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What's hot, what's not in the Buffalo Niagara economy

By upstate New York standards, the Buffalo Niagara economy is red hot.

By national standards, it's lukewarm at best.

New federal data shows that the value of all goods and services produced within the Buffalo Niagara economy last year grew more than twice as fast as it did during 2015. The growth last year was faster than it had been in all but one of the last six years.

It was a great year for financial services, with local banks, insurers and real estate firms accounting for nearly all of the region's growth last year. It also was a good year for health services and there were plenty of good times at local bars, restaurants and hotels, too.

But it was another rough year for local manufacturers, wholesalers and government.

If you put it all together, the Buffalo Niagara economy grew by 1.3 percent last year, after adjusting for inflation. Over the last six years, only 2014, when the local economy grew by 1.4 percent, was better. And no other upstate metro area grew faster than Buffalo Niagara last year.

That's the good news. The bad news is that the data from the federal Bureau of Economic Analysis also shows that the Buffalo Niagara region continues to grow more slowly than the rest of the country – a trend that has been in place throughout the recovery from the Great Recession, said E.J. McMahon, research director of the Empire Center, an Albany think tank.

In fact, the Buffalo Niagara region's growth from 2011 to 2016 has been less than a quarter of the national increase. During that time, our economy has grown by an average of about 0.5 percent a year. The country has grown by about 2 percent annually, McMahon noted.

During those five years, the only upstate metro area to grow even half as fast as the rest of the country was Albany, which expanded by 6.6 percent from 2011 to 2016. Buffalo grew by 2.5 percent, while Syracuse grew by less than 1 percent and Rochester's economy actually shrunk by 1.4 percent.

Here’s a look at the ebbs and flows within the Buffalo Niagara economy last year.

Private sector

Private employers, which include everything except government entities, have been the driving force in the Buffalo Niagara economy for most of the last five years, and 2016 wasn’t any different.

Economic activity from private businesses grew by 1.6 percent, triple the growth rate in 2014 and the second-fastest since 2011.

Over the last seven years, the private sector has slowly carved out a bigger piece in the region’s economy as government budgets have gotten tighter. Private employers now account for a little more than 84 percent of all economic activity in the region, up from just under 83 percent in 2010.

Financial services

No sector was hotter last year than financial services. With the local housing market heating up, Geico steadily growing in Amherst, homegrown banks like M&T Bank  beefing up its headquarters staff, and financial services firms like Citigroup building up their back office operations, financial services grew by nearly 6 percent last year.

That was a turnaround after a flat 2015 and two down years in 2012 and 2013 for a sector that now accounts for more than 18 percent of the region’s economic activity, making it the biggest part of the Buffalo Niagara economy.

"It's an important part of moving the needle forward," said Gary Keith, the regional economist at M&T Bank in Buffalo. "It's not the silver bullet that's going to solve all our problems. It's one leg of the stool."

Since 2007, the financial services sector has grown by nearly $2.9 billion. By comparison, the $50 billion Buffalo Niagara economy has expanded by $3.6 billion overall during that time.

Construction

With all of the building going on around the Buffalo Niagara Medical Campus and the Tesla factory, construction was a positive force in the Buffalo Niagara economy, growing by 1.1 percent last year. It was the second-biggest increase in activity since 2011, even if it was down from the 3.1 percent jump in 2015.

The gains last year pushed construction activity back to the levels it was at in 2008 for an industry that, until 2015, had struggled mightily during the first five years of the recovery. Even so, the increase locally was well below the 4 percent rise across the country.

Manufacturing

Two years ago, it looked like the Buffalo Niagara region’s factories were back on the right track after decades of decline. But since the beginning of 2015, local manufacturers have struggled. Manufacturing activity declined by 0.3 percent last year after falling by 2.1 percent in 2015,  reversing a two-year growth spurt in 2013 and 2014 that had raised hopes that business had stabilized at local factories.

It wasn't just Buffalo, either. Factory activity inched lower nationwide last year. Since the recession began nine years ago, manufacturing activity in the region has dropped by almost 7 percent.

Trade

Trade has been the Steady Eddie of the economy, with slow but steady growth over the past five years. Most of the growth has come from the retail side, despite the rise in the value of the Canadian dollar that has cut into the savings for shoppers coming across the border. But last year, cutbacks at some of the local grocery wholesalers offset the continued growth on the retail side, causing the entire sector to essentially go flat.

The retail sector had its slowest growth since 2012 last year, expanding at a 1.6 percent pace, while activity on the wholesale side had its first down year since 2012, with a 1.6 percent decline.

Professional and business services

While professional and business services was a solid performer during the first half of the recovery, the sector, which ranges from management and scientific services to temporary help, has struggled over the last three years, shrinking by 1 percent since the end of 2013.

Thanks to solid growth during the mid-to-late 2000s, the sector is playing a more prominent role in the local economy, accounting for just under 12 percent of all economic activity, compared with 9 percent in 2001. It’s the region’s fifth-biggest industry sector.

Education and health services

Education and health services has been a growing part of the Buffalo Niagara economy, growing by nearly 5 percent over the past two years. The sector, the sixth-biggest part of the local economy, has been powered by growth in health services as the region’s population has aged. That offset a decline in education services.

The sector has been steadily expanding over the past decade, now accounting for a little more than 10 percent of all economic activity in the region, up from about 9 percent in 2007. It has grown faster than the overall Buffalo Niagara economy during each of the past two years.

Accommodation and food services

Local hotels and restaurants, which grew rapidly coming out of the recession, had a strong year during 2016, growing twice as fast as the overall Buffalo Niagara economy.

The highly visible segment doesn’t pack much of an economic punch, accounting for just 3 percent of the overall economy. But it's been vibrant. Since 2010, only the financial services sector has grown faster, fueled by a flurry of new hotel openings and a steadily expanding economy that has people feeling financially secure enough to go out for dinner or drinks.

Government

No part of the local economy has struggled as much as the public sector as tight budgets have led to cutbacks at all levels of government, including the public schools that play a big role in the segment. While government still is the second-biggest part of the local economy, accounting for just under 16 percent of all economic activity, its post-recession struggles have diminished its importance. In 2010, government accounted for nearly 17 percent of all economic activity in the region.

It’s been a steady decline, with government activity shrinking during four of the past six years.

David Robinson is deputy business editor. He writes a weekly column on Buffalo's Business.

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