Saturday, September 23, 2017

What Westinghouse Wrought

For all the talk about a potential Amazon HQ2 coming to Pittsburgh, the news last week of massive layoffs at Westinghouse Nuclear is really a far larger story for Pittsburgh in at the near medium term and beyond. Granted, Amazon is advertising a potential new jobs count of ~50K, and the layoffs at Westinghouse are ‘only’ on the scale of 1,500, those two numbers to not really tell the tale.

Consider that the Amazon 50K is entirely notional at this point.  Even if Amazon's 2nd headquarters ever gets to that point, you have to expect it will not be anytime soon. Consider also that the nature of jobs at Westinghouse Nuclear are very different that what is likely to come with Amazon. No doubt Amazon is a technology company, but still the jobs at an Amazon headquarters probably won’t be on the same salary scale as the technical talent concentrated at Westinghouse. Consider then the long history and deep connections of the nuclear power industry in Western Pennsylvania. A mature industry has deeper supply chain linkages and deeper economic impacts than any new industry locating in any region.

But ignoring those handwaving arguments, here are some harder facts on just how much nuclear power meant to Pittsburgh’s economy, or vice versa.  For Pittsburgh, the BLS itemizes 32 specific occupations with employment under the broad category of “Architecture and Engineering Occupations”. The 20 largest of those occupations ranked by number of jobs located in the Pittsburgh MSA looks like this (with average annual pay for each):


So not the largest of local occupations, it is up there, but nuclear engineers in Pittsburgh are among the best paid in the region. But here is the bigger deal.  I took the same table and annotated the number of jobs in the US economy for each of those engineering occupations. So again among the 20 largest engineering occupations in Pittsburgh I’ve now ranked them by what percentage of the national workforce is located in Pittsburgh:




What jumps out is pretty startling.  You do not see such concentration in broad occupational groups in any one area of the country.  I once did this as a location quotient, but this ratio analysis works out much the same and shows just how big Pittsburgh was as a nuclear power industry cluster... a cluster with W at its core. At one point I am pretty sure there existed no bigger cluster of nuclear power engineers anywhere in the nation, at least when it comes to civilian workers. So losing a big chuck of that is going to sting, and sting for some time. A big deal for the region as a whole and really a big deal for Cranberry, and likely even Monroeville where many of those workers used to work before Westinghouse relocated.  I won't even begin to get into the longer term impact of potential pension issues for Westinghouse that are emerging, issues that have to have a concentrated impact here more than anywhere else. 

Note that this is a big issue across Pennsylvania. Out in Harrisburg, Three Mile Island is essentially shut down because there has not been sufficient demand for the power it generates. The latest is that the plant will be shut down permanent, which will be a big hit on the economy near Harrisburg. Add it up and the collective losses of the nuclear power industry and pretty significant and may not be over yet. 


 

Friday, September 08, 2017

Amazon Cometh..... or not

So two days in a row.  It won’t be a pattern, but it's hard not to comment on the economic development news of the day/month/year, namely that Amazon dropped an RFP of sorts to build a 2nd Headquarters outside of Seattle, somewhere in North America. It has set off a frenzy among cities and regions thinking they will land what Amazon promises to be a huge new job creator. Something on the order of 50 thousand net new jobs which is a number that huge for even the biggest metro regions and hard to imagine here. Thus it is that Pittsburgh is seeking to join the fray. 

Why did Amazon do this? I really think they were encouraged by the very recent news of how the site selection for new Foxconn production facility went. In the end,  Wisconsin was picked for the potential new site, a ‘win’ that came from what is reported to be up to $3 Billion in public incentives, a number and a deal that economists are only beginning to debate the efficacy of.  Seeing that states are still very much engaged in (pick your industry of choice) chasing, Amazon saw they should be able to extract a deal at least as good as Foxconn received, potentially much bigger. Given they are reaching post-saturation in Seattle, growth has to be placed elsewhere and most likely they can get somebody else to pay for it. It all becomes a no brainer to throw out the bone and see what comes back.  The full project size of what Amazon is teasing is far larger than Foxconn’s planned impact, think about that. 

So to be clear… everyone wants Amazon, but they have laid out some incredibly difficult criteria.  I suppose that if you are Amazon, you can ask for (and expect) to get a pony because it’s hard to see how their full criteria could be met by any site in any region. You can read their full RFP yourself here, but here are just a few of the highlights. 




They want some normal things: access to an airport and major highways to begin. They need a lot of space, and I mean a lot. More on that later but right there the choices in Pittsburgh get very narrow. This is all akin to the not too distant site selection Westinghouse Nuclear went through when they wound up deciding to move to Cranberry vice some alternatives including Charlotte, NC.

But this is Amazon and they also clearly spell out they want a downtown or downtown-like location. They want access to the major population center, someplace pedestrian friendly and access to “rail, train, subway/metro" and then lastly "bus routes". That makes this a very different type of site selection than is typical for projects this scale. I will note they have bus routes listed there last, but hold that thought as well. 

So if you take their criteria at face value, or honestly if you take each criteria at about half their asked for values you pretty much rule out anything in the greater Pittsburgh region, let only anything in the City of Pittsburgh.  How much space do they want?  One option is 100 acres of ready greenfield, and the potential to build 8 million square feet of office space How big is 100 acres of greenfield? The former civic arena site is advertised as 28 acres and is probably not even that, and is far from being a greenfield.  8 million square feet?  The US Steel Building is ~2.5 million square feet of usable office space.  So if you think you are going to get close to those criteria, it won’t be anywhere near Downtown or environs.  Oakland? Stop there. You will have to look to those locations again out toward Cranberry, or the Airport, but then you have to go back to the criteria to be close to a surfeit of public transit.

