Cincinnati — On the Path to Recovery
2013:Q3 | PDF
Cincinnati’s economy is recovering at about the same pace as the nation’s, but faster than Ohio’s. The metro area seems well poised to continue its recovery, thanks to heavy shares of employment in marketing, healthcare, aerospace manufacturing, and auto parts, industries that are experiencing strong growth. The area’s educated workforce is another advantage for continued growth: average educational attainment is higher here than in the state or nation. Challenges include adjusting to recent and future cuts in government payrolls and declines in manufacturing and construction employment.
One reason for the metro’s progress is its heavy concentration of jobs in sectors that require more education and skills training, particularly marketing and health care. Since both of these sectors are expected to grow further, the metro area is poised for continued growth. The marketing sector will grow as consumer demand expands with the recovering economy. The health care sector is expected to grow as the general population ages and the Affordable Care Act goes into force.
Gross Domestic Product
GDP per capita in the metro area fell only slightly during the recession due to the diversity of its economy. Industrial production was able to remain strong, and this healthy level of manufacturing activity kept personal consumption levels steady as well. Aerospace manufacturers and auto parts suppliers have fared well since the end of the recession. Aerospace manufacturers have seen increased demand because of the aging airline fleet, and auto suppliers have benefitted from pent-up demand in the auto sector.
Housing market transactions have rebounded to pre-recession levels. House prices, which historically have grown more slowly in the Cincinnati metro area than in the nation as a whole, have stabilized. However, prices are being driven up in some price categories by tight supply. Fewer homes are on the market because foreclosure rates have dropped and tight credit conditions have slowed new-home construction. Tight supply, along with growing demand, continues to shorten the average time a house stays on the market. However, housing affordability remains high, encouraging many first-time homebuyers to enter the market.
Although employment levels in the metro area have finally started to recover, private-sector payroll employment is still about 6 percent below pre-recession levels. This situation closely mirrors the trend in the state, where many lower-skilled manufacturing and construction jobs have not yet returned in significant numbers. Government austerity programs have also taken a significant toll on the metro area. About 10,900 government jobs have been lost since the start of the recession, nearly matching the 13,400 manufacturing jobs that were lost over the same period. Government jobs are not expected to recover because further cuts are still expected.
Employment Growth by Sector
Cincinnati’s economy benefits from a relatively high degree of industrial diversity and a well-educated workforce. Many of the nation’s largest marketing and retail firms (such as P&G, Kroger, and Macys) are headquartered in the area and are well positioned to aid the local economy as consumer demand grows. The area’s professional and business services sector has shown the most resilience during the recovery, as it has elsewhere in the United States. This sector accounts for about 19 percent of payroll employment in the area, second only to trade, transportation, and utilities, which accounts for about 23 percent.
Relative Employment Growth
Education and health services account for approximately 18 percent of Cincinnati’s total payroll employment. Since the recession began, this sector has been the fastest-growing in Cincinnati’s economy. The sector never lost jobs during the recession, and its total employment since then has risen by 7.1 percent. Large local healthcare providers, such as TriHealth and Cincinnati Children’s Hospital and Medical Center, support the metro area’s role as a research and healthcare hub. Both providers, already major employers in the area, have announced or embarked on physical expansion plans that will increase their employment levels through 2015.
The housing supply remains exceptionally tight because builders have not significantly beefed up the total supply since 2006. Multifamily permits have being growing due to low vacancy rates, but they remain significantly below pre-recession levels. Single-family permits finally started to surge in 2013 after declining for five of the last seven years. Single-family permits are estimated to rise by approximately 36 percent in 2013. Two factors often cited for the slow resurgence of supply are tight credit conditions and the scarcity of skilled construction labor. The scarcity of labor has also helped to increase the price of new construction.
In the years running up to the recession, Cincinnati’s level of per capita consumer debt (mortgage, auto, and credit cards) was roughly even with the nation’s and higher than either the state’s or nearby metro areas’. But since that time, Cincinnatians, like people across the nation, have reduced their debt by an average of about $6,800. Some of this drop reflects lower mortgage debt resulting from foreclosures, but some of it represents smaller average outstanding balances on revolving debt instruments, such as credit cards and home equity loans.
Credit Card Delinquency Rates
Although Cincinnati households’ financial health worsened during the recession, recent declines in credit card delinquency rates show that it improved in 2011, the latest period for which data is available. The share of the area’s credit card balances that were over 90 days delinquent fell by 4.25 basis points from its recession high of 11.3 percent. The metro area’s delinquency rate is roughly equal to Ohio’s and nearby metro areas’ but significantly lower than the nation’s.
Average Weekly Earnings
Earnings are growing faster in the metro area than in the state and the nation. During the recession, average annual wage growth fell to approximately -4 percent. Since late 2010, average weekly earnings have risen by roughly 3 percent, compared to 2 percent for the state and nation. The growth of higher-paying sectors, such as professional and business services, accounts for much of this increase. Weekly earnings may well continue to strengthen as the city increases its share of high-paying jobs. However, some downward pressure is likely to be felt as government payrolls continue to shrink in the near term.
Income Per Capita
Since the end of the recession, Cincinnati’s growth in income per capita has approximately matched the nation’s at 5 percent, and it has exceeded the state’s. Three separate trends have combined to make this growth possible: slow population growth, expansion in high-paying sectors, and growing demand for high-tech manufacturers’ products. From 2007 to 2012, Cincinnati’s population rose only about 2.1 percent. During the same period, employment rose 4.7 percent in the professional and business services sector and 7.3 percent in health and education services, two high-paying sectors.
Demographics and Education
Cincinnati is the 28th largest of the 381 metropolitan statistical areas in the US.