The Buffalo Niagara economy isn't doing half-bad these days.
But it's still not coming close to keeping up with the rest of the country, which is growing almost three times faster.
M&T Bank economist Gary Keith calls it our "less bust, less boom" economy.
The good news, according to new federal data, is the Buffalo Niagara economy grew by 1% during 2018 – our fifth-straight year of economic growth and our third consecutive year with a growth rate of around 1%.
The bad news is that the rest of the country grew almost three times faster at 2.9%. Keith estimates that the local economy grew by that same 1% rate in 2019, and he predicts that growth will be slightly slower than that this year. In each case, that's about half of the U.S. growth rate.
That growth gap means more jobs, more income, more spending and more opportunity elsewhere. It's what makes it hard to keep college students from moving away after they graduate, and that contributes to the Buffalo Niagara region's people problem.
Simply put, there's a big brake on the Buffalo Niagara economy because of our stagnant population and our shrinking pool of available workers as our outsized baby boomer generation heads into retirement.
Canisius College economists George Palumbo, Julie Anna Golebiewski and Mark Zaporowski, in a report last week, noted that the number of jobs in the Buffalo Niagara region now outnumbers the number of people working in the region by about 9%. As recently as 2013, that relationship was reversed, with workers outnumbering jobs by almost 5%.
"It's an indication that it's changed," Palumbo said.
It's not unusual for jobs to outnumber the workforce, the economists say. That's because some people hold more than one job, and the labor data doesn't distinguish between full-time and part-time jobs. Sometimes, workers have a job in Buffalo Niagara, but live outside Erie and Niagara counties.
But the widening gap remains a concern.
"A region's shrinking labor force is hardly attractive to new business and job creation," the Canisius economists said.
When you drive down a street and see one "help wanted" sign after another, it's because our slowly growing economy has pushed unemployment down to around 4% – about a 20-year low – and because the region isn't adding enough people of working age to offset the wave of retirements.
"It's Problem 1A and 1B," Keith said.
"We're creating jobs. We're creating income. We're creating spending power," he said. "I'm concerned about the growth in our workforce. If you want to grow anywhere near the U.S. number, we've got to have some population growth."
Solving the problem won't be easy.
It means creating the type of good-paying jobs that will convince those college students to stay and entice expatriates to uproot their families and move back to Buffalo Niagara. It's going to have to come from getting new people into the workforce – maybe by welcoming immigrants here, maybe by convincing discouraged workers to start looking for a job again. And it's going to come from retraining workers so they have the skills that are in demand today.
"The Northland Workforce Training Center times 10 is what we need," Keith said.
Of course, it's nothing unusual for the Buffalo Niagara economy to lag behind the rest of the country. While the local economy outperformed the nation for three straight years from 2008 to 2010, it was mostly because our housing market never superheated. But our economic growth has lagged behind the rest of the country during every year since 2011, according to new federal data.
Our newfound stability was a good thing during the Great Recession, when Buffalo Niagara felt far less of an economic sting than the rest of the country. But 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.
Since 2009, the Buffalo Niagara economy has grown by about 1% a year, on average. The nation's growth topped 2%.
And in the last few months, our already tepid job creation has stalled almost completely, economists Richard Deitz and Jaison Abel from the Federal Reserve Bank of New York warned last month.
But we have plenty of company in upstate New York. During that time, the only major upstate metro area to grow faster than Buffalo was Syracuse, which averaged 1.2% growth annually from 2009 to 2018.
With that, here's a look at the ebbs and flows in the Buffalo Niagara economy during 2018.
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 2015 before sputtering in 2016 and 2017. It came back strongly in 2018.
Economic activity from private businesses grew by 1.5% in 2018, three times faster than during 2017 and double the 2016 growth rate. It was the biggest annual gain since 2015.
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 87% of all the economic activity in the region, up from 83% in 2010.
Financial services have been the backbone of the Buffalo Niagara economy for more than a decade – at least when it comes to banking and insurance. With Geico steadily hiring in Amherst, firms like debt services firm Strategic Financial Solutions hiring hundreds for its big growth plans in Amherst and banks like M&T Bank and KeyBank maintaining major operations here, the finance and insurance sector has seen plenty of activity.
But bank mergers have offset some of those gains, leading to a steep, two-year decline that topped 10% in 2017 and 2018 – a puzzling drop given the steady hiring going on throughout the sector.
The bright spot is in real estate, where the strong housing market led to nearly 4% growth in 2018.
The construction data also is puzzling. While work has wrapped up on big construction projects like the Tesla solar panel factory, the Oishei Children's Hospital and the University at Buffalo medical school, the federal data says that construction activity fell for a third consecutive year to its lowest level since at least 2001.
That's even lower than during the Great Recession and 25% less than the region's construction activity during 2001, even with the steady stream of renovation projects underway to turn old buildings downtown into trendy apartments and offices.
Local manufacturers are starting to bounce back.
Manufacturing activity grew by 2.2% in 2018 – the biggest one-year gain since 2009 – and the first year of factory growth since 2014. The 2018 rebound followed two years of relatively modest declines in 2016 and 2017, bringing much-needed stability to the sector and raise hopes that the worst is over at local factories that have endured decades of decline.
But factories pack far less of an economic punch than they used to. In 2007, manufacturers accounted for 17% of the region's economic activity. In 2018, it was down to 12%.
The retail apocalypse is taking its toll on what had been one of the more stable portions of the Buffalo Niagara economy. While the wholesale side of the trade business grew modestly, the retail side stumbled badly in 2018 as store closings continued and the Canadian dollar remained weak.
The retail sector shrunk by 1.3% – its first decline 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.
Professional and business services
Professional and business services were a bastion of strength in 2018. The sector, which ranges from management and scientific services to temporary help, grew by 4.3% in 2018, with most of the growth coming from management and professional services.
As the local economy moves away from its heavy dependence on manufacturing, professional and business services are playing a bigger role. It now accounts for more than 11% of the region's economic activity, up from 9% in 2001. It's the region's fifth-biggest industry sector.
Education and health services
Education and health services have been one of the fastest-growing parts of the Buffalo Niagara economy, growing by an average of nearly 3% a year since 2014. 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 two 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% of the region's economic activity, up from 9% in 2001.
Accommodation and food services
The boom at local hotels and restaurants petered out in 2018. The hospitality sector, which grew like gangbusters coming out of the recession before hitting a lull in 2013 and 2014 and then starting another growth streak, shrunk by more than 3% in 2018.
It was the first decline in a decade for a highly visible part of the local economy, that nevertheless doesn't pack much of an economic punch, accounting for just 3% of the overall economic activity here because most of the jobs pay relatively little.
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 14%, it has shrunk during three of the last five years, including a 2% decline in 2018.
As a result, it's quickly losing economic clout. In 2001, government accounted for nearly 16% of all economic activity in the region.