John Williams, the influential president of the Federal Reserve Bank of New York, knows the power that startups can have on a regional economy firsthand.
He grew up in California, got his doctorate in economics at Stanford University – one of the academic engines powering the Silicon Valley – and spent more than 15 years at the San Francisco Fed.
Williams, on a two-day tour of the Buffalo Niagara region that concluded Friday, liked what he saw in the steps the area is taking to encourage entrepreneurs to take a chance and start their own business.
“The innovation sector has created more of a startup culture that’s starting to happen here in Buffalo,” he said. “Coming from San Francisco and Silicon Valley, it’s something that is exciting to see take root here in New York.”
Those efforts have been a long time in the making. For decades, upstate New York was a bit player in the startup world. There was just a trickle of venture capital flowing to support fledgling companies – often spawned by local college graduates or research at the schools here – so the promising ones frequently left for places where the money was more readily available.
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That started to change a decade ago, when the Western New York Regional Economic Development Council made new business creation a focus. It accelerated when the state launched the 43North business plan competition in 2015, helping to build a buzz around startups and, just as important, start to build a support system for those new businesses.
We’ve already seen what those efforts can accomplish, with ACV Auctions, an online auto auction startup that won the $1 million grand prize from 43North in 2016 now employs hundreds of local people and is valued at more than $1.3 billion.
“You just have to build and build on success,” Williams said in an interview with The Buffalo News. “It’s just that whole kind of culture that feeds on itself … Having that system where you get some scale, and then those people leave those companies and start others and then start others.”
We’re seeing some of that already with ACV. Co-founders Dan Magnuszewski and Jack Greco both have left the company. And they’ve been using some of the wealth they accumulated at ACV to invest in other local startups.
That happens a lot more in tech hotbeds like Silicon Valley or Austin, Texas.
“That’s what happened in Silicon Valley a long time ago,” Williams said. “There’s been other tech hubs and other places that have figured that out, but I do think you have to have that scale where it’s kind of like, ‘This is where it’s happening. This is where you want to be.’”
Being there may not be quite as important as it used to be. Williams thinks the rise of remote work actually could help places like Buffalo Niagara by weakening the sense that startups need to be one of the hot spots to thrive.
Williams also touched on other topics related to the Buffalo Niagara region:
The Buffalo Niagara region still hasn’t recovered about 5% of the jobs it lost during the pandemic, while the nation already has fully recovered.
Williams said that’s related, in part, to the steeper drop the Buffalo Niagara region experienced at the beginning of the pandemic, largely related to its heavier dependence on tourism as travel dried up and the shutdown of the Canadian border.
So the region started the recovery in a deeper hole than the rest of the country, and even though it has regained jobs at a similar pace to the nation, it had farther to go to get back to where it was. A steep drop in government jobs locally also is a factor.
Still, Williams said workers remain in high demand, with ample job openings and employers struggling to fill open positions.
“Labor demand is still very strong. Unemployment is historically low for this area,” he said.
The Fed’s push to tame inflation by raising interest rates seems to be cooling the job market. Job openings across the country dropped by more than 1 million in August.
“We see the heat coming off the labor market in the sense of maybe less turnover, less job openings and getting more of a normal strong labor market, without seeing the kind of recession with a significant rise in unemployment,” he said.
The pandemic shut the border to much of the back-and-forth across the Canadian border. It has come back some as restrictions have eased, with the changes that took effect earlier this month eliminating many of the remaining limitations. But it’s still way down, with border crossings down 37% in August, compared with their pre-pandemic levels.
“The car tourism across the Canadian border is still nowhere near where it used to be,” Williams said. “It’s something that’s been missing from the local economy.”
The good news, Williams said, is that the elimination of the border restrictions should help restore some of those Canadian connections – from shoppers to tourists – that have been missing for the better part of 2½ years.
Workers are hard to find, and the Buffalo Niagara region has about 23,000 fewer workers than it did a decade ago. Older workers have retired, leaving shortages in skilled trades. Factory workers are in demand again, with employers scrambling to fill openings after decades where students were discouraged from looking for jobs in manufacturing, simply because they were vanishing at a disturbing pace. Manufacturing has stabilized in recent years, but the skills gap remain.
That’s put a new focus on job training, and many of the region’s efforts have been targeted toward teaching workers the skills that will actually help them find jobs, rather than the broad-based workforce development programs of the past that often accomplished little.
“What I think is important – and we’re seeing here – is that the workforce development is tightly connected to what the employers in the region need,” he said. “Collaboration between businesses, community and education are really important to make sure that those investments are actually leading to people taking jobs, and better-paying jobs.”
Rising rates and the economy
Williams told an audience at SUNY Buffalo State that he thinks interest rates will need to rise to around 4.5% to bring inflation in check. That would mean an increase of about 1.4 percentage points for the Fed’s main interest rate, the federal funds rate, which now is around 3.1%.
“The timing of that and how high do we have to raise interest rates is going to depend on the data,” Williams said. “Right now the focus is getting inflation back down to 2% and doing that in a way that keeps the economy growing.”
