The Buffalo Niagara job market has hit the skids.
The region lost jobs during October for the second straight month, shedding 2,700 positions over the past year, mainly because of weakness in financial services, construction and at local bars, restaurants and hotels.
The back-to-back slump in jobs is a sobering turnaround for a region that, in 2015 and 2016 had its two strongest years of job growth this century as a wave of high-profile projects, including several big construction projects, bolstered hiring.
The region lost 1,900 jobs during September, according to revised Labor Department data that reduced the size of the decline from the drop of 3,500 originally reported last month.
Local economists, however, said the job losses, while disappointing, aren't necessarily a sign that the Buffalo Niagara economy is slumping.
"It's not encouraging, but let's not jump to conclusions," said Gary Keith, M&T Bank's regional economist in Buffalo.
John Slenker, the state Labor Department's regional economist in Buffalo, said the two-month slump in hiring, which followed a steady slowdown in hiring throughout the winter, spring and most of the summer, likely is the result of a tight labor market, where employers are having trouble finding qualified workers to fill open jobs.
"There are a couple of reasons that can cause this lack of job growth," he said.
"One is a drop in business activity, which I'm just not seeing," Slenker said. "The other is a shortage of labor."
Traditionally, the region's labor market has slumped when the overall economy weakened, causing companies to shut down or reduce their workforces in response to a drop in sales.
But this time, neither Keith nor Slenker said they see signs that the overall economy has softened, leading to that type of cyclical job cuts.
"We're very short on labor," Slenker said. "It's not just in the skilled trades and manufacturing. It's across the board."
Instead, they think the job losses could be the result of the region's steadily shrinking pool of available workers – a decline that largely is due to a wave of older baby boomers retiring. Over the last five years, the Buffalo Niagara labor force, which includes everyone who has a job or is actively looking for one, has shrunk by 4 percent, or nearly 23,000 people.
During that same five-year period, the region has added about 16,000 jobs. Between those new positions and the shrinking labor pool, the Buffalo Niagara region's unemployment rate has dropped from a peak of 8.8 percent in June 2012 to 5.3 percent in September, according to seasonally adjusted data from the Labor Department.
Slenker thinks the September and October job reports may be overstating the scope of the softness in the Buffalo Niagara job market. He thinks the job numbers could be revised upward once more detailed information is available, although even that data is likely to indicate a slowing in the pace of hiring.
"We're going to continue to add jobs, but basically only as fast as we can add people," he said.
Keith also thinks some parts of the October jobs report don't pass what he calls "the sniff test." The report indicates that the region lost nearly 15 percent of its real estate jobs over the past year – something that seems unlikely in a robust housing market, Keith said. They also show that 21 percent of the region's jobs in arts and entertainment vanished.
"The large decline in the real estate and arts and entertainment job count seems inconsistent with visible activity in these sectors," Keith said.
The October jobs report said Buffalo was one of only three metro areas in the state that lost jobs over the past year. Only Elmira, which lost jobs at a 1.9 percent annual pace, and Rochester, which had a 0.6 percent decline, had more severe losses than the 0.5 percent annualized decline in the Buffalo Niagara region.
The Buffalo Niagara job losses also came at a time when the state and nation continue to steadily add jobs. The state added jobs at a 1.1. percent pace between October 2016 and October 2017. Job growth nationally was even stronger, at 1.4 percent.
"It looks like the labor shortage issue is affecting us," Keith said. "But until we get more information, we're just going to have to watch and wonder."