Wells Fargo: Why energy, eds and meds aren't enough for sluggish Pa.

(Updated version in Jan. 7 Inquirer here) While the U.S. has recovered from the long recession, Pennsylvania is one of the states (there are 22, says my colleague Harold Brubaker) which still has fewer people employed than in 2007. Over the long term, job growth here "seems to be stuck at a pace well below the national average," writes senior economist Mark Vitner and his team at Wells Fargo Securities LLC, the investment arm of the dominant barnk in Philadelphia.

Incoming Gov. Tom Wolf may get to preside over slightly stronger "output, employment and income growth" in 2015, while new pipelines, power plants, apartments and warehouses will keep construction workers busy, at least, Vitner reports in Wells Fargo's yearly report reviewing the Pennsylvania economy.

But Pennsylvania's slow-growing economy will still trail the nation as a whole, the report adds: "Below-average growth has been the trend in the Keystone State for the better part of the last century." In 2014, as the national economy quickened, Pennsylvania suffered more layoffs "spread across numerous industries: government contractors, steelmakers and pharmaceutical companies." The state's population centers, led by metro Philadelphia and Pittsburgh, "are seeing only tepid gains." Home prices have gone flat, and "without considerably more jobs and new residents, [apartments construction] in Philadelphia runs the risk of becoming too overbuilt.".

Energy-related construction is up, "with the most promising growth coming from the natural gas industry." Drilling is down along with the price of natural gas, but "investments in downstream operations look promising. Several major pipelines and petrochemical facilities are in the works, and the state is also working to export natural gas liquids."

But that doesn't add up to a lot more permanent jobs: "The energy booms in Pennsylvania and Texas are not the same," Vitner says. Natural gas "has not had the transformative effect that shale plays in Texas and North Dakota had," partly because the industry is still tiny -- just $2.6 billion in production last year -- less than one-half of one percent of the state's gross domestic product.

"Natural gas holds the potential to become much larger," but "the impact on employment, however, will likely be relatively modest," Vitner adds. The industry now employs 6,400, up from under 2,000 ten years ago but not enough to offset corporate layoffs elsewhere in the state.

"Several pipelines are under construction or in the planning process," and each will be transporting energy OUT of Pennsylvania: to Gulf Coast refineries, to Toronto-area industries, and through Sunoco Logistics' $2.5 billion pipeline, to new propane, butane and ethane storage at its Marcus Hook Industrial Complex, for sale to out-of-state, possibly foreign industries.

"While under construction, pipelines can employ a substantial number of workers. Once completed, however, few workers are required to maintain and inspect them," Vitner adds. At least, with pipelines in place, there's an incentive to keep drilling for more Pennsyvlania gas, though Range Resources and other producers have cut back new investment as prices tumble, he added.

The hope: "New industry will also likely to be drawn to the state due to its access to a stable, long-term affordable energy supply" and the materials Sunoco Logistics plans to concentrate at the Hook.

But, Vitner notes, "Pennsylvania's inability to hang onto current employers is concerning. Future growth will require the state to attract more businesses to locate within its borders and to keep more of the ones currently operating in the state."

If it can't make itself more attractive, Pennsylvania risks losing jobs in "emerging fields like life sciences, alternative energy and advanded manufacturing," just as it has already lost "food manufacturers, steelmakers, mining, retail, pharmaceuticals and information."

Vitner urges "tax breaks for capital spending, improvement, research and development and infrastructure spending." It will cost the state, "but the loss tends to be more if the employer closes down." He says tax breaks for Philadelphia companies "are showing their signs of benefits," though he's not citing examples.

At least we have warehouses: "Forever 21, Nordstrom and Urban Outfitters are all building large, new e-commerce fulfillment centers in Lancaster County," employing thousands during the Christmas season. Bethlehem has attracted Zulily and more than 1,200 warehouse workers, plus two Wal-Mart centers totalling over 2 million sq. ft. and several hundred workers.

Other "bright spots include General Electric, which is opening a new advanced manufacturing technology center near Pittsburgh," and Comcast's new Philadelphia office tower.

Manufacturing is now just 12% of Pennsylvania's economy, down from 17% in 1997 and 36% in 1965.

Taking the lifetime view: Total Pennsylvania employment is up 1% a year on average for the past 75 years, vs. 2% a year for the U.S. as a whole. If Pennsylvania had kept up to the rest of the nation, it would have more than 6 million additional jobs, and a population the size of Texas. Though many Pennsylvanians may by now prefer things here as they are, Vitner added.

Pennsylvania home prices last fall were up just 1.7% from last year, and the trend is to lower gains. Home prices in Pennsylvania are 'significantly lower" than Maryland, New Jersey or New York; they're more like depressed Ohio.
  
Pennsylvania is one of just six states where half the people are older than 40. "The lack of population growth tends to weigh down Pennsylvania's economy" even when the rest of the nation is expanding, the report concluded. "The state could certainly use more workers and the additional tax revenue that they would generate," especially if it hopes to keep up with new technology industries.