N.C. economy to end year with slight growth, Connaughton reports

The North Carolina economy is expected to end 2010 with a modest expansion, UNC Charlotte economist John Connaughton reported today in his quarterly Babson Capital/UNC Charlotte Economic Forecast for the state.

Following a decline of 2.9 percent during 2009, Connaughton expects the state to grow by 1.4 percent more than the 2009 level.

The North Carolina economy experienced a small increase in Gross State Product (GSP) during the first quarter of 2010. During this quarter, GSP grew by an annualized real growth rate of 2.5 percent. During the second quarter, North Carolina GSP dipped and recorded an annualized real growth rate of 0.3 percent. During the second half of the year, GSP growth is expected to be stronger than the growth experienced during the first half of the year; third quarter GSP is forecast to increase by an annualized rate of 3.2 percent, while fourth quarter GSP is forecast to increase by an annualized rate of 3.5 percent.

“The national economy has been able to put together five consecutive quarters of expansion, while the North Carolina economy has struggled to put together three quarters of growth,” Connaughton said. “The state’s economic growth during this time has only been sufficient to stem job losses, but not to generate job growth.

“We have been able to struggle through 2010 without a ‘double dip,’ but the sluggish economic growth during the past year really hasn’t felt much like a recovery,” Connaughton added.

The Forecast, funded by Babson Capital Management and published quarterly by The University of North Carolina at Charlotte, provides both a review of North Carolina’s recent economic performance and an estimation of the state’s future growth. Connaughton, who directs the Forecast, is the Babson Capital Management professor of financial economics at UNC Charlotte’s Belk College of Business. This is Connaughton’s first Forecast report under the Babson Capital sponsorship, a three-year agreement.

2010 Sector Analysis

Connaughton expects eight of the state’s eleven economic sectors to experience growth during 2010. The sectors with the strongest expected increases are:

Mining, with a real increase of 11.3 percent;
Agriculture, with a real increase of 6.2 percent;
Services, with a real increase of 4.1 percent;
Government, with a real increase of 2.8 percent;
Transportation, Warehousing, Utilities and Information (TWUI) with a real increase of 2.2 percent; and
Wholesale Trade, with a real increase of 1.4 percent.

Two other sectors – Retail Trade with a real increase of 0.9 percent and Nondurable Goods Manufacturing with a real increase of 0.3 percent – are also expected to grow, but with increases of below the overall GSP growth of 1.4 percent.

2010 Employment

For 2010, North Carolina establishments are expected to have a net gain of 30,000 jobs, an increase of 0.8 percent over the 2009 level. The 2010 job gains follow the loss of over 282,000 jobs during the 2008-09 recession.

North Carolina’s seasonally adjusted unemployment rate began 2010 at 11.1 percent, over 1.5 percentage points higher than the United States rate. By October, the state rate had dropped to 9.6, matching the national rate of 9.6 percent. Both the U.S. and North Carolina unemployment rates are expected to continue to decline slightly during the year. By Dec. 2010, the North Carolina unemployment rate is expected to decrease to 9.5 percent.

“While the recovery in GSP is underway, job growth is likely to lag,” Connaughton noted.”North Carolina lost over 282,000 jobs during 2008 and 2009, and it is likely to take four to five years to regain the lost jobs. Job growth will be the biggest problem for both the U.S. and North Carolina economies over the next several years.”

2011 Forecast and Sector Outlook

For 2011, Connaughton is forecasting state GSP to increase by 3.2 percent over the 2010 level.

First quarter GSP is expected to increase by an annualized real rate of 3.3 percent. During the second quarter, GSP should again increase by an annualized real rate of 3.3 percent. In the third quarter, GSP growth is expected to remain stable and record an annualized real growth rate of 3.2 percent. In the fourth quarter of 2010, GSP is expected to increase by an annualized real rate of 3.7 percent.

Only seven of the state’s eleven economic sectors are forecast to experience output increases during 2011. The sectors with the strongest expected growth are:

Transportation, Warehousing, Utilities and Information (TWUI) with a projected real increase of 6.2 percent;
Finance, Insurance and Real Estate (FIRE) with a projected real increase of 5.1 percent;
Government, with a projected real increase of 4.7 percent;
Services, with a projected real increase of 3.4 percent; and
Retail Trade, with a projected real increase of 3.0 percent.

Two other sectors are also expected to experience output growth but at rates less than the overall state level: Mining, with a projected real increase of 2.7 percent; and Wholesale Trade, with a projected real increase of 2.1 percent.

2011 Employment Outlook

For 2011, North Carolina establishments are expected to gain 38,300 net jobs, an increase of 1.0 percent over the employment level in December 2010.

Seven of the state’s ten nonagricultural sectors of the economy are expected to experience employment increases during 2011. The sectors with the strongest employment increases in 2011 are Wholesale Trade at 5.2 percent, Retail Trade at 2.3 percent and Services at 1.8 percent.

The UNC Charlotte Economic Forecast is published quarterly by the Belk College of Business. The full Forecast report is available at forecast. Connaughton will release his next Forecast report in March 2011.

About Babson Capital Management LLC

Babson Capital Management LLC and its subsidiaries serve institutional investors around the globe and have $132.5 billion in assets under management as of September 30, 2010. Through proprietary research and analysis and a focus on investment fundamentals, Babson Capital develops products and strategies that leverage our broad array of expertise in fixed income, equities, alternative, structured products, debt financing for corporations and debt and equity financing for commercial real estate. Based in Boston and Springfield, Mass., and Charlotte, N.C., with offices in New York City and Los Angeles, the firm’s subsidiaries include Babson Capital Europe Limited in London, Babson Capital Australia Pty Ltd in Sydney, and Cornerstone Real Estate Advisers LLC in Hartford, Conn. Babson Capital is a member of the MassMutual Financial Group.

About the Belk College of Business

Accredited by AACSB International, the Belk College of Business at UNC Charlotte offers outstanding business education programs at the undergraduate, graduate and doctoral levels. The Belk College is committed to building strong partnerships in the Greater Charlotte region and beyond as a vital part of its vision to be a leader in 21st century business research and education. www.belkcollege.charlotte.edu or www.facebook.com/BelkCollegeOfBusiness.