By Patty Tascarella – Senior Reporter, Pittsburgh Business Times
The chief economist at PNC Financial Services Group Inc. detailed the impact of a recession different from any other in history, at the University of Pittsburgh’s Institute for Entrepreneurial Excellence’s annual “State of the Pittsburgh Economy” event with state and community leaders on Wednesday morning.
“This time around, the recession we experienced in 2020 was very different, it was caused by something external to the economy — the coronavirus,” Gus Faucher, PNC’s chief economist, said. “It ended what had been the largest expansion in U.S. economic history.”
Yet, when Faucher singled out the biggest challenge to southwestern Pennsylvania, he returned to the same one he’s cited for the past several years — the lack of population growth. Businesses are looking for workers and the lack of growth in the Pittsburgh metro and Pennsylvania as a whole will make it difficult to attract companies, he said.
“This will be the key to stronger economic growth in Pittsburgh,” Faucher said.
Because Pennsylvania imposed more restrictions on economic activity than many states, unemployment was higher, particularly in Pittsburgh, he said. On the other hand, the commonwealth and local region had less exposure to long-term restructuring than the U.S. as a whole.
The event, traditionally held at PNC’s downtown Pittsburgh headquarters, was virtual. Last year’s was held the day after a 1,000 point plunge on the Dow Jones Industrial Average due to concerns over the emerging Covid-19 pandemic. Three weeks later, non-life-sustaining businesses across the commonwealth shut down to curtail its spread. Several speakers on Wednesday remarked that it was their last such public forum, including Dennis Davin, state secretary of Community and Economic Development.
“In February 2020, this was one of the last in-person events I participated in before the pandemic shut everything down,” Davin said. “Normally, it’s a chance for me to tout the economic progress we’ve made over the past year, but this time, it’s different.”
Both new jobs and the labor force have shrunk, many businesses have closed, communities face decreased tax revenues, “and all that pales to the devastation of nearly 24,000 Pennsylvania lives lost,” he said.
“But I have many reasons to be optimistic about the path before us,” Davin said. “The strengths that allowed Pennsylvania’s economy to surge prior to the pandemic are still here.”
That includes higher education fueling the talent pipeline, a great location and quality of life and a diverse economy to attract businesses from around the world. Davin said he was encouraged by Gov. Tom Wolf’s upcoming budget proposal, which aims to lower the corporate income tax rate, at present the second-highest in the nation at 9,99% of gross income, to 5.99% by 2026, and to raise the minimum wage, as well as by the governor’s Back to Work Pennsylvania proposal that was announced on Monday.
Stefani Pashman, CEO of the Allegheny Conference on Community Development, noted that most industry sectors locally are in a recovery mode with businesses feeling more optimistic about 2021 as more in the tech, telecom, finance and construction industries seeing improved demand. Consumers are increasingly confident about their finances, but less so about job recovery, she said.
“This is where the disruption continues,” Pashman said. “We need not just recovery, we need robust economic growth. It’s about competition, securing job, investment in people. We’ll only succeed by strengthening our advantages.”
Allegheny County Executive Rich Fitzgerald noted growth in the life sciences sector and in logistics.
“Retail is going to be different,” Fitzgerald said. “We’ll see some of the big companies (retail giants outside the region) looking to have warehouse distribution here.”
But hospitality and entertainment continue to suffer.
“We don’t know how quickly that’s going to come back,” Fitzgerald said. “We do feel that once we get on the other side of this, hopefully in the next few months, there’s going to be pent-up demand for people wanting to get out.”
Concerns also remain for big industries in the county like transit — buses and light rail where levels are down about 70%, Fitzgerald said.
Most of Faucher’s presentation was national in scope.
He said the pandemic accelerated shopping online over already declining brick and mortar retail, “and that’s not going away.” There are shifts in commercial real estate markets and he expects changes in demand for office space with more people working from home, but it’s unclear if businesses will need as much space as in the past. And companies that experienced lack of inventory are keeping more on hand now and looking to source more from within the U.S.
He’s less sure of the shape of the economy this year.
“Is it a V, a U or a Nike swoosh?” he said. “There’s also the possibility of a W, another contraction. I think that’s diminished, but the potential is out there.”
Another question is the effectiveness of the Paycheck Protection Program, federally funded forgivable loans for small businesses struggling with the impact of the pandemic.
“The more business failures, the slower the recovery,” Faucher said.
He expects the economy to be stronger as vaccine distribution increases, Covid-19 cases decline, the weather warms up given the impact of big storms across the country so far in 2021, and additional stimulus legislation is passed.
But it comes down to a simple summation.
“Until people feel comfortable going out in public, we will not have a strong economic recovery,” Faucher said.
Robert Stein, IEE executive director, provided opening remarks. For more than 25 years, IEE has teamed with PNC for a state of the union-type of economic forecast event from national, statewide and local perspectives.