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Region's economy is missing the national uptick Gains in the service sector can't overcome manufacturing's decline

On the surface, a wave of stability has settled over the Buffalo Niagara economy. But take a closer look, and the winds of change are howling at gale force.

With local auto plants shedding thousands of jobs through buyout programs, and with the automotive sector in flux, the region's already-battered factory sector is taking a major beating that will continue well into this year.

While those jobs - which in general pay far more than the region's typical job - are going away for good, the region's service firms are gaining some strength.

The result is an economy that is still losing jobs slowly, but an unemployment rate that is lower than it has been in six years.

"If you look at the economy, the strength hasn't been i n manufacturing, and the auto industry hasn't done well," said John Slenker, the state Labor Department's regional economist in Buffalo. "Our manufacturing is very dependent on autos."

"The service-providing industries have done fairly well," he said.

In some areas, the Buffalo Niagara region showed better improvement last year - from unemployment rates to housing prices - than it has since the recession hit five years ago. But that is dulled by the fact that other parts of the country are doing considerably better, and their growth started as long as five years ago.

Over the last year, the area lost 1,600 jobs, a 0.3 percent annual decline that lags well behind the 1.4 percent growth nationally and even the 0.8 percent gain in New York. Job growth here was the worst among the state's 14 major metropolitan areas, and was the third-worst in New York when 26 rural counties making up the rest of the state are included. At the same time, with the labor force shrinking as the region's population declines, the Buffalo Niagara region's unemployment rate dropped to a six-year low of 4.5 percent in November.

> Exodus of the young

That lack of job growth is a problem because the stagnant local economy still doesn't offer the scope of opportunities for good-paying jobs that the region's young people and its coveted college graduates seek, forcing many to flee in search of greener pastures.

"People follow jobs," said Andrew J. Rudnick, president of the Buffalo Niagara Partnership. "That is 100 percent a product of the non-competitive business climate in upstate New York, which makes expansion less likely to occur here than it is at other sites."

The struggling job market has been particularly hard on the region's youngest workers, especially its college graduates.

"The most precious part of our community - the 25-to-45 age cohort - left when the jobs did," Rudnick said. "That's the most precious asset any community can have."

Yet there are some hopeful signs, especially in the financial services sector.

HSBC Bank USA is expanding its Amherst data center and is expected to build a second nationally-coveted facility in Niagara County, creating nearly 80 technology jobs that will pay more than twice the regional average and spurring hundreds of other spin-off tech jobs at support firms.

At the same time, Citigroup's corporate and investment banking division moved its Western New York office into a new Amherst building as part of an expansion that will bring its local force to 650.

"We're seeing an economy that is relatively steady," said Richard Deitz, the senior economist at the Federal Reserve Bank's Buffalo branch. "The whole mix is changing."

"What you're seeing in the Buffalo Niagara area is a little bit indicative of what you're seeing in the national economy," said John Gramer, the regional managing director for staffing firm Spherion Corp. in the Rochester suburb of Fairport.

The big uncertainty hanging over the local economy is the downsizing of the region's auto plants. Nearly 3,000 workers at Ford Motor Co.'s stamping plant in Woodlawn, General Motors Corp.'s Engine Plant in the Town of Tonawanda, American Axle and Manufacturing's local plants and Delphi Corp.'s Lockport factory accepted buyouts last year, although some will work into 2007.

Auto parts manufacturers, which employed 14,800 workers in 2000, now have about a third fewer workers and that number is expected to drop sharply as the buyouts kick in, according to state Labor Department data.

In addition, there's the fear that the American Axle's plant on East Delevan Avenue may close. Automotive News reported earlier this month that the 700-employee plant was slated for closing, but the company said it was too early to say whether that would happen.

Pain in the automotive sector is compounded by the longterm weakness of the local economy, which over the last 16 years missed out on almost all of the growth from the longest expansion in the nation's history and then suffered just as much when the economy turned sour six years ago.

While the nation already has regained all the jobs that were lost during the 2001 recession - and added 3.6 million more - the region still needs to gain another 13,800 jobs just to get back to where it was before the downturn began.

All of those losses have come from factories, which beyond the auto industry's woes, have been battered by plant closings and cutbacks over the last three decades. Competition from cheap goods made overseas, which contributed to a trend toward companies shifting their least-skilled work to other nations, has exacerbated the problem.

For example, material handling equipment maker Columbus McKinnon Corp. in Amherst expects foreign markets to be a key source of growth in the coming years. It plans to try to boost its sales in markets like Eastern Europe, the Far East and Latin America, said Timothy T. Tevens, the firm's president and chief executive officer.

And while manufacturers here are cutting back, Tevens sees the global manufacturing economy in the early stages of its recovery. "This has a lot of legs and a lot more room to grow," he said.

> Home prices rising

The Buffalo Niagara housing market, while fairly robust by local standards, has cooled a bit, although it has little in common with the supercharged real estate market that most of the country experienced before signs of a slowdown began surfacing late in 2004.

That means homeowners here have little to fear from talk elsewhere about a housing bubble that might burst under the pressure from rising mortgage rates and home prices.

The median price of homes sold in the Buffalo Niagara region inched up by 2.4 percent last year, trailing the 3.4 percent growth nationally, as the region continued its long trend of lagging far behind the rest of the country in home price appreciation. The median sale price in the Buffalo Niagara region ranked as the eighth-lowest out of 148 metro areas surveyed by the National Association of Realtors during the third quarter.

The price jump locally was slightly less than the 3.3 percent increase in 2005 and left the local median at $97,775, according to statistics from the Buffalo Niagara Association of Realtors, less than half of the national median price of $224,900.

Another price survey that uses repeat home sales and mortgage refinancing data showed that the average home price here grew by 3.7 percent during the 12-month period that ended in September, less than half of the 7.8 percent growth nationally. That increase was sluggish enough to rank the Buffalo Niagara region in the bottom third of the 275 metro areas studied by the Office of Federal Housing Enterprise Oversight.

Still, with mortgage rates in the mid-6 percent range, the local housing market was pretty busy, although not quite as bustling as in 2005. The number of home sales fell by 1.4 percent from 2005's record high, the first time in four years that home sales did not set a record, the local real estate group said.

At the same time, more homeowners were putting their houses on the market, with active listings by the end of the year running 8 percent above their level from the year before and returning to levels last seen in 2001. That reduces the pricing pressure that some buyers felt two or three years ago when the number of homes on the market was unusually tight.

Consumer confidence in the Buffalo Niagara region finished the year on a strong note after ranking for most of 2006 as the most dismal among the six major New York metropolitan area surveyed by the Siena Research Institute. The surge pushed the region to 4th place among the six metro areas surveyed by Siena researchers and brought confidence levels here to their highest point since the third quarter of 2002.

"We've just had good economic news," said Douglas Lonnstrom, the director of the Siena Research Institute, which conducts the quarterly survey of 400 consumers in each of the state's six major metro areas.

"Energy prices came down. Interest rates were steady. Inflation was in check. The stock market hit new highs," he said. Optimism that the incoming Spitzer administration could shake up state government also contributed, he said.

e-mail: drobinson@buffnews.com

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