Twice a year, I pull out my cloudy crystal ball and attempt to make some predictions about the direction and pace of the North Carolina economy. I just finished my latest effort and, as usual, the results are a combination of pluses and minuses.
Any economic forecast must begin with the national economy for the simple reason that, regardless of where you live in the country, roughly two-thirds of what happens to commerce is determined by the ups and downs of the national economy. Here the news is good, but not great.
Despite a setback during the stormy winter, the national economy is expanding. The value of all products and services produced in the country is at a record high. Factory output is rising, and the trade deficit with other countries has been cut almost two-thirds from eight years ago.
But there are still worrisome signs. While the total number of jobs has fully recovered from its recessionary slide, the unemployment rate continues to be more than a percentage point higher than before the recession. A broader measure of unemployment that includes jobless folks who have stopped actively looking for work sits near 8 percent, and a measure that adds individuals working part-time only because they can’t find full-time work to the unemployed total is around 14 percent. Nonetheless, these rates are much lower than their highs during the recession.
Household income is rising and consumers are spending more, but they are still being cautious and frugal. In one respect this is good, as it has allowed households to reduce the overload of debt built up in the late 1990s and early 2000s. But the trends can also be interpreted as bad because, in part, they have been caused by the drop in wage rates (after adjusting for inflation) received by many workers.
The inflation rate that measures price changes in all products and services was held at bay during the recession. In fact, it fell in 2009 and has ranged between 1.5 percent and 2 percent during the past two years. However, in early 2014 it has been rising at a noticeably faster clip. Economists are divided on whether this is a long-run trend.
Our last stop in the national economy is interest rates. They remain very low. This is good news for borrowers but bad news for investors putting their money in safe places like bank CDs and money market funds. Predicting interest rate trends is always hazardous, but a good bet is to expect little change in rates in the near future.
Now let’s come home to North Carolina’s economy. Our economic trends have actually not been very different from the nation’s. Total production of products and services in the state is now fully recovered, and, in fact, the bounce-back in North Carolina was slightly faster than in the country. Jobs at businesses (payroll employment) have also increased a little quicker than nationally since the recession ended, and our unemployment rates are close to national levels.
But, like the nation, we do have economic challenges. Since the state’s job market began improving in 2010, job growth has been fastest in both higher-paying jobs, like professional and finance positions, and lower-paying jobs, such as those in the leisure and hospitality sectors. Job growth has been slowest in middle-paying jobs, like manufacturing and construction.
As a result, in four of the last five years average wage rates – adjusted for inflation – have fallen in North Carolina. So even if a person has a job, if the wage rate hasn’t keep up with rising prices, then his or her standard of living is moving back rather than ahead.
The geographic divide has also continued in North Carolina’s economy. When ranked by economic growth, the state has three regions. The region with the fastest job growth during the economic recovery includes the Triangle, Charlotte, Asheville and Wilmington, all with total job growth since 2010 between 7 percent and 13 percent.
The next region has the Triad, Burlington and Greenville, with aggregate job growth since 2010 of near 5 percent. The last grouping includes the down east communities of Fayetteville and Goldsboro, plus Jacksonville, Hickory and Rocky Mount. These areas have had cumulative job growth since 2010 of 3 percent or lower.
So how will North Carolina finish 2014? As with the nation, I predict some broad economic gains. Production and jobs will increase, and more companies will become confident about the future. The unemployment rate could dip below 5 percent in fast-growing areas like Asheville and the Triangle.
Yet there will be plenty of economic gaps. Many of the jobs created will be low-paying, and most workers will see little or no gain in their hourly earnings. Many people will still have to accept part-time work even though they want to work full-time. And the economic improvement won’t be spread evenly across our state. Several areas will still have jobless rates of 7 percent or higher.
It’s rare – perhaps even impossible – that everything can improve in the economy at the same time. Instead, economic change can best be viewed as a combination of steps forward together with steps backward. You decide if, after the steps are taken, we are making progress or not.
Dr. Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences.