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I think Jim Morrison sang about our economy

So, it seems, we're right back to where we started in the dark days of 1984.

You remember. We were reeling from the closing of Bethlehen Steel, etc. Unemployment was bad. Times were beyond tough, they were desperate.

Well, as David Robinson reports today, it's deja vu all over again.

The Buffalo Niagara region’s unemployment rate shot up to a 25-year-high of 9.6 percent during February, as nearly 11,000 local jobs vanished over the last year, the state Labor Department said Thursday.

“Across the board, we have a lot of weakness,” said John Slenker, the labor department’s regional economist in Buffalo.

The job losses were widespread throughout all portions of the local economy, with particularly steep declines at local factories, where more than 5 percent of the region’s manufacturing jobs have disappeared over the last year. But service-providing jobs also took a hit, with the loss of 8,400 of those jobs, from banking to retail and hospitality.

The only job gains over the last year came from government agencies, as well as a tiny increase in private-sector management work.

Yes, let me repeat: "The only job gains over the last year came from government agencies ..."

The region is taking a harder hit than anywhere else in the state. Our employment base is down 2 percent over the past year. Rochester, by comparison, is down 0.3 percent. Heck, Utica is  holding up better than us. Utica.

Put another way, we've been down so long, that Appalachia looks like up to us. (With apologies to Jim Morrison. And Utica.)

It's a good thing we have all those wildly successful economic development programs in place to help get us out of this fix.

Sagging economy rendering subsidies even more obsolete

I've got three points to make, so stick with me.

The New York Times had a story on the economy over the weekend that is getting a lot of attention. It says, in part:

As government data revealed that 651,000 more jobs disappeared in February, a sense took hold that growing joblessness may reflect a wrenching restructuring of the American economy.

The unemployment rate surged to 8.1 percent, from 7.6 percent in January, its highest level in a quarter-century. In key industries — manufacturing, financial services and retail — layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business.

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte, N.C. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

Rather than riding out the storm, economists said the time is rapidly approaching to retool the economy and train workers for the next generation of jobs.

In short, we will not be returning to business as usual.

Meanwhile, Jeff Jarvis - author of What Would Google Do? - has weighed in with a blog post that portends Future Shock.

It’s not a great depression, neither is it a great recession we’re going through now. At the Brite conference this week, Umair Haque called it a great "compression" as an economy built on perceived value reconciles with actual value ...

I try to argue in my book that what we’re living through is instead a great restructuring of the economy and society, starting with a fundamental change in our relationships - how we are linked and intertwined and how we act, nothing less than that.

Yes, entire swaths and even sectors of the economy will disappear or will change so much they might as well disappear:

America may well not be in the auto industry soon.... Financial services will have to be completely remade (by government). ...Large-scale retail will shrink and consolidate and then be transformed by a search-and-buy economy ... Residential and commercial real estate will have to restructure around a new capital structure ... Consumer productsof all sorts will have to change in the face of empowered customers and, in some cases, with competition from small competitors given the benefits of scale on platforms (see: eBay, Etsy, Amazon, et al) ...Government will grow but thanks to the empowered populace, it, too, will face fundamental change.

There are opportunities here, of course. There always is in change if you’re willing to see and seek it.

This is the time when startups start. I agree with Reid Hoffman that founding new companies is our way out of this mess. Given the profound nature of the restructuring, starting new businesses - not fixing old, doomed ones - is the only sensible path.

Ah, yes, the sensible path. The road not often taken here in Western New York.

Look folks, the hand writing is on the wall. We're going to get hammered. In fact, it's already happening.

What are we big on? The legacy manufacturing and financial services that many economists say are going bye-bye.

And where do we come up short? Technology and entrepreneurship - the future according to Jarvis and others.

We've got two choices.

We can keep doing what we're doing - which is the choice we always seem to take. As in: "Hang on to what we have, regardless of the cost, both in dollars and lost opportunities."

