Pennsylvania Economy Hanging in There

According to the Philadelphia Business Journal Pennsylvania's unemployment rate climbed from 7.8% in April to 8.2% in May - an uncomfortably high number to be sure, but significantly below the national average unemployment rate of 9.4%. Another way to look at it is in the year from May 2008 to May 2009 the number of jobs in Pennsylvania shrank by 3.2% compared to 3.9% nationally. One bright spot for Philadelphia is that the healthcare and education sectors, major anchors in Philadelphia's economy, are doing very well relative to other sectors of the economy.

An often-discussed benefit of rising unemployment is an increase in new small businesses and entrepreneurship as laid-off workers decide to become their own bosses. I believe Philadelphia is an entrepreneur's paradise thanks to it's low cost of living, concentration of creative-class professionals, and easy access to a dense and diverse customer base both locally and within the greater Mid-Atlantic/Northeast region. I know numerous artists and entrepreneurs who are able to live very well in Philadelphia but would barely be able to scrape by in more expensive cities such as N.Y., D.C., or L.A. (perhaps two-letter abbreviated cities are just more expensive by default?)

So, what does the Philadelphia region's relatively healthy employment picture and potential to attract new small businesses and entrepreneurs mean for real estate investors? Three of my thoughts to get us started:

1. Local residential rents and vacancies may get through this recession without being severly affected - while unemployment has increased, 91.8% of Pennsylvanians who want jobs still have them and should continue paying their rent. Additionally any laid-off New Yorkers or Washingtonians attracted to Philadelphia's lower cost of living will likely help to pick up any slack in the rental market and they're more than happy to pay top-dollar Philadelphia rents that look like a bargain compared to other Northeast cities.

2. While national retailer bankruptcies are pushing up vacancies for larger, big-box retail properties, the local retail market in Philly is relatively healthy and new boutiques, galleries, coffee shops, bars, and restaurants continue to open regularly in many neighborhoods. Any new entrepreneurs created by this recession will fill in smaller retail spaces in the established and emerging neighborhoods and should eventually push up the values of these properties even as retail property values for larger shopping centers fall along with the fortunes of their national tenants.

3. This recession proves that Philadelphia's claim to have a diversified economy based on recession-resistent 'eds-and-meds' industries is at least partially true. This claim has often sounded more like savvy marketing than fact, but we've seen in this recession that these industries really are fairly stable and do make up a healthy chunk of Philadelphia's employer base.