| You Decide: Where’s the North Carolina economy headed? It’s time to take the pulse of the patient again. In this case, the patient is the North Carolina economy, and the diagnosed condition is the recession. By many standards the recession is the worst – both in the nation and in our state – in more than 70 years. Record declines in wealth, spending and jobs have made this recession one for the books. In fact, economists are now calling it the “Great Recession.” But are the economic clouds beginning to part? At the national level many analysts say yes. Some have even said the recession is already over. They cite a rebound in factory output and consumer spending last summer. The convincing statistic for many was the 3.5 percent growth rate in gross domestic product – the value of everything produced in the economy – during the summer. Yet what about North Carolina? We have suffered mightily from the Great Recession. The most obvious evidence of this is our unemployment rate, which has consistently run a full percentage point higher than the national rate and now hovers near 11 percent. Is there anything to suggest the bottom has been hit and brighter days are on the horizon? Fortunately, there are reasons to be cautiously optimistic about the North Carolina economy. The state’s factories took a big hit in the last two years, with output dropping almost 15 percent. However, since the spring, the amount of product coming out of factory doors has jumped an impressive 10 percent. This has been accomplished with fewer manufacturing workers because worker productivity (output per worker) has zoomed. Information on spending by consumers at retail stores is released with a considerable time lag in North Carolina, but the latest data for the spring showed an improvement. And if North Carolina retail spending follows national trends, this improvement continued in the summer. The housing market has been front and center in this recession. For the economy to get well, the housing market must get better. Recent trends for the housing market in North Carolina are promising. Both sales of existing homes and construction of new homes have moved higher in recent months, and prices seemed to have stabilized. Still, the housing market isn’t totally cured. Improvements have been stronger in the state’s larger metropolitan areas than in smaller cities. Also, housing market activity continues to be well below normal levels. It will take several more months of improvement before we can be assured this major part of our economy – accounting for almost 20 percent of total economic activity – is back on solid footing. Therefore, there are bright spots for production, spending and housing in the North Carolina economy. What’s missing? Why, of course, the job market. Most people judge the condition of the economy by one simple factor – jobs. And is hiring occurring? The best that can be said about the job market now is that things are getting less bad. In recent months jobs have still been lost, but the pace of the losses has slowed. One job survey in the state actually showed a gain in jobs in September. Most economists predict the economy will continue to shed jobs until the spring of 2010. This means the unemployment rate will likely rise more, probably peaking between 11 percent and 11.5 percent in North Carolina in early 2010. The good news is that once job growth resumes, gains in North Carolina should happen more rapidly than in the nation. By the end of 2010, the state’s unemployment rate could be 1.5 percentage points lower than it was at the beginning of the year, putting it close to the national rate. North Carolina has a tradition of rebounding faster from recessions than the nation. The bad news is that it may take several years before the state’s unemployment rate returns to its pre-recessionary level of 4.5 percent. The recession that has hit our economy has been devastating, shaking the very foundations of our economic system. Trillions of dollars of wealth have been lost, meaning consumers are scrambling to repair their balance sheets by spending less and saving more. The surge in consumer spending that typically leads us out of a recession probably won’t be repeated this time, and this will stifle job growth. All of which means that in the tighter and leaner economy of the future, North Carolina will have to redouble her efforts to be competitive, with a renewed focus on education, worker training, adequate infrastructure and an efficient as well as equitable tax structure. This is a tall order, but I think – you will decide – we’re up for it! Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook, and public policy. |