Connaughton: North Carolina economy continues modest growth towards recovery

CHARLOTTE, N.C. – March 13, 2012 – The North Carolina economy continues to slowly recover from the 2008-09 recession and job growth is the key to a faster recovery, UNC Charlotte economist John Connaughton reported today in his quarterly forecast for the state.

Connaughton cites several areas of concern which may impact the recovery in 2012, particularly rising gas prices which could take away “what little steam the economy has developed” over the past six months.

Connaughton, the Babson Capital professor of financial economics in the Belk College of Business, presented his quarterly forecast to more than 100 members of the Charlotte business community and the media at a luncheon held at UNC Charlotte’s Center City campus. The Forecast is funded by Babson Capital Management.

2011 Recap, Sector Analysis and Employment

For 2011, North Carolina’s real Gross State Product (GSP) is expected to increase by 1.1 percent over the 2010 level. This follows an increase of 3.2 percent experienced during 2010.

The state economy experienced a modest increase in GSP during the first quarter of 2011, recording an annualized real growth rate of 0.8 percent. During the second quarter, North Carolina GSP increased by an annualized real growth rate of 0.7 percent. During the third quarter of 2011 North Carolina GSP was flat, experiencing no growth. For the fourth quarter, GSP growth is expected to pick up and record an annualized increase of 1.6 percent.

“After experiencing a modest recovery in 2010, the North Carolina economy has suffered through a disappointing 2011,” Connaughton said. “Both the North Carolina and the U.S. economies produced anemic growth rates during the first two quarters of the year and the economic sluggishness continued well into the third quarter of the year.”

Connaughton attributes the slow growth to several factors: last year’s European debt crisis and the U.S. debt ceiling resulted in a sharp decline in consumer confidence. Additionally, the U.S. banking system spent most of 2011 improving balance sheets and deflecting lawsuits over bad mortgage practices. “While the banking system was not in danger of failure,” Connaughton said, “it was still not behaving as a functional financial intermediary and therefore not facilitating economic growth.”

Eleven 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 5.8 percent
• Business and Professional Services, 5.2 percent
• Wholesale Trade, 3.0 percent
• Finance, Insurance and Real Estate, 2.5 percent
• Leisure and Hospitality Services, 2.3 percent
• Other Services, 1.8 percent
• Educational and Health Services, 1.7 percent
• Construction, 1.6 percent
• Information, 1.4 percent

For 2011, North Carolina establishments are expected to gain 33,300 net jobs over the 2010 level. The 2011 job gains follow the loss of more than 330,000 jobs during the 2008-2009 recession.

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 September 2011, the state rate had risen to 10.5 percent, while the national rate had increased to only 9.1 percent. Both the U.S. and North Carolina unemployment rates declined during the last few months of the year. In December 2011 the N.C. unemployment rate was 9.9 percent, while the U.S. rate had fallen to 8.5 percent.

2012 Forecast, Sector Analysis and Employment

Connaughton is forecasting that the North Carolina economy will increase by 2.0 percent during 2012. For 2012, first quarter GSP is expected to increase by an annualized real rate of 2.7 percent. During the second quarter, GSP is expected to pick up and increase by an annualized real rate of 2.8 percent. In the third quarter, GSP growth is expected to record an annualized real growth rate of 2.1 percent. In the fourth quarter of 2012, GSP is expected to grow at an annualized real rate of 2.6 percent.

Twelve 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 Services, with a projected real increase of 3.8 percent
• Retail Trade, 3.7 percent
• Educational and Health services, 2.9 percent
• Finance, Insurance and Real Estate (FIRE), 2.7 percent
• Other Services, 2.7 percent
• Wholesale Trade, 2.2 percent
• Hospitality and Leisure Services, 2.1 percent
• Agriculture, 2.0 percent
• Transportation, Warehousing and Utilities (TWU), 2.0 percent

For 2012, North Carolina establishments are expected to gain 49,500 net jobs, an increase of 1.3 percent over the employment level in December 2011.

Nine of the state’s fourteen nonagricultural sectors of the economy are expected to experience employment increases during 2012. The sectors with the strongest expected employment increases in 2012 are Retail Trade at 3.6 percent; Hospitality and Leisure Services at 2.9 percent; and Education and Health Services at 2.4 percent.

“While the recovery in GSP is underway, job growth is likely to lag,” Connaughton added. “North Carolina lost 330,000-plus jobs during 2008 and 2009, and at the current pace it is likely to take five or six 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.”

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

About Babson Capital
Babson Capital Management LLC and its subsidiaries serve institutional investors around the globe and have $139 billion in assets under management as of December 31, 2011. Through proprietary research and analysis and a focus on investment fundamentals, we develop 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, Cornerstone Real Estate Advisers LLC in Hartford, Conn., and Wood Creek Capital Management, LLC in New Haven, Conn. Babson Capital is a member of the MassMutual Financial Group and is on the web at www.BabsonCapital.com

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 mission as North Carolina’s urban research business school. www.facebook.com/BelkCollegeOfBusiness.