North Carolina economy on the upswing says Connaughton

June 4, 2013
Categories: Research Tags: Belk College of Business, Research, Scholarship and Academic Life

The North Carolina economy will grow modestly in 2013 after a relatively flat performance in 2012, but the state is positioned for stronger growth in 2014, reported UNC Charlotte economist John Connaughton in his quarterly forecast for the state.

Connaughton expects the North Carolina economy to increase by an inflation-adjusted rate of 1.9 percent during 2013. The first quarter Gross State Product (GSP) is expected to increase at an annualized real rate of 1.7 percent. During the second quarter, GSP is expected to increase again, at an annualized real rate of 2.7 percent. In the third quarter, GSP is expected to pick up and record an annualized real growth rate of 2.5 percent. In the fourth quarter of 2013, GSP is expected to grow at an annualized real rate of 3.2 percent.

“After a disappointing start to 2012, the state’s economy showed signs of life in the fourth quarter,” Connaughton said, “and several recent factors suggest that 2013 could be a breakout year for the North Carolina economy. First, we avoided going over the ‘fiscal cliff’ in January. While we did not avoid a tax increase, the impact was much less than had we gone over the cliff. The compromise reached by Congress and the president resulted in tax increases on U.S. households of $160 billion in 2013 and sequestration spending cuts of another $85 billion. This is about half the impact that going over the cliff would have caused.

“Second, and most important, for the first time in five years we are seeing sustained increases in housing prices. The Case-Shiller Home Price Index increased by 9.3 percent from February 2012 to February 2013 for the 20 City Composite. Consistent increases in housing prices will change consumer psychology toward home purchases and result in increased demand over the next year. If residential construction picks up as expected, the second half of 2013 could be the first time this recovery actually feels like a recovery.”

Connaughton, the Babson Capital Professor of Financial Economics in the Belk College of Business, presented his quarterly forecast Tuesday, June 4, to members of the Charlotte business community and the media at a luncheon held at UNC Charlotte’s Center City campus. The forecast is funded by Babson Capital Management LLC.

2013 Sector Outlook

Thirteen of the state’s 15 economic sectors are forecast to experience output increases during 2013. The sectors with the strongest expected growth are:

  • Business and Professional Services, with a projected real increase of 5.8 percent;
  • Mining, with a projected real increase of 3.2 percent;
  • Transportation, Warehousing and Utilities (TWU), with a projected real increase of 3.1 percent;
  • Other Services, with a projected real increases of 3.0 percent;
  • Education and Health Services, with a projected real increase of 2.8 percent;
  • Wholesale Trade, with a projected real increase of 2.4 percent;
  • Hospitality and Leisure Services, with a projected real increase of 2.2 percent; and
  • Information, with a projected real increase of 2.1 percent.

2013 Employment Outlook

Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,094,500 persons in December 2013, an increase of 1.5 percent over the employment level in December 2012. Connaughton expects the state to gain 62,200 net jobs during the year.

Twelve of the state’s 14 nonagricultural sectors of the economy are expected to experience employment increases during 2013. The sectors with the strongest expected employment increases in 2013 are:

  • Information at 4.4 percent;
  • Hospitality and Leisure Services at 2.8 percent; and
  • Business and Professional Services at 1.9 percent.

The North Carolina seasonally adjusted unemployment rate began 2013 at 9.5 percent, almost two percentage points higher than the United States rate. By April the North Carolina rate had fallen to 8.9 percent, while the United States rate had fallen to 7.5 percent. Both the U.S. and North Carolina unemployment rates are expected to decline throughout 2013, and by December the North Carolina unemployment rate is expected to be around 8.6 percent.

2014: First Look

Connaughton has forecast that the N.C. GSP will reach a level of $485,548.5 million in 2014. Real (inflation adjusted) GSP is expected to increase by 3.0 percent over the 2013 level. This growth in 2014 would follow 1.9 percent growth in 2013 and result in two years of substantial economic growth for the North Carolina economy. The North Carolina economy is expected to add 90,500 jobs in 2014, which should surpass the state’s previous highest employment level, recorded in February of 2008.

2012 in Review

Connaughton reported that the N.C. state economy decreased by just 0.1 percent over the 2011 level. This decline followed very modest growth in 2011 and interrupted three years of slow growth since the recovery began.

“While both the U.S. and state recoveries began in July 2009, for North Carolina it has been a weak recovery,” Connaughton said. “For 2012, the U.S. economy recorded slow growth of 2.2 percent in GDP and was able to avoid a double-dip recession. However, 2012 turned out to be much weaker for North Carolina than the U.S. The good news is that the strongest growth came in the fourth quarter, and this could lead to increased growth in 2013.”

For 2012, first quarter Gross State Product (GSP) increased at an annualized real rate of 1.2 percent. During the second quarter, GSP decreased at an annualized real rate of 1.3 percent. In the third quarter, GSP rebounded and increased at an annualized real rate of 1.2 percent. In the fourth quarter of 2012, GDP picked up and record an annualized real growth rate of 1.9 percent.

2012 Sector Analysis

Eight of the state’s 15 economic sectors experienced modest output increases during 2012. The sectors with the strongest expected growth are:

  • Business and Professional Services, with a real increase of 4.0 percent;
  • Construction, with a real increase of 2.7 percent;
  • Information, with a projected real increase of 2.4 percent;
  • Mining, with a real increase of 2.4 percent;
  • Transportation, Warehousing and Utilities (TWU), with a projected real increase of 1.7 percent;
  • Hospitality and Leisure Services, with a projected real increase of 1.6 percent;
  • Fire, Insurance and Real Estate (FIRE), with a real increase of 0.4 percent; and
  • Wholesale Trade, with a projected real increase of 0.3 percent.

Retail trade output was flat in 2012.

2012 Employment

Seasonally adjusted nonagricultural employment in North Carolina reached 4,032,300 persons by December 2012, an increase of 2.3 percent over the employment level in December 2011. The state gained 89,900 net jobs during the year.

Twelve of the state’s 14 nonagricultural sectors of the economy experienced employment increases during 2012. The sectors with the strongest employment increases in 2012 were Hospitality and Leisure Services at 5.1 percent, Business and Professional Services at 3.5 percent and Wholesale Trade at 3.4 percent.

“By the end of 2012 the state had replaced 192,100 of the 334,600 jobs lost during the recession,” Connaughton said. “That means that 57.4 percent of the total jobs lost have been replaced over the last three years. Over the same period, the U.S. economy has replaced 61.6 percent of the 8,722,000 jobs lost.”

The full Forecast report is available at http://www.belkcollege.charlotte.edu/forecast. Connaughton will present his next Forecast report in September 2013.