The long under development Almono site is obviously going to come up as an option. The site is big enough… 178 or so acres.  Not exactly a greenfield, but much work has already gone into it.  It is hard to see how the site meets the pedestrian friendly or public transit access criteria, but let's say they are not going to be too strict on either of those requirements. I think the big issue with the Almono site is that so much effort has gone into planning the site to include mixed uses and integration with the nearby neighborhood already, to go with a big corporate campus would almost require throwing all that away and starting over.  Again, possible I suppose but hard to see at this point.

But you think I’m being all Briem-naboby, which isn’t the case.  If indeed Pittsburgh has any chance of getting the Amazon site it has to start with some reality check based on what they have very publicly stated they are looking for. Otherwise, any attempt to bring Amazon here is just for show. That, and I have the location.

Really.

If you really want to plop down a big new campus, close to Downtown, not a bad commute from the airport, close to major roads and potentially ready for redevelopment, I say it would have to be the former Western Penitentiary Site on the Ohio River.   The site only recently shut down and would have to be cleared and prepared (not a trivial task).   If the site is not quite big enough, there are a lot of potential expansion spaces nearby that should work. Take a look:



A great location along the river is a big plus.  Public transit is a problem, but Amazon is clearly looking for better public transit than we have to offer. Their criteria lists rail, train, subway/metro before adding in ‘bus routes’.  The Western Penitentiary site….  The state would have to promise to fund the expansion of the North Shore Connector a few more stops. Seems like a big thing, but given all they are asking for that may be one of the easiest things to pull off.  So now you have transit right into Downtown.  Walkability is a little weak, but you can point out the bike trail along the river that also goes right to the site and extends already out to Millvale.  You could stretch it and call it the Lawrenceville to Amazon Bikeway, think what Larryville real estate prices will look like in a decade?  Personally if this ever came to pass I'm buying up all the Millvale real estate I can afford. 

Also this fits into another narrative.  If you really dig into the states decision to close the prison here, you will see that the data did not really support Pittsburgh being the one site to shut down. Marginally it should have been SCI Waymart. But in the end, the decision came down to close the site in Pittsburgh because it was beleived it had a greater, and unquantified, redevelopment potential. Well, here is that redevelopment potential on steroids. 

So there you go.  Of course, the real killer in all this is just where I started.  If Wisconsin was willing to put up ~$3 billion for Foxconn, you have to believe the incentives for this project will be much higher. Pennsylvania was long listed as a short list contender for the Foxconn project, but you really so no sign of that at the end and that is likely in part that Pennsylvania had no ability to play with those kind of $$$.  So where would it get a bigger fund to pull this off.  That I just do not know. Probably they need to pass a full budget in Harrisburg first. The great irony of this all is that the era of states putting up huge sums of money into ad-hoc tax competition chasing new investment was ushered in by Pennsylvania itself when it 'won' the competition to bring Volkswagen to New Stanton in 1976.  So old is new again, but Pennsylvania no longer has the resources to compete in the game it created. 



 

Wednesday, September 06, 2017

Roboburgh Redux

Long time, eh?   Well, something was eventually going to get me to post here again.  This caught my attention and it is way too much to fit into 140 characters.

The latest data from the Quarterly Census of Employment and Wages (QCEW) is out with data for the 4th quarter of 2016.  So a long time ago it may seem, but for detailed industry level data you have to wait and live with the lag. Here is just one quick factoid that deserves further attention. Below is the employment trend for a very specialized industry: Scientific Research and Development Services (NAICS 5417).



(if you do not see the interactive graphic above, please let me know in the comments.)

Notice anything? The latest quarter there has a big jump and has reached a new peak going back at least a couple decades, at least as far as we have been using NAICS industry classifications. The employment gain is +6.8% over the quarter, and +14% over the year; both solid gains in a region where overall employment change has been pretty flat. The recent trend in this specialized industry has been upward, and recent quarters have all been higher than in the past, but the gains appear to not only be continuing, but accelerating with the latest data.

Lots to unpack in that, and most will have to wait for later. But a fundamental issue in Pittsburgh has long been that the competitive advantage local universities demonstrated in attracting research funding has not always found similar success in private sector commercial enterprises. Most employment in advanced technology and research, if it occurred at universities, usually showed up in education or health related industries. This recent jump in NAICS industry 5417 employment should reflect private sector employment outside of the institutions of higher education.

Now I don't believe the private sector research sector in larger today in Pittsburgh than it was at all points in the past.  When the Westinghouse R&D operation was at its peak, with Gulf Labs going strong and a range of other industrial research operations all together gave Pittsburgh a real concentration in research employment. Most of that employment would have shown up in the respective industries that each lab supported, so not necessarily in this specialized industry, or whatever its SIC-classified industry was similar. Still, many of those big research operations have all been gone for decades and Pittsburgh's technology-based economic restructuring is in a new phase.

So yes,  we have robots... or more accurately we design robots. The Wall Street Journal may have jumped the gun when its writers described Pittsburgh as Roboburgh back in 1999, at least when it came to jobs and output outside of the laboratory.  But maybe we have crossed the Rubicon?