M&T Bank’s Gary Keith, as only an economist can be, was anxiously awaiting the new data that came out last week detailing just how strong the rebound in the Buffalo Niagara economy that everyone is talking about really is.
After all, there’s a new vibe across the region. Canalside has been bustling with people all summer. The $200 million HarborCenter is completed. A drive past the $900 million SolarCity factory in South Buffalo shows just how big the Western Hemisphere’s biggest solar panel factory will be when it opens next year.
Keith was expecting good things from the new federal data, backing up all the buzz about a resurgent Buffalo.
Instead, he was disappointed.
The Buffalo Niagara economy grew twice as fast last year than it did in 2013, but that’s not saying much. Its 1.3 percent growth rate was nothing out of the ordinary. In fact, it wasn’t even quite as good as it was before the buzz began – back in 2010, 2011 and 2012, the local economy grew even faster, rising by 1.4 percent during each of those years.
So last week’s report was a real buzz killer. Instead of offering proof of Buffalo’s resurgence, it told the same old story of a slow-growth economy that isn’t keeping up with the rest of the country. In 2014, the numbers say the Buffalo Niagara region had its second-slowest economic growth rate in the past five years. The rest of the country grew 40 percent faster than we did.
“I’ve been waiting for this day for quite a while,” Keith lamented last week, after the U.S. Bureau of Economic Analysis released data tracking the economic growth rates of the nation’s biggest metro areas. “Sometimes, you don’t quite get what you wanted for Christmas.”
But if you look at the numbers more closely, there are things that make you wonder just how accurate they are.
The thing that jumps out the most is what the report says about the local construction sector. The tower cranes that popped up last year around the HarborCenter were one of the first beacons of hope. When their work was nearly done by the waterfront, another popped up on the Buffalo Niagara Medical Campus, the future home of a new children’s hospital and the University at Buffalo’s medical school. And others rose above the new Delaware North headquarters on Delaware Avenue and the new Catholic Health headquarters at Genesee and Oak streets.
Yet the numbers say the construction industry is in a slump. The value of all construction activity in the Buffalo Niagara region went down by 1.1 percent last year. In fact, the report says 2014 was the worst year for the local construction market since at least 2001, which is as far back as the data goes.
I know what you’re thinking: That just doesn’t make sense.
“I don’t trust the construction numbers,” Keith said.
“It’s got to be a matter of timing,” he said. “You can’t build hundreds of millions of dollars of stuff and have it not show up in the GDP. That’s got to be revised up.”
Keith expects the federal figures to catch up with the construction boomlet when the data is revised a year from now. He notes that the surge in construction initially didn’t show up in the local employment numbers, either. It took until those numbers were revised in March to turn what initially was reported as a tepid gain in construction jobs last year into what the updated data shows was a nearly 6 percent increase in hiring.
The initial reports from the state Labor Department say that construction hiring has accelerated this year, with local construction jobs rising by more than 10 percent to their highest level in 25 years, but – a word of caution – those numbers are subject to revision, too.
If Keith is right, and the latest federal figures aren’t capturing the construction boom, then it’s likely that the Buffalo Niagara region grew faster than 1.3 percent, but it would be a huge leap of faith to expect our expansion to catch up with the nationwide growth rate of 2.3 percent.
Fred Floss, a SUNY Buffalo State economist, said that’s not surprising, since the rest of the country is gaining population, while the Buffalo Niagara region is stagnant. Without an influx of people moving here, getting jobs and spending most of their salaries on day-to-day necessities, it’s hard to see the region keeping up with the rest of the country.
That’s where Buffalo Billion projects like the SolarCity solar panel factory come into play. If it succeeds in bringing 2,900 new jobs to the region, both at the plant and at its suppliers, then those new jobs could be a magnet to lure more people to the region. And if more jobs help get the population growing again, it could lead to faster economic growth, Floss said.
“Part of this is, do we have enough population growth to grow the economy faster?” Floss said. “If we continue to shrink, it’s going to be hard for us to grow.”
Despite his skepticism over what he thinks is the undercounting of the construction industry’s growth, Keith said the data still shows that the local economy has been making “solid progress” since the recession hit in 2007. The downturn didn’t hurt us as badly as many other parts of the country because our housing market never got overheated. Since then, the makeup of the local economy has continued to change.
Since 2007, economic growth in Buffalo ranks 33rd out of the nation’s 100 biggest metro areas, which isn’t half bad. But numbers are what you make of them, too. Since the recession ended in 2009, our economy has grown by 6.2 percent. The rest of the country has grown by 10.3 percent.
Either way, it’s still a slow-growth economy, which Floss said isn’t surprising, since it typically takes longer for a recovery to take hold after a recession that was caused by a financial crisis.
Manufacturing, which accounted for 18 percent our economy back in 2001, now makes up just 15 percent of our economic activity. In its place, the finance, real estate and insurance sector has grown, reaching 18 percent of the local economy last year as back-office operations continue to thrive here because of our lower costs than bigger metro areas.
Health care and professional and business services are playing a bigger role in the local economy. Retailers are growing, as is the leisure and hospitality sector.
“We’re much more like the rest of the country,” Keith said. “We have a lot of different industries that are growing – the eds and meds, finance and real estate and hospitality.”
And that, Keith said, makes a difference in how our economy works.
“We’re not the same old Buffalo,” he said.