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Upstate economy slowing even before virus, says M&T’s Keith

The Upstate New York economy was already showing signs of a slowdown before the pandemic showed up.

M&T Bank’s economist Gary Keith had prepared a presentation on the Upstate New York economy for for Upstate Capital members in Buffalo Thursday night, but he ended up tweaking his remarks to include the changing scenario caused by coronavirus and the sometimes panicky reaction to it.

“Until we get past the fear, this is uncharted waters,” Keith said in his presentation at Big Ditch Brewing Co. in downtown Buffalo.

Attendance at the event was likely affected by health concerns, said Upstate Capital’s executive director, Noa Simons. Though about 40 people were expected, approximately 15 showed up. Friday morning Simons issued a notice saying additional Upstate Capital programs this spring would be rescheduled or offered virtually as a precaution.

Thursday night Keith said that with such uncertain conditions, more than half of M&T’s Commercial customers are having trouble planning.

“The thing that’s kept the economy humming has been the consumer,” Keith said. “If we start to see some backsliding in employment, that’s going to resonate in confidence, some actual spending. If we’re going to start to see now that consumers can’t go shopping, won’t go shopping and will keep their wallets and purses at home, that has implications that are obviously still playing out.”

Economists had been saying that the declines or flattening of economic growth in recent months were nothing unusual and could be overcome, Keith said, but that was before the pandemic.

“There’s probably well over a 50 percent chance now in my opinion that we’re going to see that recession this year,” Keith said, noting that other economic prognosticators’ predictions are ranging  between less than 50 percent chance up to 80 percent chance. “If we get another week like we’ve seen, a short-term downturn is inevitable.”

Keith  doesn’t support a payroll tax holiday, which is one of the measures President Donald Trump is suggesting to prevent a coronavirus-related financial crisis. The measure would be a quick way to get money into the hands of people who live paycheck-by-paycheck, he said, but “for the upper middle class and higher, I suspect it would not be as stimulative” because the extra cash would go into the bank instead of being spent.

He suggested providing relief for people who lose their jobs due to a crisis.

“Getting money into people’s hands is critical,” he said, “not so much the bailouts for industries at his point.”

The Federal Reserve is limited in what it can do now, compared to the 2008 recession, Keith said, because interest rates in lending are already so low there is little room to lower them more.

As for the Upstate economy before this health issue arrived, the previous five quarters showed slowing.

Keith said the issue keeping him up at night is a stagnating or dwindling population and labor force across Upstate.

“It’s hard to grow your economy if your workforce is shrinking,” Keith said. Upstate has been wringing its collective hands for some years over a “brain drain” of young adults who are leaving instead of setting down roots. Statistics show, however, that the youngest adult population is now growing but that growth can’t make up for the decline in people who are in their 40s, 50s and 60s.

These people are in the middle of their careers, Keith, said, but as one industry declines and something different grows, they’re not necessarily making the jump and therefore are forced to become “economic migrants.” And, they take their kids with them.

Keith focused his examples on the Buffalo area, with a chart showing the nation’s working-age population has increased 3.1 percent, but the Buffalo-Niagara area is down 2.6 percent. His chart showed an even bigger decline in the Rochester area, at 3.9 percent.

Similarly, growth in gross domestic product in 2019 was 2.3 percent in all metro areas across the country, compared to 1 percent in the Buffalo-Niagara region and seven-tenths of a percent in Rochester.

“We underperformed, but we grew,” Keith said.

The cause may have to do with upstate communities not being seen as vibrant or moving quickly enough into new economies.

“People come for opportunity. That to me is bigger than taxes or cost of living,” Keith said.

The economist didn’t offer any solutions to the population and workforce issue, but said it’s a critical issue that needs to be solved.

“Until we get that population workforce issue front and center and start to make a dent in it, we have one foot on the gas and one foot on the brake,” Keith said.

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