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Volume 5 Number 6
FEDERAL RESERVE BANK OF NEW YORK
C Second I
URRENT SSUES
I N E C O N O M I C S
A N D F I N A N C E
May 1999
district highlights
Is Upstate New York Showing Signs
of a Turnaround?
The economy of upstate New York has fared poorly
during much of the decade. Between 1990 and 1996,
employment upstate declined 1.3 percent, while the
United States enjoyed 15.0 percent job growth.1 But in
1997 and 1998, signs of a turnaround seemed to
emerge. Jobs increased, unemployment rates were low,
and home sales rose dramatically. Upstate added
roughly 35,000 new jobs in 1997 and almost 38,000 in
the following year. Significantly, the region’s 1.2 percent growth in 1998 represented its best showing since
1990 (see table).
At the local level, such news would likely be cause
for optimism. A look at the broader picture, however,
puts upstate’s recent employment growth in sharp contrast with that of other states.2 Despite some evidence of
improvement over the past two years, growth upstate
still critically lags that of the nation and New York
State as a whole. Furthermore, upstate’s employment
growth remained among the slowest of all states in 1997
and 1998.
In this edition of Second District Highlights,
we examine the recent performance of upstate New
York’s economy—including the economies of Buffalo,
Rochester, Albany, Syracuse, Utica, and Binghamton3—
to determine if a turnaround is occurring. Factors such as
growing employment, low unemployment rates, and
rising home sales suggest an economy on the upswing
following a sluggish recovery from the 1990-92 recession. Yet changes in the industrial mix of employment, a
declining population, and a shrinking labor force are
likely moderating growth. Upstate New York has shown
signs of improvement recently, but its growth is still
fairly small compared with that of the entire state and
the nation.
THE INDUSTRIAL MIX OF EMPLOYMENT
Upstate New York turned an important corner in 1997,
when employment rose more than 1 percent after showing no growth in the preceding year. In 1998, upstate
saw employment advance by 1.2 percent—or almost
38,000 jobs—its largest jump since 1990. In addition,
all of the six largest metro areas except Buffalo posted
sizable job increases from the previous year (see box).
Despite this favorable news on the job front, the rate
of employment growth upstate was still less than half the
national rate in 1997 and 1998. One explanation for this
Average Annual Employment Growth
Nonagricultural Employment
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
Upstate
New York
(Percent)
1.31
-2.21
-0.84
0.35
0.75
0.67
0.00
1.17
1.24
Upstate Ranking
(Out of
Fifty-One)a
36
41
45
47
50
50
50
50
49
New York
State
(Percent)
-0.42
-3.97
-1.99
0.39
0.92
0.77
0.59
1.63
2.00
United States
(Percent)
1.41
-1.06
0.32
1.95
3.12
2.65
2.06
2.58
2.56
Sources: New York State Department of Labor; U.S. Department of Labor, Bureau
of Labor Statistics; authors’ calculations.
Note: “Upstate” refers to a total of fifty-two counties in New York State. It does
not include downstate New York: New York City; Westchester, Putnam, and
Rockland counties (considered part of the New York City primary metropolitan
statistical area); and Nassau and Suffolk counties on Long Island.
a The
ranking sample of fifty-one is upstate New York, downstate New York, and
the forty-nine other states.
Second district highlights
shortfall can be found in the changing industrial mix of
employment. Most notably, the manufacturing industry—once a major source of growth—has been declining
in importance in upstate’s employment mix. Although
Albany, Syracuse, Utica, and Binghamton increased
average manufacturing employment last year, the industry’s share of jobs upstate fell from 30 percent to just
16 percent between 1970 and 1998.
THE UNEMPLOYMENT PARADOX
Does low unemployment necessarily go hand in hand
with a robust economy? Much of upstate New York
boasted record-low unemployment rates in 1998.
During the year, parts of upstate even mirrored the
national unemployment lows of nearly 4 percent.
Upstate New York’s impressive unemployment rates,
however, do not stem from strong job growth. Rather,
population and labor force declines—factors that
diminish the number of potentially unemployed—
account for the low rates (see chart). Continuing a
decade-long trend, upstate lost approximately 0.4 percent of its population and 0.5 percent of its labor force
in 1998. 5 In particular, each of the six largest metro
areas lost population last year. Meanwhile, the United
States saw population and labor force gains of almost
1.0 percent. The upstate economy, then, has evidently
been losing workers to other parts of the country.
Surprisingly, upstate New York’s low unemployment—a
factor that one might associate with job growth—
reflects labor shortages across the region and has
actually limited the potential for growth.
