North Carolina economy on the rebound, Connaughton reports

North Carolina’s economy appears to be rebounding from the recession, UNC Charlotte economist John Connaughton reported today in his quarterly forecast for the state.

Connaughton, a professor of economics in the Belk College of Business and director of the UNC Charlotte Economic Forecast, predicts that North Carolina’s real GSP will increase in 2010 by 2.2 percent over the 2009 level. First quarter GSP is expected to increase by an annualized real rate of 4.2 percent. During the second quarter GSP should again increase, by an annualized real rate of 3.9 percent. In the third quarter, GSP is expected to slip slightly and record an annualized real growth rate of 3.4 percent. In the fourth quarter of 2010 GSP is also expected to grow, at an annualized real rate of 3.5 percent.

“While the North Carolina economy has been behind the U.S. economic recovery, the state now appears to be rebounding,” Connaughton said. “The national economy has put together three consecutive quarters of expansion and, despite the continuation of some mixed signals, appears to well into an economic expansion. The question is no longer when we will recover, but how strong will the recovery be?”

Nine of the state’s 11 economic sectors are forecast to experience output increases during 2010. The sectors with the strongest expected growth are:
• Services, with a projected real increase of 5.7 percent;
• Agriculture, with a projected real increase of 3.2 percent;
• Finance, Insurance and Real Estate (FIRE) with a projected real increase of 3.0 percent;
• Government, with a projected real increase of 2.7 percent;
• Wholesale Trade, with a projected real increase of 2.7 percent;
• Retail Trade, with a projected real increase of 2.2 percent;
• Mining, with a projected real increase of 2.1 percent;
• Transportation, Warehousing, Utilities and Information (TWUI) with a projected real increase of 1.9 percent; and
• Construction, with a projected real increase of 0.4 percent.

For 2010, North Carolina establishments are expected to gain 58,000 net jobs. Connaughton expects job growth to begin in January 2010, ending 24 months of decline.

Seven of the state’s ten nonagricultural sectors of the economy are expected to experience employment increases during 2010. The sectors with the strongest employment increases in 2010 are:
• Wholesale Trade at 6.6 percent;
• Retail Trade at 4.2 percent; and
• Construction at 3.4 percent.

“While the recovery in GSP is underway, job growth is likely to lag,” Connaughton said. “North Carolina lost almost 300,000 jobs during 2008 and 2009, and it is likely to take four or 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.”

As official government economic data is released for the past year, Connaughton expects the North Carolina economy to decline by 3.5 percent during 2009. This follows the decline of 0.7 percent experienced during 2008.

The North Carolina economy declined during the first three quarters of 2009. In the first quarter, GSP decreased by an annualized real growth rate of 8.0 percent. During the second quarter GSP again declined, but only by an annualized real rate of 1.8 percent. In the third quarter GSP again declined, by an annualized rate of 2.0 percent. This represented the seventh consecutive quarter of decline during this recession.

For the fourth quarter of 2009, North Carolina GSP increased for the first time as the recovery began, at an annualized real rate of 0.9 percent. This increase was considerably less than the 5.6 percent increase recorded by U.S. GDP during the same quarter.

Nine of the state’s eleven economic sectors experienced declines during 2009. The sectors with the strongest declines were:
• Construction, with a real decline of 20.1 percent;
• Mining, with a real decline of 9.5 percent;
• Wholesale Trade, with a real decline of 8.5 percent;
• Durable Goods Manufacturing, with a real decline of 5.8 percent;
• Nondurable Goods Manufacturing, with a real decline of 5.5 percent;
• Retail Trade, with a real decline of 5.1 percent;
• Finance, Insurance and Real Estate, with a real decline of 5.0 percent;
• Agriculture, with a real decline of 4.8 percent; and
• Services with a real decline of 2.2 percent.

In 2009, North Carolina establishments lost 182,900 net jobs, a decrease of 4.5 percent over the 2008 level. The 2009 job loss follows the loss of 115,800 jobs during 2008.

The North Carolina’s seasonally adjusted unemployment rate began 2009 at 9.7 percent, over two percentage points higher than the United States rate. By December, the North Carolina rate had risen to 11.2 percent, while the United States rate was at 10.0 percent. Both the U.S. and North Carolina unemployment rates are expected to decline during 2010, and by December the North Carolina unemployment rate is expected to drop to 10.8 percent.

For 2011, Connaughton is forecasting that the North Carolina real (inflation adjusted) GSP will increase by 2.8 percent over the 2010 level. The growth rate for 2011 follows two years of economic decline as a result of the 2008-2009 recession, and the expansion of the state’s economy during 2010 at 2.2 percent.

Nine of the state’s eleven economic sectors are forecast to experience growth during 2011. The sectors with the strongest expected growth forecasts are:

• Finance, Insurance and Real Estate (FIRE), with a projected real growth rate of 5.0 percent;
• Services, with a projected real growth rate of 3.9 percent;
• Government, with a projected real growth rate of 3.5 percent;
• Wholesale Trade, with a projected real growth rate of 2.6 percent;
• Transportation, Warehousing, Utilities and Information (TWUI) with a projected real growth rate of 2.4 percent; and
• Retail Trade, with a projected real growth rate of 2.3 percent.

In addition, the construction sector should experience a second year of modest economic growth, at a 1.3 percent rate.

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