Connaughton: N.C. economy slows, but continued growth expected into 2007

The North Carolina economy is expected to grow by 1.5 percent during 2006, UNC Charlotte economist John Connaughton reported today in his TIAA-CREF/UNC Charlotte Economic Forecast for North Carolina. This growth forecast for 2006 is lower than the 2.2 percent growth rate projected in Connaughton’s June forecast.

The forecast, funded by TIAA-CREF and published quarterly by the University of North Carolina at Charlotte, provides both a review of North Carolina’s recent economic performance and a barometer of the state’s future growth. Connaughton, who directs the forecast, is the TIAA-CREF professor of economics at UNC Charlotte’s Belk College of Business.

“As a leading employer in Charlotte, it is always valuable to hear how current events play a role in our state’s economy,” said Kevin Brown, TIAA-CREF vice president, client services. “We at TIAA-CREF are pleased to share this important business resource with the public.”

During the first quarter of 2006, GSP increased by an annualized real growth rate of 1.9 percent. During the second quarter, GSP growth is expected to increase to an annualized real growth rate of 4.3 percent. In the third and fourth quarters, growth is expected to continue but at a slower annualized growth rate of 2.6 percent during each quarter.
The expected growth of 1.5 percent in 2006 would represent the fifth consecutive year of economic expansion. The previous four years (2002 – 2005) have seen GSP growth increases in each year. The slower 2006 forecast is directly related to the sizable economic slowdown experienced by the North Carolina economy during the last two quarters of 2005. This slowdown was caused by the cumulative effects of continued U.S. budget deficits, the growing U.S. trade deficit, increasing interest rates, but mostly by rising energy prices post Hurricane Katrina.

“Despite the current slowing of both the United States and the North Carolina economies during 2006, the expectation is that this is just a pause and that the expansion should continue in 2007,” said Connaughton. “In fact, North Carolina’s economy is expected to grow by 2.6 percent during 2007,” he added.

Nine of the state’s 11 economic sectors are forecast to experience growth during 2006. The sectors with the strongest expected growth forecasts are agriculture with a projected real growth rate of 6.3 percent; mining with a projected real growth rate of 4.5 percent; construction with a projected real growth rate of 4.1 percent; services with a projected real growth rate of 3.1 percent; transportation, warehousing, utilities, and information (TWUI) with a projected real growth rate of 2.8 percent; wholesale trade with a projected real growth rate of 2.6 percent; and government with a projected real growth rate of 2.0 percent.

Two other sectors are expected to experience growth during 2006 but at rates less than the overall state growth rate of 1.5 percent. These sectors are finance, insurance, and real estate (FIRE) with a projected real growth rate of 1.0 percent; and durable goods manufacturing with a projected real growth rate of 0.1 percent.

For 2006, the North Carolina economy is expected to add 79,600 net jobs, an increase of 2.0 percent over the employment level in December 2005. Seven of the state’s 10 nonagricultural sectors of the economy should experience positive employment growth during 2006. The sectors expected to display the strongest employment growth rates in 2006 are FIRE at 3.5 percent, construction at 3.3 percent, and services at 3.1 percent.
For 2007, the North Carolina economy is expected to continue its sixth year of economic expansion. Real (inflation adjusted) GSP is expected to increase by 2.6 percent over the 2006 level.

Overall growth during the four quarters of 2007 is expected to be quite stable. For 2007, first quarter GSP is expected to increase by an annualized real growth rate of 2.1 percent. During the second quarter, GSP is expected to increase by an annualized real rate of 2.6 percent. In the third quarter, GSP growth should continue and record an annualized real growth rate of 2.4 percent. In the fourth quarter of 2007, GSP growth is expected to reach an annualized real rate of 2.6 percent

Ten of the state’s 11 economic sectors are forecast to experience growth during 2007. The sectors with the strongest expected growth forecasts are agriculture with a projected real growth rate of 7.6 percent; services with a projected real growth rate of 4.1 percent; transportation, warehousing, utilities, and information (TWUI) with a projected real growth rate of 4.1 percent; FIRE with a projected real growth rate of 3.4 percent; and wholesale trade with a projected real growth rate of 3.3 percent.

Five other sectors are expected to experience growth during 2007 but at rates less that the overall state growth rate of 2.6 percent. These sectors are retail trade and construction, each with a projected real growth rate of 1.9 percent; government with a projected real growth rate of 1.8 percent, and mining and durable goods manufacturing ,each with a projected real growth rate of 0.1 percent. One sector, nondurable goods manufacturing is expect to decline during 2007.

For 2007, North Carolina establishments are forecast to add 63,600 net jobs, an increase of 1.6 percent over the 2006 level. Seven of the state’s 10 nonagricultural sectors of the economy are expected to experience positive employment growth during 2007. The sectors that are expected to display the strongest employment growth rates in 2007 are government at 3.0 percent, construction at 2.7 percent, and services and FIRE at 2.6 percent.

The North Carolina manufacturing sector continues to struggle during this recovery. Real output in the nondurable goods sector has been flat for the past five years. Real durable goods output has grown by less than one percent on average since 2001. According to Connaughton, “This flat output growth in the manufacturing sector has led to a loss of over 200,000 jobs since January of 2000.”

The state’s seasonally adjusted unemployment rate should remain stable during the year. The unemployment rate for July was 4.8 percent, the same as the United State’s rate. The North Carolina rate is expected to be stable during the rest of the year and is forecast to close 2006 at 4.9 percent.

The comprehensive forecast report for September 2006 is available on the Web at www.belkcollege.charlotte.edu/forecast. The next forecast report will be released in December.