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Profound Changes Expected in CNY’s Economy

Banker: Region to see growth in population, construction, housing sales

By Aaron Gifford

Despite talk of a looming recession at the national level, local banking executives predict Central New York could witness profound changes in the months and years ahead.

Steve Gorczynski, Central New York regional president of M&T Bank, says: “We will get over the hump.”

Steve Gorczynski, Central New York Regional President of M&T Bank, predicts the Syracuse metropolitan area and outlying counties can expect significant gains in population, wages, housing sales and construction, manufacturing growth and various other positive economic indicators, much in part due to the Micron chip factory that is slated to break ground this spring.

The company will employ about 9,000 workers and the project could create upward of 50,000 jobs to include construction, supply chain and various ancillary positions.

“Central New York was always largely behind national trends,” he said. “Not anymore. There are dynamic changes in the future.”

Gorczynski was interviewed after the annual CenterState CEO Economic Forecast Breakfast event in Syracuse. He was in attendance with the keynote speaker, Luke Tilley, chief economist for Wilmington Trust Investment Advisors Inc.

Tilley’s presentation focused largely on the national economic picture, while Gorczynski’s expertise is more centered around the local economy.

At the macro level, inflation and rising interest rates were the story of 2022. Typically, when the federal interest rate increases so rapidly, a recession is typical, Gorczynski explained. But, in this instance, that’s still difficult to determine. A mild recession with a “soft landing” is the latest prediction.

Other economic factors affecting the national picture include fluctuating labor markets with so many baby boomers retiring and so many jobs across the country still unfilled; the push for more expensive renewable energy; and China’s actions, to include potential economic or military actions.

“You can’t underestimate the impact of China,” Gorczynski said.

According to information from Wilmington Trust’s 2023 Capital Markets Forecast, which Tilley presented at the event, the energy price spike in 2022, both at the gas pumps and for home heating, has been the most tangible inflationary force felt by consumers. The report attributes that increase largely to the war in Ukraine. While Tilley believes “softening global economic growth” should keep oil prices reasonably contained, reduced reliance on hydrocarbons will likely come at a short-term inflationary cost.

The report also estimates that as of October 2022, the U.S. Labor Force was down more than three million workers compared to April 2020, and those 65 and older make up about one-third of that decline. In September 2022, more than 450,000 U.S. residents who were eligible to work reportedly were not seeking jobs due to ongoing concerns about COVID-19.

The report also notes a “troubling population outlook,” indicated that the prime labor force population, those between 25 and 54, is slated to grow only 0.2% on average compared to the average rate of 1% from 1980 until 2021.

“Worker disengagement will likely wane as the economy slows, job postings fall, and workers lose some of their bargaining power,” the report said. “Immigration is a wild card though, as it is highly sensitive to public policy. The longer-term disinflationary forces lie in demographics; namely, the aging and growth slowdown of the U.S. population. That is likely to weigh on aggregate spending, which in turn weighs on growth and inflation, in the way that similar demographic trajectories have weighed on Japan and much of Europe in recent decades.”

Regarding China, the report says that nation’s zero-COVID-19 policy and relationship with Taiwan will be important drivers of near-term inflation. It also forecasts an increased reliance on domestic consumption (as opposed to playing the role of the low-cost manufacturer to the world) and elevated living standards in China will result in higher inflationary pressure to the United States. Plus, China’s reorienting of supply chains is expected to further contribute to structurally higher global inflation.

According to the report, the labor dynamics in this post-COVID-19 era could create a scenario where the economy holds up better than corporate profits. This could also mean that 2023 brings an “earnings recession” without an economic recession as businesses still struggle to find qualified workers. Months of working short-staffed and scouring the market for job candidates could make companies reticent to let those workers go as demand slows, the report said; particularly if that slowdown is expected to be mild and last less than one year. This shifts the burden of a weaker economy from the labor market to corporate profit margins, which have come down from 2021’s all-time highs but remain historically elevated.

A decline in profit margins increases the risk of an earnings contraction, something that is rare outside of recessions but can occur, the report said.

Better Days Ahead for CNY

Aside from those concerns, Central New York has its own outlook.

Gorczynski said an immediate challenge to Central New York is an old and somewhat outdated housing stock. He predicts there will be a “huge” need for temporary housing when the Micron project breaks down and thinks northern Onondaga and southern Oswego counties will see large-scale subdivision projects.

The housing market across the region was fairly hot during the pandemic, but has since cooled. With a major population increase prices will go up again, but, Gorczynski cautioned, “affordable housing is important. We have to make sure the rest of the community isn’t left behind.”

Regardless of future development, manufacturing is still vibrant in Central New York right now to the point where it remains the No. 1 industry, Gorczynski said. He believes that trend will continue, largely due to innovations in automation and robotics.

“The technology is really incredible,” he said.

But small businesses are not faring quite as well following the events of COVID-19. Residents have noticed higher grocery bills, but the huge spike for food at restaurants is quite striking. While $6 eggs are not uncommon at diners these days, Gorczynski said, customers might not fully grasp what is going on behind the scenes. Many eateries are still struggling with labor shortages and have scaled back hours and number of days per week they are open. Moreover, even some of the most esteemed establishments have closed because the next generation doesn’t want to take over the business.

Predicting a longer-term future for restaurants and retail is still a head scratcher, because economists can’t determine yet how much COVID-19 stimulus money has made its way back into circulation. Gorczynski added that people are emerging from the pandemic from “a lot of different places.” Some are still hesitant to be out in public much, some are mostly focused on caring for their aging parents and some are dedicated to saving money for their children’s education, among many other variables.

But all told, it does appear that there are better days ahead for Central New York.

“What’s ahead of us is so big…. this could be a larger event in U.S. history. The entire region will benefit, and we will get over the hump,” Gorczynski said.