Or, we can look around and start to retrofit our regional economy, building off our legitimate strengths to meet the needs and demands of the economy that emerges from the current carnage.

It's going to take some time to figure things out, but that's no reason not to get started. The government subsidy programs we've come to rely on, in lieu of lower taxes and other steps other states have taken to make themselves more conducive to economic growth, are a good place to start.

They were mostly out of step and ineffective before the economy started to tank. They're even moreso today in the face of the Great Recession.

Think about it: The Empire Zone program is widely regarded as a failure - the whining of local developers like Rocco Termini notwithstanding about reforms proposed by Gov. Paterson. But even those reforms, which in part would focus future benefits on industry and financial services, look suspect, given the prospect of a permanent decline of those very sectors. I think this means the reform requires reform.

It doesn't stop there.

The New York Power Authority expects to open negotiations later this year with more than 100 local industries regarding the sale of low-cost hydro-electricity. The major customers are pushing hard for long-term extensions and NYPA boss Richard Kessel, for all this talk of reform, keeps sending signals that suggest he will oblige, despite the wasteful subsidies showered on some of the largest customers whose best days are far, far behind them.

These subsidy programs represent a finite resource. Every megawatt of power given to a fading industry  is a megawatt that can't be provided to help power a company with growth prospects. Every tax break given a developer to put up a building whose tenants will employ people at sub-par wages means another project that might create good-paying jobs goes without them.

We've got some things going for us as we look at the pending new world economic order. Our access to fresh water. Our capacity to generate renewable sources of energy. A similar capacity to retool some of our industrial wherewithal to service that renewable energy sector. Our proximity to Toronto, a mega-region that has long been spitting out investment dollars we haven't figured how to attract. Colleges and universities churning out a lot of educated people. Our border location - despite our ineptitude in exploiting the opportunities it presents.

Look at who we've helped bankroll of late through subsidies.

Citigroup, whose stock is now worth the price of merchandise you can pick up at the Dollar Store.

General Motors, whose financial books left auditors holding their noses. 

Olin and Occidental chemical companies, whose best days were back in Happy Days.

Folks, we've got to be a lot smarter. 'Cause if you think the last 25 years haven't been pretty, you ain't seen nothing yet.

   

Less green, more broke

Some random reports ...

Green, we ain't: There are several rating systems that assess the energy efficiency and/or green qualities of buildings. I wrote about LEED standards last April, reporting that the Buffalo Niagara region has relatively few buildings designed and constructed to those standards.

Another indicator is based on the Energy Star rating system, which just issued new data showing where buildings meeting those standards are located. Some 3,305 buildings nationwide made the grade in 2008. There are 128 in New York State, including 13 in Rochester, eight in Albany and -- a drum roll, please -- one in Buffalo, a facility the VA built on Bailey Avenue. There's another one in Williamsville and one other in Attica.

That gives us all of three in the region.

By contrast, the Detroit region has 65, Milwaukee 62 and Grand Rapids -- Grand Rapids! -- 42.

Here's the complete list

Poorer we are:  Federal bankruptcies nationwide rose 31 percent last year. Big surprise, huh?

Our per capita rate In New York was 2.42 per 1,000, better than the national average of 3.62.  

Poorer we are II: The lead on this story says it all:

 New York state, in the final quarter of 2008, lost over 25 percent of the jobs it had gained since the last downturn, a statistic that reveals the deepening recession, the labor department said on Thursday.

This means 110,300 people working at private companies lost their jobs in just three months.

Hmmmm: For those of you interested in such things, the U.S. Department of State is maintaining a map tracking the travels of Hillary. Gee, ya think Hillary has a tracker on Bubba?

Double hmmmm: A blogger called Street Corner Conservative has this latest missive on Richard Kessel, head of the New York Power Authority, and the move by the governor and Legislature raiding his shop for big bucks to help bail out the state budget. Read into it what you want. The post left me wondering if Kessel wasn't grimacing on the inside as the Three Men in the Room made off with the cash.

