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Western New York's economy keeps chugging along, but it isn't keeping pace with the more robust growth in most other parts of the country.

In essence, the local economy continued with its recent trend of taking one step forward and one step backward in 1998. For every positive development, there tended to be a separate helping of bad news to temper the gain.

"I think what we have continued to see is a plodding economy -- one that has mixed results depending on the individual sector," said Andrew J. Rudnick, president of the Buffalo-Niagara Partnership. "I don't see much of a change in those dynamics in the year ahead."

The good news is that the local economy is actually growing, adding about 900 net jobs in Erie and Niagara counties through November 1998. That's better than the job losses the region experienced in 1995 and 1996, but the gains were less than half of the 1,900 jobs that were added in 1997.

At the same time, those tepid job gains gave the region a job growth rate of just 0.2 percent, which was just a fraction of the 1.6 percent increase in jobs statewide and a 2.3 percent growth rate throughout the entire country.

Put another way, for every job added in Western New York, the state created eight new positions, while the country added more than 11. That means the Buffalo area is experiencing a degree of prosperity that is far more subdued than the nation as a whole or the state, especially in the counties around New York City and Long Island.

And just 43 of the nation's 272 biggest metropolitan areas had job growth rates -- or in some cases job losses -- below Buffalo's 0.2 percent increase, according to the U.S. Bureau of Labor Statistics.

There was some good news, too. Trico Products Corp. decided to keep 230 factory jobs here and move its production to a site in the New Buffalo Industrial Park. The call center industry continued to grow, with International Data Response Corp. talking about a major expansion that could add 400 jobs, while Softbank Services continues to hire. In addition, Quebecor has hired back 400 workers laid off starting in 1996, and plans to add another 200 jobs on the back of a new publishing contract.

On the downside, the Asian financial crisis hit home, as local companies saw their sales to Far Eastern markets, such as South Korea and Japan, as well as South America, collapse because of the economic turmoil.

The rising value of the U.S. dollar, which drove up the price of goods made in America, cut deeply into exports. And the plunging value of the Canadian dollar made competition from Canadian firms even more intense for both manufacturers and local retailers.

"We've gotten clobbered by the high value of the dollar," said Stephen Kagann, Gov. Pataki's chief economist. "Buffalo is basic manufacturing, and these are the industries that, over the last year or so, have been severely constrained by the high value of the dollar."

In short, the grass is a lot greener elsewhere.

Still, the Western New York labor market is unusually robust. The unemployment rate in Erie and Niagara counties has fallen to 4.5 percent in November, which is the lowest jobless rate for any November in at least 25 years. The local unemployment rate remains lower than the statewide rate of 5.1 percent, but lags behind the 4.1 percent national rate, on a seasonally unadjusted basis.

Yet the 4 percent jobless rate in Erie County during November was the lowest in any month during the past 25 years, while the 5.6 percent rate in Niagara County is the third-lowest for any November, said George P. Smyntek, the regional economist for the state Labor Department in Buffalo.

On the political front, the state, Erie County and even some local governments are taking steps to ease the competitive disadvantage that the area's high taxes help create.

State taxes have fallen sharply under Pataki, who now is promising to keep spending increases under the inflation rate. But local and school taxes in New York remain the nation's highest.

Still, there has been progress on that front. Amherst and Lancaster property taxes didn't change this year, while rates and spending actually fell in Clarence. In Erie County, County Executive Gorski's budget cut taxes by an average of 2 percent.

"I tend to think it's the Albany issues -- business climate, tax issues -- that will have more of an impact on the local economy than the overall health of the national economy," Rudnick said.

And electricity deregulation, which took effect for Western New York's most power-hungry industrial companies last year, will spread to all other commercial and residential customers this year, which could help lower rates that now are among the highest in the country.

"I realize the growth is minimal, but the indications to me are that it will improve over the next year," as the benefits of the tax cuts gradually filter through the economy and the U.S. dollar settles below its 1998 peaks, Kagann said.

The local real estate market, fueled by mortgage rates that dipped below 7 percent for much of last year, rebounded from a sluggish performance in 1997 to turn in one of its best years of the decade.

Single-family home sales in Erie County soared by 12 percent through November, while the average sale price of those houses, condominiums and co-ops rose by 3 percent, according to the Greater Buffalo Board of Realtors.

The housing construction market also was strong, with the number of building permits for single-family homes rising by 8 percent through November.

It was a good year for the region's entire construction industry as well. It was on pace for its second straight year of growth, with the value of all building contracts in Erie and Niagara counties rising by 8 percent through November after gaining 6 percent in 1997, according to the F.W. Dodge division of McGraw-Hill Cos.

With major public works projects, including the renovations at Ralph Wilson Stadium and the final stages of work at Shea's Performing Arts Center, on tap for this year, as well as the start of the Inner Harbor project on the Buffalo waterfront, the local construction industry already has a solid book of business in the pipeline for 1999. Beyond that, the construction of a second Peace Bridge will be a staple for the construction business well into the next century.

Consequently, the construction industry had one of its better years in recent times, adding 700 jobs through November, making it one of the strongest portions of the local job market.

At the same time, manufacturing employment weakened by 1,000 jobs, or 1.1 percent, as the region took a hit from several local companies that decided to close local factories. Topping that list was Bristol-Myers Squibb, which is chopping 171 local jobs by moving several of its Westwood-Squibb operations from Buffalo to New Jersey. Patheon, a Canadian pharmaceutical manufacturer, hopes to acquire Westwood's Buffalo plant, which could save 270 production jobs at the factory.

River Ranch Fresh Foods closed its Northeastern processing center on Dingens Street, which cost 150 jobs. And Graphic Controls Corp. backed out on its plan to open a new headquarters here after being acquired by Tyco International Ltd., in a move that will cost the area 200 white-collar jobs.

With the Wall Street boom providing plenty of fuel for a record-setting flurry of mergers, Rudnick said Western New York, which has a relatively small number of corporate headquarters for a region of its size, probably will continue to feel the pinch from the deals that inevitably will be sealed this year.

"There's going to be all kinds of merger and acquisition and leveraged buyout types of activity going on, and we don't know how that's going to affect us," he said.

On a national level, the number of merger-related job cuts nearly doubled last year, with acquisitions accounting for about 11 percent of all of the 677,795 job cuts announced in 1998, according to Challenger, Gray & Christmas Inc., a Chicago outplacement firm.

"There is always going to be some job loss resulting from mergers and/or acquisitions as combined companies eliminate duplicate job responsibilities," said Rick Cobb, a Challenger vice president.

But the high prices that some of these deals are commanding is causing even deeper job cuts to maintain profit margins and satisfy shareholders, Cobb said.

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