Will the real Buffalo Niagara economy please stand up?
With “help wanted” signs popping up all around the region as unemployment falls to an 18-year low and housing prices spiking to record highs, there still are plenty of indications that the Buffalo Niagara economic renaissance is continuing.
But new federal data indicates that it’s hard to put a number to it.
While that data rank Buffalo Niagara second among all upstate metro areas for growth over the last five years, they show that the value of all goods and services produced within the region barely grew during 2017. The data says our economy grew by 0.3 percent after inflation – at a time when the country was expanding at a pace that was seven times faster.
That would be a major slowdown for a Buffalo Niagara economy that had grown by at least 1.4 percent during each of the previous three years.
But should you believe the data? Local economists are divided, although they agree that the Bureau of Economic Analysis data paints a sobering picture of the Buffalo Niagara economy.
“I was quite disappointed,” said Gary Keith, the regional economist at M&T Bank in Buffalo.
What puzzles Keith is where it pinpoints some of the weakest spots in the local economy. The federal figures say construction here fell to its lowest level since at least 2000 – even less than during the Great Recession – at a time when home building has picked up and there still is a steady stream of construction projects to convert old industrial buildings into trendy – and pricey – apartments.
And there’s another puzzler: At a time when home prices are rising faster – and homes are selling quicker – than they have in decades, the federal data says the local real estate sector is shrinking.
If you take out the reported declines in construction and real estate, Keith says the data shows that the rest of the Buffalo Niagara economy grew by about 1.2 percent last year.
“That feels about right,” he said.
George Palumbo, a Canisius College economist, prefers to look at the bigger picture. The data still shows that the Buffalo Niagara economy isn’t keeping up with the rest of the country during the long recovery from the Great Recession.
While the Buffalo Niagara economy held up well during the Great Recession, outperforming the nation for three straight years from 2008 to 2010, we haven’t kept up with the U.S. growth during any year since the recovery started. Those subpar recoveries have been one of the biggest problems the Buffalo Niagara economy has faced for decades, going back to the 1970s, and it’s still true today.
“There’s a little bit of wage growth. There’s some employment growth. But we keep falling farther and farther behind the rest of the country,” Palumbo said. “At best, we can say we’ve stopped declining.”
The Buffalo Niagara region’s growth from 2012 to 2017 has been less than half of the national increase. During that time, our economy grew by less than 1 percent a year. The nation’s growth topped 2 percent.
But we have plenty of company in upstate New York. During those five years, however, the only upstate metro area to grow even half as fast as the rest of the country was Albany, which grew by 7.2 percent from 2012 to 2017. Buffalo grew by 4.3 percent – a standout when you consider that Syracuse grew by just 0.7 percent over those five years, while Rochester and Utica both shrank by more than 1 percent.
With that, here's a look at the ebbs and flows in the Buffalo Niagara economy during 2017.
The private sector
Private employers, which includes everything except government entities, had been the power behind the Buffalo Niagara region's growth from 2013 to 2016. It came to a screeching halt in 2017.
Economic activity from private businesses grew by just 0.4 percent last year, less than a third of the 1.5 percent increase in 2016 and the smallest annual gain since 2013.
Even so, the private sector has been steadily playing a bigger role in the region's economy over the past seven years as government budgets have tightened. Private employers now account for nearly 85 percent of all the economic activity in the region, up from just under 83 percent in 2010.
Financial services have been the backbone of the Buffalo Niagara economy for the past four years – at least when it comes to banking and insurance. With Geico steadily hiring in Amherst, newcomers like debt services firm Strategic Financial Solutions starting to hire for what it promises will be big growth in Amherst and banks like M&T Bank and KeyBank maintaining major operations here, the finance and insurance sector grew by 4.5 percent last year.
But that growth was the slowest in three years, partly because of a puzzling decline in activity in the local real estate market. The federal data showed that local real estate, which includes housing and commercial space, dropped by 6.4 percent last year – even though local housing prices are rising at their fastest pace in more than a decade and hitting record highs.
Keith expects the real estate figure to be revised upward when updated data is released next year, but until then he's perplexed by the reported decline.
"I'm beating my head about it," he said.
The construction data is even more puzzling. While big construction projects like the Tesla solar panel factory have wrapped up and work was winding down last year on the new Oishei Children's Hospital and the new University at Buffalo medical school, the federal data says that construction activity fell to its lowest level since at least 2001.
That's even lower than during the Great Recession and 20 percent less than the region's construction activity during 2002. Keith finds it hard to believe that building activity here is at its lowest level in at least 16 years.
"It just doesn't feel right," he said.
Local manufacturers are starting to bounce back. After a painful six-year stretch of continual decline that started in 2007 and ran until 2012, factories in the Buffalo Niagara region have been slowly rebounding ever since.
Manufacturing activity grew by 1 percent last year – the second straight year of factory growth and the fourth in the last five years. It's not a big recovery, with activity up just 5 percent since 2012, but that's still enough to push manufacturing back to levels not seen here since 2010 and raise hopes that the worst is over at local factories that have endured decades of decline.
Trade has long been a steady part of the Buffalo Niagara economy, but it's now showing signs of stress. While the wholesale side of the trade business rebounded last year from the 2016 softness caused by the shutdown of a big grocery wholesaler, the retail side flatlined last year as store closings continued and the Canadian dollar weakened.
The retail sector grew by just 0.1 percent last year – its smallest gain since 2012 – as brick-and-mortar stores lost ground to online shopping and the weakening Canadian dollar cut into the savings for shoppers who cross the border. That stagnation was offset by a recovery in the wholesale sector, which grew by 1.7 percent, helped in part by the opening of a new Amazon distribution facility in Lancaster.
Professional and business services
Professional and business services was a bastion of strength in the local economy for the first 13 years of the 21st century. But that hasn't been the case since 2013. The sector, which ranges from management and scientific services to temporary help, has struggled over the last four years, shrinking by almost 2 percent since the end of 2013.
But that solid growth during the first part of the century means that, even with its recent softness, professional and business services still is playing a bigger role in the local economy. It now accounts for just under 12 percent of the region's economic activity, up from 9 percent in 2001. It's the region's fifth-biggest industry sector.
Education and health services
Education and health services have been a steadily expanding part of the Buffalo Niagara economy, growing by an average of more than 2 percent a year during the past three years. The sector, the sixth-biggest part of the local economy, has been driven by growth within health services as the region's population has aged. That offset five straight years of decline in the value of education services.
The steady expansion means that the overall sector now accounts for a little more than 10 percent of the region's economic activity, up from 9 percent in 2001. It's grown faster than the overall Buffalo Niagara economy for three straight years.
Accommodation and food services
Local hotels and restaurants keep chugging along. The hospitality sector, which grew like gangbusters coming out of the recession before hitting a lull in 2013 and 2014, has been back on a more moderate growth streak over the past three years. It's grown three times faster than the overall Buffalo Niagara economy since the end of 2014.
It's a highly visible part of the local economy, but it doesn't pack much of an economic punch, accounting for just 3 percent of the overall economic activity here because most of the jobs pay relatively little. Yet only the financial services sector has grown faster. Even so, its growth is a sign of vibrancy in the local economy, with a flurry of hotel openings and a strong job market that has people feeling financially secure enough to go out for dinner or drinks.
This has been a rough decade for the public sector. Tight budgets are causing cutbacks at all levels of government, including the public schools that play a big role in the sector. While government still is the second-biggest part of the local economy, accounting for more than 15 percent of the local economy, it has shrunk during five of the last seven years.
But it's quickly losing economic clout. In 2010, government accounted for nearly 17 percent of all economic activity in the region.