To be sure, manufacturing employment has also been
slowing across the country. 4 In 1998, the nation saw
very little growth, just 0.3 percent, in these jobs. Yet the
U.S. economy compensated for sluggish growth in manufacturing jobs by enjoying sizable increases—on the
order of 4.1 percent—in the service sector. Although
upstate New York also experienced an accompanying
rise in service employment—driven in large part by
growth in business services—its 2.7 percent growth did
not approach the nationwide average. The difference in
these averages helps explain why upstate’s total
employment growth could not keep pace with the
nation’s in recent years and why, compared with other
states, upstate ranks near the bottom in job growth.
1998 EMPLOYMENT GROWTH UPSTATE
the nation—was able to offset lost manufacturing
jobs through increases in services. Other sectors
grew moderately—except for finance, insurance, and
real estate, which shed almost 2 percent of its jobs.
Upstate New York’s 1.2 percent job growth last year was
its highest since 1990. A glimpse at employment trends
within the region suggests that the economies of the
largest metro areas—except for Buffalo—are generally
on the upswing (see box chart).a
• Buffalo: Job growth continued at a sluggish pace last
year, reaching only 0.1 percent and yielding just 500
new jobs. Losses in manufacturing were not offset by
gains in other sectors. Retail employment fell significantly, hurt by a weak Canadian dollar, which hit
record lows and hampered wholesale and retail
trade. Jobs in construction—especially in commercial
construction—also declined, despite recent strength
in the housing market. Buffalo’s other industries
simply grew very slowly.
• Albany: Growth climbed for the second year in a row
and reached 1.6 percent. The city added 7,130 new
jobs in 1998—mainly in services, with a notable
uptick in business services. Albany’s government
sector declined in 1995 and 1996 because of federal
and state cutbacks, but the private sector has taken up
the slack since then; employment there rose 2.1 percent last year. There was a drop in federal and state
government employment in 1998, but local government saw a rise. Only the retail sector experienced an
overall decline, of slightly less than 1 percent.
• Rochester: Employment growth of 1.2 percent—or
6,240 new jobs—largely reflected Rochester’s ability to overcome pronounced manufacturing declines
in 1998. The city’s manufacturing base is heavily
dependent on the area’s large corporate employers,
and downsizings at these firms had a weighty negative effect on growth. Nevertheless, Rochester—like
• Syracuse: Although growth in Syracuse has proceeded slowly since mid-1995, it still reached
1.2 percent in 1998, accounting for 3,940 new jobs.
Manufacturing—the largest contributor to growth—
increased for the second year in a row, driven primarily by durable goods production. Construction was
also strong, climbing by more than 3 percent. The
FRBNY
2
Second district highlights
flourished almost everywhere in upstate New York last
year—a development that could be interpreted as
indicating an influx of people into the region. Upstate,
along with the nation, benefited from the low mortgage
rates that prevailed in 1998. Furthermore, the New York
State Association of Realtors (1999) reports that singlefamily home sales upstate were up for the third straight
year in 1998—rising almost 32 percent—while the
median sales price was up 11 percent. However, upstate’s
declining population and labor force suggest that many
of these home sales may have been to people who
already lived in the region, such as renters. Therefore,
last year’s high-percentage increase in sales is not necessarily a clear indicator of an economic turnaround.
Population and Labor Force Trends in Upstate
New York and in the United States, 1990-98
Index: 1990 = 100
110
U.S. labor force
108
106
U.S. population
104
102
Upstate population
100
98
Upstate labor force
96
94
1990
91
92
93
94
95
96
97
98
CONCLUSION
Sources: U.S. Department of Commerce, Bureau of the Census; U.S. Department
of Labor, Bureau of Labor Statistics.
After a period of sluggishness, upstate New York has
improved its economic performance in the past two
years. Employment has been growing, unemployment
has been low, and home sales have been escalating.
However, a declining population and labor force continue to contribute to tight labor markets and hinder the
THE RISE IN HOME SALES
Like unemployment rates, home sales can send out
misleading signals about an economy’s health. Sales
service sector and all government sectors grew modestly. Retail employment, however, shrank.
Employment Growth in New York State and
in Upstate’s Six Largest Metro Areas, 1996-98
• Utica: Employment hit record highs in 1998 as Utica
added 2,700 new jobs and enjoyed 2.1 percent
growth. The service industry, driven by business services, was the foremost contributor to the rise in
jobs. Employment in manufacturing grew 2.7 percent, primarily in durable goods production. Utica’s
economy appears to have withstood severe job
reductions from earlier in the decade that were due
to the closing of a major air force base and the
departure of a large defense contractor.
