Sluggish economy forecast for rest of 2016 and 2017

June 2, 2016
Categories: Research Tags: Belk College of Business, Research

The North Carolina economy continues to grow, but at a lackluster pace, UNC Charlotte economist John Connaughton reported today in the Babson Capital Management/UNC Charlotte Economic Forecast.

“The N.C. economy is growing slightly more than expected and continues the trend of growth in N.C. Gross State Product for the past four years. Indicators have adjusted downward slightly over last quarter due to a reduction in consumer confidence,” Connaughton said. “And 2017 is expected to look at lot like 2016 – slow growth. We will especially need to keep our eye on energy and consumer confidence as key indicators of the economy.”

During his quarterly economic forecast, Connaughton highlighted three areas to watch this quarter:

  • Federal interest rates: The Federal Reserve is poised to raise interest rates again, Connaughton said. He expects a rate increase to be announced in mid-June but not a significant increase. He stated the Federal Reserve is basing the rate increase on employment data, which has improved over time.
  • Consumer confidence: More importantly, Connaughton said, the Federal Reserve should be observing and monitoring the consumer confidence index. “Labor markets are improving but not consumer confidence. The latter is just as important to our economy.”
  • Energy: Connaughton state we normally have a rise in summer gas prices due to consumer demand during the travel season and due to the differences in the refinery process. “But what is not normal is the supply shortages that we are now experiencing. These shortages will lead to U.S. fracking. The good news is that fracking allows for a quicker response, which will not disrupt the economy for an extended amount of time.”

For 2016, Connaughton said that first quarter N.C. Gross State Product (GSP) is expected to increase at an annualized real rate of 2.1 percent. During the second quarter, GSP is expected to increase at an annualized real rate of 1.8 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 1.8 percent. In the fourth quarter of 2016, GSP is expected to increase at an annualized real rate of 2.2 percent. Twelve of the state’s 15 economic sectors are forecast to experience output increases during 2016. The sectors with the strongest expected growth are business and professional services with a projected real increase of 5.9 percent and information with a projected real increase of 3.9 percent.

Employment in North Carolina is expected to reach 4.39 million people in December 2016, an increase of 2.7 percent over the employment level of the previous year. The sector with the strongest employment increases in 2016 is construction at 6.3 percent. Both the U.S. and N.C. unemployment rates are expected to continue a downward trend throughout 2016.

Connaughton presented his quarterly forecast to members of the Charlotte business community and the media at a luncheon held at UNC Charlotte Center City. The Forecast is funded by Babson Capital Management LLC, one of the world’s leading asset management firms, with over $231 billion in assets under management as of March 31, 2016.