 the industry had not even regained the levels of employment of its recent past.  Perspective on the scale is always essential and realize Pennsylvania total employment is roughly 5.9 million currently.   Even this chart is not all Marcellus related of course. In fact you can’t even say most of it is Marcellus related since there was obviously there was employment before the first Marcellus well went in. Generously the Marcellus numbers are coming from just the delta, or change, since 2007 give or take.  Even that I wonder about a bit since there is also this little industry related to coal mining that still exists in Pennsylvania and for those watching it, coal prices have been skyrocketing in recent years. It's part of the story in there as well. 
The data there only has full year data through 2009 thus far, but other data available for 2010 and into 2011 indicate the trend in employment is picking up. The current employment in this time series may be over 30K by now, so a gain of 10K over the last couple of years. 10K is a lot of jobs no doubt, but how big we can debate.  For a ballpark comparison it is probably on par with the net gain in jobs at UPMC alone over that time. 

The numbers you read about are often higher. Economic impact analysis the study of all the indirect and induced impacts new investment and economic activity can have. For sure Marcellus has those additional impacts, just as new investment in most any industry does. So the bigger numbers are not fiction, but their meaning is not always made clear.  The report today has an oft quoted, or will be oft-quoted number of 250 thousand jobs.  That isn't an estimated impact now, but a potential (this time more clearly labeled as 'potential') total impact including all indirect and induced impacts..  The future is where this all becomes an interesting question as to what is real what is hype, a question that is being debated in a lot of places

The 250K jobs projection is a really interesting number in a lot of untalked about ways.  Even with the lingering employment recession inflating the unemployment rolls, the total unemployment count in PA right now is on the order of 470K and that includes a lot of folks in parts of the state with no palpable Marcellus Shale impact to date such as Philadelphia. Half of that state unemployment count alone comes from the Philadelphia MSA, even more if you include the Philadelphia exurban environs and then you probably then need to exclude unemployment in urban Pittsburgh since those folks have no means to get out to the jobs being created for the most part. So if that projection comes close to being true, where will those folks be coming from?  That is one of the core questions in all of this. You would think there is a lot of permanent resident migration going on.. and unless they all get here at the last minute that flow must have started in earnest by now.  Maybe that is going on, I dunno for now.... but the 'man-camps' don't count as migration into the state for the most part.

Like everything else, it's all a lot more complicated than that, and a lot more complicated than others want to make it seem.  There was a good overview of some of the business dynamics in the nation's natural gas industry in Seeking Alpha just the other day. The biggest things people are really talking about is what is going to happen with the infrastructure for all of this, the pipelines and compressor stations that are going to be needed in ever larger numbers if. That and this issue of a refinery or 'cracker' to process the gas being produced here. Keep an eye on that.


Blogger Jim Russell said...

Last month, David Passmore (and others at Penn State) published some numbers about 1099 workers in Marcellus core industries:

Pennsylvania “1099” Employment in Marcellus Shale Core Industries

With the jobs boom being national, I read with great interest a story about oil and gas industry based in Houston absorbing much of the talent coming out of NASA thanks to the Shuttle Program ending.

Thursday, July 21, 2011 10:38:00 AM  
Anonymous The Wiz said...

Oh that was pretty But figuring the employment impact is a very inexact science. How do all the caterers that feed the crews get calculated in. How about the $400 million in rebuilding roads? Do the paving companies get counted? Lots more from there. Look at the 1099 data that Mr Russel posted. Most of the work is subcontracted out. And I didn't see the trucking industry listed. And since each well uses 500 to 600 truckloads of material that's a lot of people working that isn't in the data.

And one of the biggest problems in calculating employment affects is this a unique industry. I know of no other industry that would pay huge amounts to landowners all around the location of their industry. And continue to make more payments spread out over 30-40 years.

Of all the billions paid out in royalties and bonuses, none of it is figured in the job data. Yet all that cash has to have a huge affect on employment in just about every industry, from finance to homebuilding/remodelling to restaurants and entertainment. Even college tuition for lots of kids.

Imagine if GM built ten auto plants of 3000 employees each but also paid everyone around the plants billions of dollars. The impact would be much greater than just the employees at the plants and related facilities.

Thursday, July 21, 2011 9:42:00 PM  
Anonymous MH said...

I wonder what percentage of the royalties and bonuses will be spent in Florida.

Friday, July 22, 2011 12:06:00 AM  
Anonymous The Wiz said...

MH; What percentage of the Pittsburgh Transit Authority pension moneys is spent in Florida? Or Pittsburgh city pension funds? Or Allegheny Co pension funds?

Friday, July 22, 2011 8:20:00 AM  
Anonymous MH said...

A great deal. That's why I was asking. Either way, it won't stimulate the economy.

Stray thought: Maybe Pittsburgh real estate is holding up so well because people who would have bought a condo in Florida are too frightened to so they aren't selling local property.

Friday, July 22, 2011 10:15:00 AM  
Anonymous The Wiz said...

BTW; I'll get mine sent to my yacht docked in Tortola, BVI

Friday, July 22, 2011 12:49:00 PM  

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