Perhaps, like me, he thinks the three could at least have had the decency of wearing ski masks.

More bad economic news for WNY

The "why" of the story is unclear, but the "what" is distressing.

The growth in the value of imports and exports between the United States and Canada in the 12 years following the 1995 North American Free Trade Agreement grew by about 40 percent at the border near Vancouver and 25 percent at Detroit, while dropping slightly at the four bridges in the Buffalo-Niagara region.

In other words, the other major border crossings are growing their free trade commerce while ours is stagnant. Great.

The folks who put the report together, the Border Policy Research Institute and the University at Buffalo Regional Institute, don't provide a lot of reasons for WNY's inability to cash in on free trade to the degree others have. But another study by the Border Policy Institute sheds some light.

In a nutshell, the traffic jams known as the Peace Bridge and Queenston-Lewiston Bridge are choking commerce.

The institute, in its Winter 2009 Policy Brief, notes that cross-border trade dropped off after the 9-11 attacks. U.S. exports to Canada largely recovered by 2005, but not so with imports heading into the U.S. The reason, according to the report: "The increased cost of cross-border trade, likely associated with the higher cost of security compliance, is thought to be the problem."

Congestion seems to have something to do with it, as well

The report notes that 44 percent of the shipments entering the U.S. at Detroit use FAST lanes, designed to speed clearance. Here, that rate is 23 percent, or about half. Little wonder the Motor City's free trade business is growing while ours is treading water, why it's doing nearly double the volume we are.

The report also looks at automobile traffic. Our region represents the busiest crossing, an average of 16,509 cars per day, or one-fifth of the total traffic between the two nations. But our region, along with Detroit-Windsor; Blaine, Washington (south of Vancouver), and Port Huron, Michigan, all have seen their auto traffic fail to recover to the degree it has at other, less-traveled border crossings.

"It seems likely that discretionary travel was disproportionately impacted by either the harsher nature of the post 9-11 inspection process or by the congestion resulting from the new processes," the report said.

This rings true to anyone who has ever sat in a long line of traffic Peace Bridge. I know I make the crossing less frequently than I used to because I don't want to deal with the traffic.

All this hurts the WNY economy.

It means fewer Canadians coming here to shop and otherwise spend money. It also partly explains why our import-export trade isn't growing like it is at the other major border crossings.

This is a big deal because our border location is a strategic advantage that we're squandering.

What to do about it?

Well, the Obama administration needs to clean up the mess Dubya and Co. made of border inspections. Doing what needs doing with the Peace Bridge and Queenston-Lewiston Bridge is another piece of the puzzle.

PS: On Monday I said I'd follow up my post on Ontario going green with local reaction today. That's going to have to wait a few days, as I'm tied up with negotiations on behalf of my union dealing with proposed layoffs here at the paper. I hope to get to the local reaction to what Ontario is doing by the end of the week. It's kind of involved and will take more time than I presently have to piece together.

Like watching a train wreck

This is from one of my favorite media Web sites, Newspaper Death Watch:

It had to happen.  As the number of layoffs at America’s 500 largest companies nears half a million, several blogs have started to tote up the gloomy numbers.

They include The Layoff List, Layoff Blog, Jobless and Less, The American Lawyer Layoff List (lawyers are people, too, we think), and the TechCrunch Layoff Tracker.

Most were born late last fall. Let’s hope they live short and brutish lives.

Is there any way to stitch something together that zeroes in on layoffs here in WNY, aside from general unemployment numbers?

Buffalo victims of Bernie Madoff

A 162-page list of Bernie Madoff's clients turned victims has been filed in U.S. Bankruptcy Court. Here's a searchable link.

Go to the box labeled "Find" at the top of the document, type in Buffalo, or where ever, and let the games begin.

