The tidal wave of bad financial market news that began in July seems to have spilled over into western PA in the third quarter. Pittsburgh’s economy is as solid as it’s ever been, but the fear of the national recession seems to have put enough fear into the market to drag it down. Even though job creation is positive in western PA, it is understandable that potential home buyers would look forward six to twelve months with some uncertainty.

During the January through September period 1,609 permits were issued for single-family detached units, down 12.6% from the same period last year. The market for single-family attached and multi-family units was down further, with 1,056 units started compared to 1,270 during the first three-quarters of 2007.  The overall housing market was down 14.3%.  Activity was a mirror image to 2007 when housing permits increased over the second quarter. Permits granted in third quarter 2008 for detached housing totaled 458 units compared with 587 last year, and the overall totals were 873 compared to 1,217 in 2007. That represents a 22% and 29% decline respectively.

The one submarket that seems to be immune to the downturn is within the city of Pittsburgh. There has been two-and-a-half times the new construction in the city as in the next most active suburb.

Non-residential construction remained strong in the quarter, with more than $1 billion in contracts awarded.  Contracting during January-September was $2.7 billion, a 13% increase over the first nine months of 2007.  The difference between this year and 2007 is that the pipeline is clearly drying up.  The fourth quarter should have another half-billion or more in new contracts, but a lot of that is already on the books. Bidding between Labor Day and early October is off significantly. This is usually the time when last-minute bids go out for construction before the weather breaks. The steep decline in the capital markets has pulled the rug out from under a strong market, and it’s looking like a lot of projects are being deferred until there is more certainty about the economy.

Energy and manufacturing projects are still advancing rapidly, and should fuel a couple of billion dollars worth of work in 2009, but those markets are served by relatively few firms. The mainstream commercial and institutional projects are increasingly being shelved. And some of the bigger institutional owners are paring back. West Penn Allegheny Health System has delayed the construction of a new ER at the Alle-Kiski facility in Natrona Heights, and UPMC has cut back capital budget spending, although the new $200 million Monroeville center appears to be moving ahead this quarter.

The totals listed below represent the number of new housing units for which building permits were issued, excluding mobile homes and elderly care complexes.  The top areas were:

Wednesday’s long awaited announcement from Allegheny Technologies that it had decided to put a new $1.2 billion rolling mill in Brackenridge adds another mega project to the list of industrial construction projects scheduled to get underway in the region during the next 12 months. ATI’s investment in northeastern Allegheny County matches the $1 billion that U. S. Steel is investing in upgrading their Clairton Coke Works, where preliminary work is underway. Another $1 billion project has begun the preliminary bidding cycle in western Washington County, Robinson Power’s Beech Hollow Coal-fired Power Plant.

You can undertand why Allegheny County Executive Dan Onorato fairly bristles at talk of the steel industry in the past tense. For a region with a “manufacturing past” $3 billion in construction is sure a lot of investment.

Add to that the rush to explore the Marcellus Shale formation for natural gas and you have quite a nice boom in the industrial segment of the economy in western PA. Already there are three different projects being planned for natural gas exploration companies, totaling around $50 million in new construction in Westmoreland and Allegheny County. Some of the existing energy companies in western PA (Atlas Energy, Consol) have already invested more than $100 million in the past couple of years. This may be all that’s out there but it says here that this is the tip of the iceberg.

Anecdotal evidence is all that we have right now to judge the staying power of this industrial renaissance. An interesting tidbit is that the national construction giant Barton Malow opened an office in Southpointe this summer for its industrial group, not the institutional group (which is building Children’s Hospital and UPMC Monroeville East with P. J. Dick).

One of the long-term benefits of all this investment is that it secures thousands of jobs that most of the region’s pundits thought were dying off. Both ATI & USS are creating better processes without eliminating jobs. The construction jobs alone will be in the thousands over the next three years, and the energy jobs may eventually be seen as the start of a new industrial boom in the region. I realize that sounds like a sunshine pump but the need for natural gas and alternative eletrical generation to reduce dependancy on oil imports is at least as great as the need to drill more oil domestically, and it’s a whole lot more certain. Some of the first land leases have been windfalls for the landowners, many of whom are farmers. There’s even been talk of a coal-to liquid gas facility near Midland, PA. That western Beaver County town is the prototypical post-industrial municipality in our region (even though there is still steel made there).

As one who regularly speaks about the folly of trying to attract “well paid” manufacturing jobs, I’m happy to have not seen this one coming. It is probably more realistic to expect a renewed industrial economy here to attract modest job increases, and provide mostly short-term benefits for the construction industry. It’s possible, though, that renewed industrial investment in a region that has industrial infrastructure could be a home run.