Percent
3
1.6
1.5 1.6
1.6
1.2
1.2
0.9
0.6
0.6
0.7
0.4
0.6
0.3
0.1
0
0
• Binghamton: Shocks linked to defense spending cutbacks in the 1980s and corporate downsizings in the
mid-1990s are essentially over. Employment fell
sharply—by 7.6 percent—between 1990 and 1996,
but evidence of a recovery appeared in 1997 when
the city posted 2.7 percent job growth. The following year, growth was more moderate—1.6 percent,
or 1,750 new jobs. Manufacturing employment
increased, and the rise in retail employment was a
particularly strong contributor to growth.
a See
2.1
2.0
2
1
2.7
1998
1997
1996
-1
-0.9
-1.2
-1.6
-2
rk
Yo
w ate
e
N St
lo
ffa
Bu
r
ste
he
c
Ro
ny
ba
Al
e
us
rac
Sy
ton
ica
Ut
am
h
ing
B
Source: U.S. Department of Labor, Bureau of Labor Statistics.
Steindel and Banks (1994) and Bram (1996) for earlier studies of regional employment trends across the Second District.
3
FRBNY
Second district highlights
potential for more growth. In addition, shifts in
upstate’s industrial job mix are likely having a negative
effect on growth. Upstate may be showing signs of a
turnaround, but its economic performance is still well
behind that of New York State and the nation.
— Richard Deitz and Mike De Mott
Richard Deitz is a regional economist at the Buffalo
Branch of the Federal Reserve Bank of New York.
NOTES
1. “Upstate” refers to a total of fifty-two counties in New York State.
It does not include downstate New York: New York City;
Westchester, Putnam, and Rockland counties (considered part of the
New York City primary metropolitan statistical area); and Nassau
and Suffolk counties on Long Island.
All employment and labor force data are from the U.S.
Department of Labor, Bureau of Labor Statistics. When determining
percentage changes and net job gains or losses, we use average
annual employment figures instead of December-to-December
figures. By doing so, we reduce the risk that high or low results in a
particular December will distort our calculations.
2. In this article, we treat upstate New York as a separate state. The
upstate economy is quite distinct from the downstate economy,
which is heavily influenced by New York City’s financial industry.
In addition, upstate New York could be considered as a separate state
on the basis of population. With roughly 6.3 million residents—
about the same number as Massachusetts—upstate New York would
qualify as the fourteenth most populous state in the nation.
3. According to the U.S. Census Bureau, these economies represent
upstate New York’s six largest metro areas in terms of population,
ranging from Buffalo’s roughly 1.2 million residents to
Binghamton’s approximately 250,000.
4. Note that manufacturing employment trends do not always mirror
manufacturing output trends. For example, productivity gains can
reflect the fact that the same amount of output is attributable to
fewer workers.
5. Between 1990 and 1998, upstate’s population fell by 0.7 percent
and its labor force declined by 1.4 percent, while the nation saw
rises of 8.4 percent and 9.4 percent, respectively.
REFERENCES
Bram, Jason. 1996. “Dynamics of the Second District Economy.”
Federal Reserve Bank of New York Current Issues in Economics
and Finance 2, no. 2.
New York State Association of Realtors. 1999. {Online}; available
http:// www.nysar.com. Last updated in January.
Steindel, Charles, and Lois Banks. 1994. “Regional Employment
Trends in the Second District.” Federal Reserve Bank of
New York Quarterly Review 19, no. 2: 112-9.
Back Issues of Second District Highlights
Date
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Vol./No.
Title
Authors
3/98
4/3
New York–New Jersey Job Recovery Expected to Continue in 1998
Orr, Rosen, De Mott
7/98
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Earnings Inequality: New York–New Jersey Region
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10/98
4/10
New York City’s New-Media Boom: Real or Virtual?
Bram, De Mott
12/98
4/14
New York–New Jersey Region’s Job Growth to Continue in 1999,
but Risks Have Risen
Orr, Rosen
1/99
5/2
Second District House Prices: Why So Weak in the 1990s?
Higgins, Osler, Sridhar
The views expressed in this article are those of the authors and do not necessarily reflect the position of
the Federal Reserve Bank of New York or the Federal Reserve System.
Second District Highlights, a supplement to Current Issues in Economics and Finance, is published by the Research and
Market Analysis Group of the Federal Reserve Bank of New York. Dorothy Meadow Sobol is the editor.
Back issues of Second District Highlights are available at the Research and Market Analysis Group’s web site:
http://www.ny.frb.org/rmaghome.
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