Forecast: N.C. Economy Continues Sluggish Recovery Through 2012

CHARLOTTE, N.C. – Dec. 6, 2011 — Despite slow job growth, declines in consumer confidence and the impact of excess reserves on the banking system, UNC Charlotte economist John Connaughton reported today in his quarterly forecast that the North Carolina economy will continue a pace of slow recovery through 2012.

For 2011, Connaughton estimates that the North Carolina real Gross State Product (GSP) will increase by 1.3 percent over the 2010 level. This follows an increase of 3.2 percent experienced during 2010. During the first quarter of 2011, the state recorded a negligible increase of 0.3 percent. During the second quarter, GSP increased by an annualized real growth rate of 0.8 percent. During the third quarter of 2011, Connaughton expects the GSP to pick up slightly and increase by an annualized rate of 2.0 percent. For the fourth quarter, GSP growth should again recorded an annualized increase of 2.0 percent.

“After experiencing a modest recovery in 2010, the North Carolina economy has suffered through a disappointing first half of 2011,” said Connaughton, the Babson Capital professor of financial economics in the Belk College of Business. “Both the North Carolina and the U.S. economies produced anemic growth rates during the first two quarters of the year.

“Concerns over the European debt crisis and the U.S. debt ceiling have resulted in a sharp decline in consumer confidence, while the continual holding of enormous excess reserves by the banking system is restricting lending and negating the impact of the Federal Reserve Bank’s monetary policy,” he added.

Connaughton presented his quarterly forecast to members of the Charlotte business community and the media at a luncheon held at UNC Charlotte’s new Center City campus. The Forecast is funded by Babson Capital Management.

2011 Economic Sector Analysis

According to Connaughton, ten of the state’s 15 economic sectors are forecast to experience output increases during 2011. The sectors with the strongest expected growth are:

• Mining, with a projected real increase of 9.1 percent;
• Business and Professional (B&P) Services, with a projected real increase of 6.5 percent;
• Finance, Insurance and Real Estate (FIRE), with a projected increase of 3.6 percent;
• Wholesale Trade, with a projected real increase of 3.4 percent;
• Leisure and (L&H) Hospitality Services, with a projected real increase of 3.3 percent and
• Information with a projected real increase of 1.9 percent.

Four other sectors are also expected to experience output growth, but at rates lower than the overall state level:

• Transportation, Warehousing and Utilities (TWU), with a projected real increase of 1.2 percent;
• Construction, with a projected real increase of 1.0 percent;
• Durable Goods Manufacturing, with a projected real increase of 0.4 percent and
• Other Services, with a projected real increase of 0.4 percent.

2011 Employment Analysis

For 2011, North Carolina establishments are expected to gain only 22,500 net jobs over the 2010 level. The 2011 job gains follow the loss of over 320,000 jobs during the 2008-09 recession.

Only eight of the state’s 14 non-agricultural economic sectors are expected to experience employment increases during 2011. The sectors with the strongest expected employment increases are:

• Hospitality and Leisure (H&L) Services at 3.1 percent;
• Wholesale Trade at 2.4 percent and
• Retail Trade at 2.2 percent.

The North Carolina seasonally adjusted unemployment rate began 2011 at 9.8 percent, almost 1.0 percentage point higher than the United States rate. By October 2011, the North Carolina rate had risen to 10.4, while the United States rate had remained at 9.0 percent. Both the U.S. and North Carolina unemployment rates are expected to drop slightly during the year, and by December the North Carolina unemployment rate is expected to be 10.1 percent.

2012 Economic Forecast

The North Carolina economy is expected to increase by only 1.7 percent during 2012, Connaughton reported.

For 2012, first quarter GSP is expected to increase by an annualized real rate of 1.4 percent. During the second quarter, GSP is expected to pick up and increase by an annualized real rate of 2.1 percent. In the third quarter, GSP growth is expected to record an annualized real growth rate of 1.4 percent. In the fourth quarter of 2012, GSP is expected to grow at an annualized real rate of 1.6 percent.

Eleven of the state’s 15 economic sectors are forecast to experience output increases during 2012. The sectors with the strongest expected growth are:

• Business and Professional (B&P) Services with a projected real increase of 5.4 percent;
• Finance, Insurance and Real Estate (FIRE) with a projected increase of 3.8 percent;
• Wholesale Trade, with a projected real increase of 2.6 percent;
• Information, with a projected real increase of 2.1 percent and
• Transportation, Warehousing and Utilities (TWU) with a projected real increase of 2.1 percent.

2012 Employment Outlook

For 2012, North Carolina establishments are expected to gain 38,000 net jobs, an increase of 1.0 percent over the employment level in December 2011.

Eight of the state’s 14 nonagricultural sectors of the economy are expected to experience employment increases during 2012. The sectors with the strongest expected employment increases in 2012 are:

• Hospitality and Leisure (H&L) Services at 2.6 percent;
• Government at 2.1 percent and
• Education and Health (E&H) Services at 1.7 percent.

“By the end of 2012, North Carolina is expected to have replaced only 60,500 of the 323,000 jobs lost during the recession,” Connaughton said. “At this pace, it will take another decade to gain back all the jobs lost during 2008 and 2009. At the national level, jobs are the story, yet in North Carolina, our anemic job growth seems to be invisible – despite the fact that the state is in worse shape than the U.S.”

The full Forecast report is available at forecast. Connaughton will present his next Forecast report in March 2012.