Philadelphia Metropolitan Area Economic Outlook
By Timothy Schiller, Senior Economic Analyst Federal Reserve Bank of Philadelphia
The Philadelphia metropolitan area is the fifth-largest (by population) of the 363 metropolitan areas delineated by the U.S. Office of Management and the Budget. The area ranks fifth in total income and 23rd in per capita income. The area's per capita income is 118 percent of the national average. Over the last 10 years, the average annual growth rate in per capita income in the Philadelphia area was 4.7 percent, slightly faster than the 4.3 percent average annual growth rate in the nation as a whole. Total income in the area grew somewhat more slowly in the area than it did in the nation over the last 10 years, however, because the region's population growth was not as rapid as the nation's. The economy of the Philadelphia metropolitan area is diversified. The private industry groups with the largest employment are trade, transportation and utilities, educational, health and social services (each accounting for 19 percent of total employment); professional and business services (15 percent); and manufacturing and leisure and hospitality (each accounting for 8 percent). The area also has a significant number of science-based industries such as medical research, chemicals, advanced materials and information technology. Compared with the nation, employment in the Philadelphia metropolitan area is proportionally greater in educational, health and social services, financial activities and professional and business services, and proportionally less in construction, manufacturing and leisure and hospitality services.
Economic activity in the Philadelphia metropolitan area has slowed along with the national economy since early 2008. However, employment in the area has not declined as much as it has in the nation, and the area's unemployment rate has been below the national rate. The area's diversified mix of industries tends to mute effects of variability in particular sectors, such as have occurred in recent years in the construction industry. And the industries that have large concentrations of employment in the area, especially the health and education sectors, tend to have steady growth rather than extreme cyclical ups and downs. The relative stability of the area's economy is also evident in the local real estate market. Over the past several years the area did not experience increases in residential construction or house prices as great as many other parts of the country, but it has also not experienced declines in construction or house prices as large as the national decline in the past year.
Looking past the current economic weakness that is affecting all areas of the nation, there are several long-term trends in the national economy that remain intact. These trends are likely to continue to benefit the Philadelphia metropolitan area. One of these trends is the evolution of employment growth. The Bureau of Labor Statistics forecasts that employment growth to 2016 will be fastest in service industries, healthcare and professional and business services. These industries are already prominent in the area, and the region is likely to share in the expansion expected for these industries throughout the nation. Similarly, the Bureau of Labor Statistics forecasts that many professional healthcare and service occupations will be among the fastest-growing occupations, and these occupations are also numerous in the region. Throughout the nation, local area economic growth is becoming more closely linked with educational attainment and professional skills. The Philadelphia metropolitan area should benefit from this trend because the area's labor force has a higher educational attainment than the nation as a whole, and a large number of students graduate from the area's many colleges and universities every year.
Another trend favoring the Philadelphia area is the growing importance of residential amenities that are important in attracting highly educated residents and promoting growth in metropolitan economies. Among the amenities that have been identified as contributing to growth are professional sports, performing arts organizations and venues, museums and restaurants. The Philadelphia metropolitan area has a rich and growing variety of these consumer amenities.