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Small steps for area’s economy |

Small steps for area’s economy

| Sunday, February 26, 2006 12:00 a.m

The Pittsburgh region’s economy — the growth engine that produces jobs and income — is expected to improve in 2006, but only by small degrees.

Economists expect business spending will provide the fuel for growth, replacing consumers as the primary driving force in the economy as personal spending tapers off. And a three-year boom in housing sales and construction will cool — more mildly around Pittsburgh than in most U.S. markets.

“You have higher interest rates making it more costly to finance a home, and energy prices are probably going to remain elevated,” said Richard Moody, senior economist for PNC Financial Services Group. “That leaves less spending for other areas.”

The outlook for hiring in the Pittsburgh region continues to be spotty, Moody said.

He foresees 11,400 new jobs — a meager 1 percent increase — during the year in the seven-county region. That’s better than last year’s increase of about 4,500 jobs but still sluggish.

Manufacturing jobs are not expected to increase, but at least should level off. Similarly at jobs at US Airways, which have been on the decline for several years, should now have stabilized. But hiring is likely by employers in health care, education, finance and personal services, Moody said.

The economist projects that the region’s unemployment rate will decline from an average of 5.3 percent in 2005, down to 4.9 percent this year.

“Employment has been a flat line, with some gyrations, since 2003,” Moody said. “So, hopefully, we’ll be able to establish a little firmer footing for the economy in 2006.”

The region’s jobless rate should improve because the increase in the local labor force is expected to be small — up less than 1 percent, he said. “Labor force” means those working or actively looking for a job.

Other indicators that will steer the economy in 2006:

  • Surveys show Western Pennsylvania businesses will boost capital spending and capacity, fueled by continued better-than-average profits.

  • Inflation should remain tame, rising at a 3.1 percent rate, unless there’s an unforeseen oil price shock.

  • Interest rates are expected to continue upward. The Federal Reserve raised its key rate at a Jan. 31 policy meeting and is expected to raise it again at its next meeting in late March — as new Fed Chairman Ben Bernanke tries to keep inflation in line.

  • Home sales in Western Pennsylvania will taper off 4 percent from last year’s strong performance, as higher interest rates temper buying activity. Housing prices will rise more modestly than in previous years.

    Small businesses will be more inclined to increase spending this year — on capital equipment, if not also on human capital — according to a recent National City Corp. survey of nearly 3,500 companies in a region stretching from Western Pennsylvania to Chicago.

    “Small businesses are constructively optimistic about 2006,” said Richard DeKaser, chief economist of the Cleveland-based parent of National City Bank of Western Pennsylvania. “A majority have a favorable assessment for the year ahead and are planning to increase payrolls.”

    “I’d expect to see significant investment in new plants and equipment, and computer servers and telecommunications systems,” said Stuart Hoffman, chief economist at PNC.

    The economists agree that the impact of the Gulf Coast hurricanes last September on oil prices and jobs was temporary. Only 21,000 new jobs sprang up nationally in September and in October, but rebounded to add 140,000 jobs in December and another 193,000 in January.

    No such job upswing is expected in the Pittsburgh region, according to PNC’s Moody.

    PNC projects that personal income in the region will grow, but at a slower rate than the rest of the nation. The increase here of about 2.6 percent will lag behind an increase of about 3.5 percent nationally. Prices nationally will increase 3.1 percent this year, using the Consumer Price Index as a benchmark.

    Given that outlook, most U.S. household incomes will outpace inflation, but those in the Pittsburgh area will not, according to PNC projections.

    For those in the housing market, however, Pittsburgh is a less volatile place to be. The seven-county market should see a modest, 4 percent dip in home sales, and new home construction will decline by 6.5 percent, said PNC.

    The surge in housing costs in many areas of the country is over, said PNC’s Hoffman. “Paying a home seller something above the asking price, that kind of frenzy, is over on the coasts,” he said. “It never reached that in Pittsburgh or Cleveland or places like that.”

    Home sales will weaken and housing prices will appreciate less rapidly because in 2006, “mortgage rates will be a little higher,” said Moody. Rising rates will also dampen refinancing, which will put less spending money in people’s pockets.

    On the other hand, personal bankruptcies are expected to fall off last year’s record highs. The Pittsburgh area experienced about 15,000 filings last year, when people financially on the edge rushed to file before bankruptcy laws were tightened in October. PNC expects filings to drop nearly 13 percent this year, to 13,100.

    The wild card, especially regarding inflation, is the cost of energy. It accounted for about 1 percent of last year’s 3.5 percent rise in the Consumer Price Index.

    Categories: News
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