The News reports today that developer Howard Zemsky heads the list of Madoff's local victims.




Our primary source of job growth

Hey, we are adding jobs!

Business First has an interesting chart in its current issue, showing employment by sector in Buffalo Niagara and how it has changed in the past year. I've recreated it here because it doesn't appear to be available on its Web site.

Health care leads the way with 70,300 jobs. No new jobs were added between November 2007 and November 2008.

Business services rank second with 69,900 jobs, but that sector shed 700 jobs during the year.

It could have been worse. The natural resource sector dropped 2,200 jobs, retail 2,100 and durable manufacturing 1,400.

There is one sector that added a lot of jobs, however. Local government, which increased employment by 2,100 jobs, according to Business First calculations.

Yep, that's right. Taxes are high, times are tough and local government is hiring more people. Up to 66,200 jobs, making it the region's third-largest employment sector.

The state, by the way, added 200 jobs, bringing its total to 22,900. Budget deficit? What budget deficit?

Add the federal government, and taxpayers are footing the bill for 103,200 jobs in our region.Or about one government employee for every 10 man, woman and child living in Erie and Niagara counties.

The growth in government employment here is nothing new. As my colleague Matt Spina reported in 2006:

Buffalo Niagara's private-sector job growth this decade has been mediocre, six times worse than the state average. But the region's largest employer -- state government -- grew its work force by nearly 9 percent by adding some 1,700 jobs from July 2000 to July 2006, mainly in higher education.

Keep in mind that local officials, in reaction to Gov. Paterson's proposed cuts in school aid, among other things, have largely demanded something akin to the status quo.

Losing 1,000 jobs a month

Buffalo-Niagara will lose nearly as many jobs in the coming year as it did in the past eight years combined, a new economic forecast predicts.

We lost 12,900 jobs from 2000 through November of this year. 

We're projected to lose 11,400  through the end of this year. That's nearly 1,000 a month.

The projections are included in a report by done by ISH Global Insight for the U.S. Conference of Mayors. The report looks at the economic situation in the nation's 363 metropolitan regions, which account for 86 percent of the nation's jobs and 90 percent of wage income.

The U.S. economy is now in a deep recession. When the final data is tallied, real GDP growth is expected to have dropped nearly 5.6% in the fourth quarter of 2008, its worst performance since 1982. The results are grim across the board – consumer spending is falling, exports are weakening, and both housing starts and prices continue to decline.

The near-term outlook is not good either, with another 5+% drop in real GDP slated for the first quarter of 2009; it is too soon to look for signs of recovery. The recession, which began in December 2007, is expected to last 18-24 months, longest in the post-war era, with the second largest peak-to-trough drop in real output. A return to solid growth is at least a year away.


OK, readers, start signing "Oh Happy Day" whenever you feel moved. Not now, you say?

How about this clip of Fonz and the gang. It's as close to Happy Days as we're going to see for a while.


 

Let's take a closer look at the numbers, starting with a bit of history.

In the Go-Go '90s, jobs grew by 20.1 percent nationally. Here it was 2.1 percent, some 11,500 jobs. Which is to say, if we grew at the same rate of the rest of the nation, we would have added another 100,000 jobs, give or take.

And Scott Norwood would have nailed that field goal.

But I digress.

During this decade, we've lost 2.3 percent of our jobs. The median figure among metropolitan regions was a growth of 5.2 percent.

Looking forward, Global Insights projects a loss of the aforementioned 11,400 jobs, a shrinkage of 2.1 percent, compared with a nationwide average drop of 2 percent.

That would bump our unemployment rate up from the present 7.1 percent to 8.7 percent. The national averages are 6.7 and 8.3 percent respectively.

"Everybody is in the same boat now because of the nature of the downturn," said Jim Diffley, manager of regional services for Global Insight. 

The picture is pretty much the same across the state. Here's a list by metro regions, the projected percent decline in jobs and what the unemployment rate will look like by the end of the year.

