By Dr. Mike Walden
There’s been plenty of uncertainty recently swirling around the national economy. Trade tensions, stock market ups and downs and movements in interest rates have all captured headlines and editorials.
But let’s get closer to home and talk about the North Carolina economy. I constantly watch our state economy. For example, I release a monthly leading economic indicator for North Carolina. Also, twice a year I do a “deep dive” into the state’s economic statistics to expand my understanding of what’s happening to our companies, workers, households and regions.
I just finished my mid-year dive and will report on the major results here. I’ll talk about trends in North Carolina’s economy over the past year and well as give you my crystal-ball forecasts for where we’re headed in the next year.
First and foremost, North Carolina’s economy has continued to expand. In the past year – measured from July 2018 to July 2019 – the state added over 75,000 jobs, and the pace of job growth was slightly faster than the nation.
And here’s another good trend in our jobs. One issue in North Carolina – indeed, an issue in most states – has been sparse growth in jobs in the middle of the wage distribution. For most of the last decade job growth has occurred in high-paying jobs and in low-paying jobs, with little growth in middle-paying jobs, such as in manufacturing, construction, transportation and health care support. This has contributed to the issue of widening income inequality.
The good news is in the last year, increases in the three pay categories of jobs in North Carolina have been relatively balanced. This is important for several reasons, not the least of which is the addition of middle-paying job rungs on the income ladder is essential for the income mobility of workers.
The average wage rate (pay per hour) of North Carolina workers also continued to increase in 2019, and the gain exceeded the average increase in the prices of products and services workers buy. In other words, improvements in worker pay outpaced inflation, meaning the average standard of living improved.
Average wage rates in North Carolina still lag average wage rates in the nation. Economists who study state pay differences say there are two reasons behind this result. One is the lower cost-of-living in North Carolina compared to the country. Studies show our state’s prices are between five percent and 10 percent lower than in the nation. Second is lower educational attainment in the state compared to the country. There is a strong correlation between educational attainment and worker wages.
Of course, job growth rates are not even across all regions of the state. During the year including the second half of 2018 and the first half of 2019, the Asheville, Charlotte and Winston-Salem regions experienced the strongest growth in jobs. At the other end of the spectrum, Jacksonville, Burlington, Greensboro, Greenville and New Bern lost jobs.
Interestingly, rural areas – defined as those counties outside of metropolitan regions – had a job growth rate comparable to the state total.
As most people know, technology continues to be a growth sector in the economy. North Carolina already has a significant tech sector. Happily, for the most recent year that data are available, our state’s tech sector grew significantly faster than at the national level.
Unfortunately, there are some worrying aspects of the recent state economy. Farm output in North Carolina has suffered a large reduction in production. While there can be many reasons for this, clearly one is the on-going trade tensions with China. China’s tactics in this dispute have resulted in fewer key North Carolina farm products being sold to that important country.
Another concern is construction. Residential building permits are on track to decline in the state in 2019. If it’s any comfort, the same trend is occurring in the nation. Perhaps lower interest rates later this year will turn around this decline.
All of this information shows where North Carolina has been. But where is the state economy going in the future?
Of course, recognize that forecasts are just an educated guess, and no forecast is guaranteed. To add to the uncertainty, economists often disagree about the future. (PS: Economists are much better at predicting the past!!)
Here’s my views about the future economy. North Carolina will continue to grow and add production and jobs. However, the pace of growth, while positive, will slow. Rather than expanding at close to a three percent annual rate, growth will be closer to two percent.
Note this doesn’t imply a recession. A recession means the growth rate is negative and the economy is contracting – that is, getting smaller. My headlights don’t show this yet. Certainly, however, if conditions change, I can change my forecast.
Any state’s economy is a complex mix of many factors. You decide if these factors have moved – and will continue to move – in a positive direction for North Carolina.
Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.