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Slowed recovery dims local outlook, expert says; Head of state Fed is troubled by trend

The nation's economic recovery may "finally be establishing a somewhat firmer footing" with increased job growth and more business activity, but the recovery locally has slowed, New York Fed president William C. Dudley said in Buffalo Friday.

Echoing comments he made in Syracuse a day earlier, the head of the Federal Reserve Bank of New York told a business gathering that "incoming data on the U.S. economy generally has been a bit more upbeat over the past few months."

But he cautioned that "it is still too soon to conclude that we are out of the woods."

"To begin with, the economic data looked brighter at this point in 2010 and again in 2011, only to fade later in those years," Dudley said in remarks to about 40 business leaders at the Buffalo Niagara Partnership's Movers & Shakers Forum.

Similarly, he said, the economic recovery that began in the state in late 2009 "has continued through early 2012 and even gained a little bit of momentum." He noted the Buffalo region in particular has gained back nearly 12,000 of about 20,000 jobs it lost during the downturn. And the housing market has been resilient.

"The recovery is proceeding in Buffalo, slowly but surely," Dudley said. "This is somewhat faster progress than the country has made as a whole, although, in part, that's because the downturn was less severe here."

He noted Buffalo home prices have risen about 10 percent since 2006, compared with a 30 percent decline nationwide. Buffalo's employment decline of 3.5 percent during the downturn -- "nothing pleasant, to be sure" -- was about half the national decline of over 6 percent. And total household debt burdens are "relatively low by national standards," while mortgage delinquencies are lower than in many areas.

"Like much of upstate New York, Buffalo's housing market has been much more stable than many other parts of the country," he said. "If there's no boom, there's no bust."

He was particularly pleased that "for the first time in decades, manufacturing has been a source of job growth in the region, rather than decline," adding some 3,000 jobs.

But it is "somewhat worrying that the pace of the recovery locally has actually slowed a little bit in the last few months, just as the national recovery has started to gain some momentum."

Even so, he said he was very positive on Buffalo's future, citing the "decades-long economic restructuring" that "has resulted in a more diversified economy," with health and education becoming "important sources of job opportunity and economic development potential."

He praised Gov. Andrew M. Cuomo's $1 billion economic development pledge to the region as "another positive development" and "a tremendous opportunity for the region to accelerate the economic transformation already under way."

And Dudley urged the community "to really think strategically about how best to use these funds," while giving special attention to local colleges and universities, including partnerships with private industry.

"This is really an asset for this region. The higher education in upstate New York is really world-class, and if we can achieve a better partnership between businesses and higher education institutions, we can create more jobs in the region and keep more people here," he said.

Dudley, who in his role as New York Fed president is also vice chairman and a permanent voting member of the Fed's rate-setting Federal Open Markets Committee, did not specifically address the Fed's interest-rate policy in his prepared remarks.

He took questions from the audience after his remarks, but the Buffalo Niagara Partnership ushered the media out during the question period, contrary to Federal Reserve policy.

But in an interview afterward, he did reiterate the Fed's intention to keep rates low through 2014 to stimulate the economy.

He said the annual rate of core inflation has apparently peaked and slowed, despite rising gas prices, and "we expect it to begin to decline later this year." And inflation expectations "remain well anchored."

"People expect that the rate of inflation will continue to be relatively low for years and years," he said. "The inflation outlook looks quite subdued."