New York City-Long Island-Northern New Jersey:  -2.1% (job loss), 7.6%, (unemployment rate)

Buffalo-Niagara Falls: -2.1%, 8.7%

Rochester: -1.9%, 8.4%

Syracuse: -1.8%, 8.3%

Albany-Schenectady: -1.3%, 7.2%

Binghamton: -2.5%, 8.2%

Utica-Rome: -1.6%, 8.2%

Elmira: -2.1%, 8.3%

Glens Falls: -1.7%, 8.3%   

Kingston: --1.4%, 7.8%

Ithaca: -0.1%, 6.2%.

Moral of the story: Move to Ithaca.

Things could be worse for us in Buffalo, Diffley said.

"You've done a little better than the Midwest," he said.

Yeah, Flint, eat our dust.

Diffley offered this advice when I asked what political, business and economic development leaders in our community ought to be doing in light of the recession.

"The two things you should do now is try to mitigate foreclosure-type problems and capitalize effectively on the federal government stimulus. Get jobs in place that are useful for long-term productivity," he said.

In which kind of sectors?

"Alternative energy sectors, advanced manufacturing. You have a business and workforce infrastructure that could be rather productive."

Funny, but that's not what our fearless leaders have in mind. No, they want A/C in City Hall. And more traffic signals. Nevermind what's been happening to the economy.

Just a thought: Perhaps the powers that be, and some folks who think outside the box, ought to get the the same room and reach a consensus on what the region's ask should be for federal bailout funds. Because right now, all we have are some DOA wish lists.

Regional economy bad - and getting worse

Is the Western New York economy heading for an economic downturn the likes we haven't seen since Bethlehem Steel and company shuttered operations in the early 1980s?

Maybe yes, maybe no, but the latest newsletter released by two sharp economic professors from Canisius College gives reason for P-A-U-S-E.

For starters, George Palumbo and Mark Zaporowski essentially say we should stop this semi-happy talk rooted in the misbelief (Dubya spoken here) that our regional economy, including housing, is somehow weathering the financial storm better than the nation as a whole. Palumbo and Zaporowski write:

Those who claim that the local economy will not decline as much as the nation obviously have not noticed that the local economy has not yet fully recovered from the 2001 recession.

Here's a depressing set of numbers to back up that point:

547,500: non-farm employment in WNY in 1990.

548,000: non-farm employment the first 11 months of 2008.

That's right, folks. In 18 years, we've added a net total of 500 jobs. And since 2000, we've dropped more than 10,000 jobs, as employment was close to 560,000 back then.

The bad news doesn't end there.

SteelWhen you consider only "goods-producing employment," that is, good-paying manufacturing jobs, we're down from about 115,000 jobs in 1990 to some 105,000 in 2000 and about 80,000 in 2006, the latest year that subset of numbers is available. In other words, we're down some 25,000 jobs this decade alone.

To put that in perspective, when the Bethlehem and Republic Steel plants closed in the 1980s, we lost 9,400 jobs. So, we've suffered the equivalent of two or three Bethlehem-Republic shutdowns this decade.

And as bad as that is, it could get worse. In fact, the professors say it probably will.

The tenuous position of the American-based automobile industry places Western New York in its most perilous position since the demise of the local primary metals industry more than 30 years ago. The future employment of many of the 35,000 durable goods workers in Western New York will be determined on the floor of Congress rather than on the production floor. If the perception that total compensation packages for auto workers in the Great Lakes region is substantially higher than for the workers of transplanted auto producers in the South is correct, it is hard to imagine that the status quo will be preserved.

Oh, great. You professors have any more bad news?

Well, actually, yes.

Banking, another pillar of the regional economy, isn't exactly rock solid, they say.

The strength and future security of the region’s financial services firms may be just one startling revelation away from weakness.

