University at Buffalo - The State University of New York

Published: May 15, 2008

By KATHRYN BRYK FRIEDMAN
Reporter Contributor

Traditional methods of interpreting regional economic conditions, such as employment data, paint a useful but incomplete picture of economic change in the 21st century, according to the Regional Institute’s latest Policy Brief, “Grasping the New Economy.”

Using newly released data on metropolitan gross domestic product (GDP) from the U.S. Bureau of Economic Analysis, the institute highlights the complexities revealed by looking at a region’s employment and output patterns collectively. Between 2001 and 2005, for example, the manufacturing sector in the Buffalo-Niagara Falls metropolitan area shed 17 percent of its jobs, while expanding its total output by 3.5 percent.

“The new GDP data show that the story behind the region’s manufacturing sector is about more than just job loss. As we have seen at the state and national levels, rising productivity is a major factor. Companies are producing more with fewer workers,” said Kathryn A. Foster, institute director.

The information sector, which includes media and data-processing firms, showed a similar pattern of rising output with fewer jobs. At the same time, other sectors rapidly expanded both job rolls and output. The financial-activities sector and professional- and business-services sector experienced employment and output growth of between 10 percent and 20 percent between 2001 and 2005, reflecting the region’s growing importance as an administrative and back-office hub for banks and insurance companies.

Increasingly, regional economic activities are transcending the boundaries of individual sectors—something hard to detect by traditional means of data collection. “Key features of the new economy are business clusters. These are the networks of producers, bankers, marketers, researchers and others who contribute to the creation and delivery of a particular good or service,” said Peter A. Lombardi, policy analyst with the institute and author of the brief.

Lombardi notes that the life-sciences cluster emerging in Buffalo Niagara is one of these hard-to-measure networks. “Firms and organizations in a variety of economic sectors contribute to the region’s life-sciences cluster,” he said.

Aerospace is another local cluster. Although narrowly defined federal data showed only three aerospace firms in metro Buffalo in 2005, preliminary findings from an aerospace cluster analysis tell a far different story.

“We have found that more than 50 companies in Erie and Niagara counties earn at least a 10th of their revenues from the global aerospace industry, a much larger concentration than most in the region would guess,” said Alan D. MacPherson, professor of geography, director of the Canada-United States Trade Center in the Department of Geography and a faculty fellow at the Regional Institute.

Knowing more about the workings of business clusters and their influence on regional employment and output will provide the region with a much better grasp of its own economy. And that grasp, according to the brief, has critical policy implications for the region.

“A comprehensive knowledge of our economy is critical from a strategy standpoint. It allows us to develop and deploy economic development policies with far greater precision. In the new economy, this means putting public dollars into shared assets that strengthen business clusters, rather than subsidies to individual firms,” said Foster.

“Grasping the New Economy” is the institute’s 13th policy brief since it launched the series in August 2006 to inform regional issues with timely, reliable data and analysis. All policy briefs are available online.