Despite its diverse industrial base, strategic location and skilled labor force, the Cincinnati economy has exhibited sub-par growth over the past year-and-a-half.

During this period, employment growth has ranged from a low of -0.1% to a high of +0.5% year over year and, as the chart illustrates, it has been consistently below the growth of the country as a whole.

Ongoing Restructuring of Metro Area’s Manufacturing Sector
This weak pattern of growth is primarily due to ongoing restructuring of the metropolitan area’s manufacturing sector, combined with a more recent sharp drop in residential construction employment in the wake of the subprime mortgage crisis. The key offset to the drop in employment in goods-producing industries has been strong growth of employment in service industries, specifically the education and health services sector, which has added 4,600 jobs over the past 12 months.

Looking ahead, the near-term economic prospects for Cincinnati received a boost from the most recent Cincinnati Report on Business. In November, the Cincinnati Purchasing Management Index (PMI) jumped from a recession-indicating 45.1 to a more expansionary 56.3. This 1l.2 point increase, the largest monthly rise since May 2003, was caused by a sharp upswing in new orders, a rise in order backlogs and an increase in production plans, employment and prices. At the same time, both raw materials and finished goods inventories declined.

Sluggish Population Growth and Credit Crisis act as Drags on Housing
While this increase in the Cincinnati PMI is a positive sign, the lingering effects of financial market instability are likely to continue to act as a drag on growth for the U.S. in general — and on Cincinnati in particular — over the near term.

Consequently, it is unlikely that residential construction will exhibit a significant turnaround before the end of 2008, a prospect that is reinforced by the metropolitan area’s sluggish pattern of population growth over the past several years.

Two Large Upcoming Office Projects
Having said this, the sustained strong pattern of employment in education and health services over the past two years is likely to underpin new office construction over the next several years. Specific projects currently on the drawing boards include the expansion of the Humana Regional Headquarters and the The Keystone Phase II office complex.