Wednesday, June 08, 2016

Bringing back manufacturing to Pittsburgh

For sure the news of a new ethane cracker is relatively big economic news for the greater Pittsburgh regiona topic unto itself for another day maybe. Still it is hard to separate out conjecture from current reality. That comes to mind reading this from the WSJ (and he of true McKeesport roots my friend @timpuko - Hi Tim) which has this:

Ohio Valley Lures Manufacturers With Rock-Bottom Natural Gas Prices 

Here is the unavoidable truth. Maybe the ethane cracker will spur some future growth in manufacturing for Pittsburgh; I am sure that will be a topic here or for other economic pundits for sure. But that is not the current impact. If you date the beginning of shale gas development to 2008, the trend in local manufacturing employment has only been down since then. Down in absolute numbers, down as a proportion of all regional employment and down compared to national trends. Using BLS data on Pittsburgh MSA manufacturing and total nonfarm jobs I did the division - but feel free to do it yourself - to come up with a metric of manufacturing jobs as a percentage of all nonfarm jobs in Pittsburgh.

I've posted the comparable graph of absolute numbers of Pittsburgh manufacturing jobs in the past, but if you just want a few factoids to reference.  There were still over 100K manufacturing jobs across the Pittsburgh MSA as late as August 2007, around the time shale development was really taking off.  The latest April 2016 data is an employment count of 85,300.  For purely historical reference, my own research says that the all time peak manufacturing employment in the Pittsburgh metropolitan region (then defined as 4 counties for precision) was over 379 thousand at work in the plants in October 1952. An existential economic factoid defining Pittsburgh and a hard intergenerational memory to forget for many. It was also a remarkable  ~40% of all employment in the region.

You just feel that some think this one project, albeit bigespecially when you ponder the
construction activity that will come and then gowill bring back that past. But ponder the scale of the numbers.  Maybe 600 jobs on the site when in operation. Pick some inconceivably large multiplier of indirect jobs it will create... 6 is huge multiplier by all known standards.  Mulitply about and get 3,600 jobs which is less than 1% of that past peak. Multiply that number by another 5 (so a multiplier of 30???) you get around 16K jobs which is just enough to bring the Pittsburgh manufacturing count to where it was in 2007not exactly an era of manufacturing renaissance here. And that is assuming there are no further losses of manufacturing jobs locally after April.

What is even more important is that the regional trend has all been down while, in fact the national story is quite the opposite over the last 8 years.  National manufacturing employment has generally been going up since 2010. So we need several thousand additional net new manufacturing jobs in Pittsburgh just to maintain pace with national growth rates in recent years.

One small point on the ethane cracker and the reported numbers that employment at the site will be up to 600 jobs. Keep in mind that the Horseheads inc plant that recently departed the site, itself. had ~500 jobs near the end of its time here, so on net this is mostly a wash. But on shale related jobs that can be generated indirectly here. Once there was a belief there would be this vast demand for tubular steel. Whatever tubular steel bubble that came to pass here, it passed quickly. Yes, I do think there are other indirect jobs generated by the shale development across the Pittsburgh region and its environs, but I bet the bulk of those jobs are not in manufacturing at all, but spread across a wide range of service sector (the service sector writ large - to include finance, legal and hospitality sectors) jobs.

I leave you with what remains one of the most remarkable videos explaining how drilling was here to save Pittsburgh from itself. The viewer is left to connect the dots between the latest cupcakery in Regent Square and hipster barber (in Lawrenceville I think... a city Neighborhood where fracking is still banned by ordinance I do believe) and shale development elsewhere.  I wonder what videos would have been made if the drilling planned for Lawrenceville itself - one of the densest parts of the entire region - ever happened.


Blogger BrianTH said...

I think the primary hope (at least among those being sensible) is that a significant local petrochemical industry will grow up around the cracker. This doesn't contradict the numbers in Chris's post, it is just a suggestion for how the hoped-for multiplier would most plausibly show up (outside of the much more difficult to identify service industry effect).

Generally, though, thinking of this as a great jobs program is indeed likely a mistake. As I suggested in my comment to the two crackers post, I'd suggest the main appeal is that it is a economic diversifier for the region. In other words, this will be attracting capital investment and such from a different pool, will probably lead to a somewhat different mix of local talent, education, and skills, and so forth.

These are good things in their own way, but they don't fit the "what will replace the steel mills?" framing that too often dominates local economic discourse.

Thursday, June 09, 2016 9:07:00 AM  
Anonymous Anonymous said...

I doubt there is any statistical way to determine this, but one has to at least think about whether the City's political decision to be adverse to the "drillers" wasn't in the long view, the better position to take. Would Google, Uber, Apple, et al be as prominent on the City scene if they were looking out their windows at drilling rigs?

PS - Welcome Back!

Thursday, June 09, 2016 12:13:00 PM  
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