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State of the State: Pennsylvania

Pennsylvania’s employment growth in 2015 trailed that of most other states. The state’s exposure to the oil and gas industry as well as demographic trends have a good deal to do with it.

The Federal Reserve Bank of Cleveland serves the Fourth Federal Reserve District, which comprises Ohio, western Pennsylvania, the northern panhandle of West Virginia, and eastern Kentucky. Like the other Federal Reserve Banks, the Cleveland Fed collects anecdotal reports and analyzes data about the region it serves in order to inform national monetary policy. In the Bank's State of the State series, we share some of what our regional researchers find.

Employment growth in 2015 in Pennsylvania trailed that of most other states and the nation, according to recent data, and that modest growth is very likely driven by the commonwealth’s exposure to the oil and gas industry plus demographic trends.

Employment in Pennsylvania grew 0.7 percent in 2015, less than half the employment growth posted nationally (1.9 percent), according to the latest Bureau of Labor Statistics data.

Read other 2016 State of the State reports:

For 5 consecutive years, Pennsylvania's annual payroll employment growth has trailed the US growth rate by sizable margins.

That 0.7 percent placed the commonwealth in the bottom quartile among the 50 states and also marked a deceleration from its employment growth the year prior (1.2 percent in 2014).

Pennsylvania's employment growth from December 2014 to December 2015 ranked 39th of 50.

One of the developments driving recent employment changes is, of course, related to energy. Given Pennsylvania’s status as one of the largest producers of energy in the country, it’s perhaps not surprising that the recent downturn in energy markets has had an outsized impact on Pennsylvania.

According to the US Department of Energy, Pennsylvania was the second-largest producer of natural gas in 2014, behind Texas. Its production roughly doubled between 2012 and 2014 and was more than 20 times higher in 2014 than in 2008. The state also ranked fourth in coal production among states in 2013.

The mining industry, which includes activities related to the extraction of both coal and natural gas, experienced an employment decline in Pennsylvania of nearly 11 percent in 2015, after growing about 4 percent in 2014, thus returning employment in the industry to levels not seen since early 2011.

Pennsylvania's mining employment spiked in 2010 and 2011, but growth has slowed and even reversed in recent years.

While mining numbers don’t tell the full employment story anywhere, it’s clear that those states that enjoyed a boom in recent years as natural gas and oil development took off are now sharing in the misfortune of retreating numbers.

Of the 7 states that saw their total employment decline in 2015, all were among the top 10 energy producers in 2013 except Alaska, which—though not among the top 10—is still a major energy producer. The states among the top 10 in energy production that avoided employment declines in 2015—Texas, Pennsylvania, Colorado, and New Mexico—did so, in part, because of better diversified economies.

Then there are demographics. If local labor resources are close to fully employed (Pennsylvania’s unemployment rate was 4.8 percent in December, similar to the US’s unemployment rate of 5.0 percent), then employment growth will come largely from new entrants to the labor market, and thus employment growth will roughly parallel population growth.

Population growth in this neck of the woods pales in comparison to that in some others. According to the Census Bureau, “From 2000 to 2010, regional growth was much faster for the South and West (14.3 percent and 13.8 percent, respectively) than for the Midwest (3.9 percent) and Northeast (3.2 percent).”

It’s not unusual to see stronger employment growth in states to which people tend to move.

All 10 states with the highest employment growth from December 2014 to December 2015 are in the South or West.

As such, we shouldn’t have the same employment growth expectations for Pennsylvania that we do for a state such as Texas, and we would expect employment growth in Pennsylvania over the longer term naturally to be slower than that for the US as a whole. And that’s precisely what we’ve seen in this expansion. Over the 78 months of the current expansion, employment in Pennsylvania has grown at an annual rate of 0.7 percent while US employment has grown at twice that rate, 1.4 percent. This 1:2 ratio roughly holds for the 2 previous expansions, as well.

Discussions about Pennsylvania’s employment trends occur regularly at our regional advisory council meetings. Our sources confirm that entities in manufacturing and oil and gas face headwinds because of supply issues and concerns about global growth.

Sum and substance: Pennsylvania’s employment growth in 2015 trailed the national growth rate, something likely driven by energy-related job losses and demographic trends.

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Despite the weakening sentiment of Cleveland Fed District contacts’ reports, 3 Cleveland Fed officials continue to expect growth across the District in coming months. They explain why here.

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