Where does the state economy stand at mid-year?

The economy is one of the top issues in this year’s elections, all the way from state and local races to the major contest of the year – the presidential election. So it may be helpful to make a mid-year assessment of the economy – how it’s been doing and identifying the important issues. And to do so I’ll stay right here at home – in North Carolina – and then let you decide whether we’re on a good track or not.

My first observation is that the state economy has been expanding; indeed, this has been the case since 2010. The “big three” economic measures of total production of goods and services, employment, and worker earnings per hour are all higher today than in 2010. Total production has increased every year except one (2012), and payroll employment has increased in every year since 2010. But worker earnings per hour (adjusted for inflation) have only begun to improve in the last two years.

As a result, all of the alternative measures of the unemployment rate have fallen in the last six years. That’s right – there are several official calculations of unemployment based on different definitions of being unemployed. Although at any point in time their levels are different, each of the unemployment rates is lower today than at their peak in 2010.

So this information paints a positive picture of the North Carolina economy, and these trends certainly are good news. But there are some issues. One concern is the recent slow pace of economic growth. For example, the average annual growth in total production of goods and services in North Carolina during the previous economic expansion from 2002 to 2006 was 3.4 percent, far higher than the annual average of 1.3 percent recorded in the current 2010-2015 expansion. The growth in jobs has also been relatively slow.

Worker productivity, which calibrates how much economic output a worker produces in a set period of time, has also been improving at a historically modest pace in the state. This is important because economists see a strong link between worker productivity, worker pay, and improvements in the standard of living. This suggests a chronic problem with a sizable number of working-age individuals in the state not having the skills necessary for the jobs being created.

Also, while jobs in North Carolina have increased and the unemployment rates have dropped, the number of workers in the state who want a job, but haven’t found a job and have actually stopped looking for work (termed “discouraged workers”) has stayed stubbornly constant at near 50,000 for over a decade.

All of these issues – relatively slow economic growth, weak gains in worker productivity, and significant numbers of discouraged workers –are not unique to North Carolina. We see the same issues in the national economy and in the economies of most states.

Some economists attribute slow economic growth to the simple fact that population growth has slowed. In the mid-2000s North Carolina’s population was growing over 2% per year. Since 2010 our population has been expanding only 1 percent per year. A slower growing population means fewer new people available to work, produce, and spend.

Then there’s also the continuing transformation of our economy. Machines and technology have taken many of the jobs that used to be in the factory, and they are now moving in to the service sector – witness the kiosks for ordering now appearing in many fast-food restaurants. Most jobs that are expanding are higher-paying ones in analytical and problem-solving occupations or lower-paying personal service occupations that cannot yet be duplicated by machines. Middle income jobs are a shrinking part of the economy.

Unfortunately for North Carolina, compared to the nation our state has relatively fewer of the higher-paying analytical jobs and relatively more of the jobs that are susceptible to technological replacement, or that are personal service occupations at the bottom of the pay ladder. This is particularly the case in rural areas of the state, and is reflected by the fact that production per worker in North Carolina relative to production per worker in the nation has been falling since the end of the recession.

Thus, the on-going transformation occurring in the economy is bringing more negative side effects to our state than to the nation. Stated another, North Carolina can be viewed as “ground zero” for the seismic shifts that are happening in the economy.

Of course, what this all means is that continued education and training of new workers and re-training of displaced and discouraged workers will be crucial for North Carolina to successfully navigate the economic transformation of future decades. Most say redoubled efforts in education and training are the needed responses to the economic challenges we face.

So for some, the economic glass in recent years has been rising, while for others it has been dropping. What will it take to get a full economic glass for the entire state? You decide!

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.


Dr. Mike Walden


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