Palumbo and Zaporowski say local government has to get serious about steamlining and otherwise economizing operations because the money isn't going to be there to sustain business as usual. The feds and state can't be expected to prop up local government to the degree they have in the past, and local taxes are at the breaking point.

Something has to give, which could be a good thing if we weren't governed by politicians whose favorite phrase is "status quo."

Which leads us to a most-salient point -- the effectiveness, or lack thereof, of local and state economic development programs to generate the jobs and tax base we need to thrive as a community. The authors raise the prospect of ...

... an informed discussion about the true economic development impacts of many publicly subsidized projects that to some observers have been a tale told by an idiot, full of sound and fury but signifying nothing.

And you readers think I'm harsh.

But the profs are right.

The public sector in this region has invested billions over the years to subsidize business in the name of economic growth. These days it's more than $300 million a year when you add up tax breaks granted under the IDA and Empire Zone programs and deep discounts on hydro-electricity produced by the New York Power Authority.

Yet we have fewer jobs than we did a decade ago and we're losing good-paying jobs at a dizzying pace.

Hey, guys, it's not working. I mean, it's really not working.

But the loudest voices we hear -- from the business community, anyway -- are protests over proposed reforms in these failed programs.

As for the politicians, well, I'm not hearing much of anything, aside from what's in the governor's proposed budget, unless you count changes in legal counsel to give IDA business to campaign contributors with the right party ties.

That's not change we can believe in.

(Now that you're through reading this post, read the report, as it's only seven pages and loaded with details and recommendations beyond what I've touched on here.)

The banking bailout won't help WNY

So, a lot of local banks are in line for hundreds of millions of dollars from Uncle Sam to help prime the economy and fight the recession. Good news for Western New York, right?

No, not really.

WNY banks, like many around the nation, are eligible for federal aid in the form of stock purchases that represent cheap capital for lenders. M&T Bank, the big kid on our block, has applied for $600 million, and it's not alone among local lenders.

To put that $600 million in perspective, that's $200 million to $300 million more than the economic development subsidies provided annually to businesses in WNY by the federal, state and local government. My first blush reaction to reading about the M&T money was, "Gee, is that the best way to help our local economy?"

But don't go blaming M&T. The feds are leaning on banks to take the money, in the belief/hope an infusion of cash will lead to more lending and thus economic growth. If M&T doesn't take the money - and it's only one-third of what it could get - it would probably be the only one of the 25 largest banks in the nation to say "Thanks, but no thanks."

This is Plan B for the feds. Plan A was to help capitalize struggling banks, but Wall Street wasn't buying.

So now the feds have set aside $250 billion for relatively healthy banks to, among other things, lend to businesses and home buyers and spend to acquire weaker sisters.

That strategy may or may not fly in growth states like Florida and California, which have been hammered by the implosion of the real estate market, or Death Valley states like Michigan, whose economy makes ours look good.

Imagine how bad off they are.

As we have learned the hard way over the years, WNY is, well, different. Our banks here are in better shape. They've kept lending. Thus, most of them don't really need the federal money. That's the good news.

The not-so-good news: The upstate economy, including WNY, isn't screaming for more borrowing. Small business loans are down, big business loans are down and housing sales are slumping, so that takes care of mortgage lending.

In other words, the federal bank bailout for WNY means a growing supply of money in the face of a declining demand.

Just our luck, isn't it?

It sure would be nice if our economic development thinkers came up with a strategy for taking advantage of this prospective surge in capital, especially in light of President-elect Obama's push for renewable  energy and eco-friendly growth.

I'm not sure it's realistic to craft such a strategy on short notice and with the pressure for short-term results. But it sure wouldn't hurt if folks at least contemplated coming up with a game plan.

I wonder what the Jim Allens, Sue McCartneys and Paul Dysters of the world think?  To say nothing of M&T boss Bob Wilmers, who also happens to be the state's economic development chief.

People, talk to us.

 

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