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What comes next for area economy?

The Great Recession could have been a whole lot worse in the Buffalo Niagara region, but what happens next will be even more telling.

For the first time in decades, the Buffalo Niagara region didn't fall into the recession before most of the country, and we didn't take nearly as hard of a hit, either. That's the good news, but it's also only part of the story.

The third piece of the equation is what happens next. Traditionally, the Buffalo Niagara region also has taken longer to bounce back from a recession than the rest of the country, and those tepid recoveries are a big reason why the economy here hasn't been all that robust over the last 40 years.

Like an overmatched boxer, we tend to get clobbered so hard by recessions that, by the time we manage to dust ourselves off and stagger to our feet again, we're already lined up to be on the receiving end of another haymaker.

We never regained all of the jobs we lost during the 2001 recession. It took six years to recover all of the jobs we lost during the 1991 downturn, which resulted in the region missing out on all but the tail end of the longest economic expansion in the nation's history. Our recovery from the devastating 1981-82 recession took nine long years.

So while it was encouraging to see the Brookings Institution last week confirm that the Buffalo Niagara region managed to dodge the biggest of the bullets during the Great Recession, it still isn't clear how the story will end.

The Buffalo Niagara economy "is still in the process of coming out of the recession," said Howard Wial, a Brookings economist. "It's fully recovered in output, but it's still recovering in jobs."

Wial and other local economists say the local job market will not start growing again for months, and they expect the recovery to be slow. Skeptical companies that have been pinching pennies for more than a year are likely to wait until the last possible moment before they start hiring again. That's the way it usually works coming out of a recession, which is why the first few months often are called a "jobless recovery."

John Slenker, the state Labor Department's regional economist in Buffalo, predicts the job market will not start growing again until the second half of this year.

"I don't see Western New York leading the nation out of recession," he said. "We still have a large pool of unemployed workers, and it's going to take a while to work through that."

George Palumbo, a Canisius College economist, says the pace of the recovery locally will depend partly on what happens to the labor market in other places. The financial services industry, for instance, has taken a liking to the Buffalo Niagara region, partly because wages here are so much lower than they are in New York City, Chicago and other big cities.

If the Buffalo Niagara region retains its cost advantage, more jobs could move here as companies try to save money.

"Are we going to be better off because it was so bad in New York, Chicago and along the East Coast?" Palumbo asked. "But if the recession knocked the stuffing out of the labor markets there, we might see some softening in wages" that could make it less likely that those financial services jobs will shift here.

Housing costs, which have held up well here amid the carnage nationally, also are an advantage because they remain about a third lower than the national average.

The shape of the Buffalo Niagara economy also is changing. Factory jobs, once the driving force of the local economy, now account for only about 10 percent of all local employment, which is on par with the rest of the country. Service jobs are playing an ever-growing role.

"That doesn't necessarily make for a stronger recovery," Wial said. "It makes for a less severe drop."

e-mail: drobinson@buffnews.com

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