Greater Philadelphia Economy Continues to Grow at Slower Rate

The Greater Philadelphia regional economy will continue to grow but at a slower rate in the months to come according to new quarterly economic indicators released by Select Greater Philadelphia in collaboration with IHS Global Insight.

The Greater Philadelphia Leading Index (GPLI) is designed to signal the strength and direction of economic activity in the Greater Philadelphia region with an approximate lead time of six months. The June 2012 value of the GPLI was 93.3, virtually the same as in May, but down from 93.5 in March. Prior to then, the GPLI had been rising gradually since October 2011. The recent downward trend in the 12-month moving average that began in the spring of 2012 is further confirmation that the region’s economic growth rate will be slightly lower during the rest of the year.

“While the region’s economy continues to expand, the rate of growth is slowing and we expect this trend to continue for the rest of the year,” said Phil Hopkins, Vice President of Research at Select Greater Philadelphia. ”This gradual recovery means that the region’s total non-farm employment will not return to its pre-recession peak until the second half of 2014 at the earliest.”

The Philadelphia Stock Index — one of the four variables that comprise the Greater Philadelphia Leading Index — fell during the last three months, while the US Leading index remained level. The index’s other two variables — Employment Services and Vessel Trips — rose slightly.

According to IHS Global Insight, the modest drop in the monthly values of the GPLI in May and June was due to the decline in Philadelphia Stock Index and the leveling off of the US Leading Index. Given the uncertainty facing the US economy, and the below-average employment growth rate in the region since the start of the year, it would be premature to suggest that the slight increase in the GPLI between May and June is the start of an upward trend.

“It has been three years since the Great Recession was declared over by the National Bureau of Economic Research in June 2009,” said James Diffley, senior director of the IHS Global Insight U.S. Regional Services Group. “Since then US economy has continued to expand as real GDP has risen for 12 consecutive quarters through 2012q2. However, its annual growth rate peaked at 4.1% in 2011q4, and then slowed to 2% in 2012q1 and only 1.5% during 2012q2. This deceleration in growth is being felt in the Greater Philadelphia Region, resulting in the downward trend in the Greater Philadelphia Leading Index.”

US employment growth has been moderate with 1.77 million non-farm jobs (seasonally adjusted) added between June 2011 and June 2012, for a year-over-year (y/y) increase of 1.4%.

The drop in the US unemployment rate has stalled, fluctuating between 8.2% and 8.3% since January as employment growth has not been high enough to bring it down any further. The historically high number of persons who are underemployed, or have been unemployed for an extended period, remains a concern. There are some positive signs for the US economy. Housing prices appear to have stopped falling, with the number of housing starts and home sales beginning to rise above their historical lows of the last several years. The fall in gasoline prices has added to consumer incomes as they have declined from their springtime levels of close to $4 per gallon.

The seasonally adjusted (SA) unemployment rate in the two MSAs in May 2012 was 8.2%, same as for the US. The difference between the GPR’s and the US unemployment rates has disappeared over the last two years. Prior to the start of the Great Recession the Region’s unemployment rate was consistently about 0.5 percentage points less than the US rate; it has been the same as the US figure since January 2012.

The Greater Philadelphia Coincident Index, which is designed to show the current direction of economic activity in the GPR, rose during the first four months of 2012 followed by declines in May and June. This is consistent with the Region’s private-sector y/y employment growth through June being a little over one-half of the US figure. The four sectors where the Region’s y/y percent changes in employment were the furthest below the US are: Construction; Manufacturing; Trade, Transportation and Utilities; and Professional & Business Services. By contrast, employment in the Leisure and Hospitality Services sector was up 3.4% y/y, significantly higher than for the US; this difference was likely to due to the opening of the expanded Pennsylvania Convention Center in the spring of 2011.

For a detailed quarterly report on Greater Philadelphia’s leading and coincident indices of economic activity, including the methodology, and to obtain current values and year- over-year changes for a large number of data elements that measure economic activity, visit http://www.selectgreaterphiladelphia.com/data/eco_indicators.cfm