The North Carolina economy continues a slow recovery from the 2008-09 recession, stumbling a bit in 2011 but with signs pointing to modest but steady gains in 2012 and 2013, UNC Charlotte economist John Connaughton reported today in his quarterly economic forecast for the state.
Connaughton cites several areas of concern which may impact the recovery in 2012, including the European debt and financial crisis, but finds optimism in the banking sector as financial institutions continue to strengthen after the 2008 collapse.
Connaughton, the Babson Capital professor of financial economics in the Belk College of Business, presented his quarterly forecast to more than 150 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 LLC.
2011 Recap and Sector Analysis
For 2011, Connaughton reports that the real Gross State Product (GSP) for North Carolina increased by 1.5 percent over the 2010 level, lower than the 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 1.0 percent. During the second quarter, North Carolina GSP increased by an annualized real growth rate of only 0.2 percent. During the third quarter, North Carolina GSP increased by an annualized rate of 1.3 percent, while GSP growth picked up considerably and recorded an annualized increase of 3.4 percent in the fourth quarter.
"Several factors led to the slowdown in growth in 2011," Connaughton said. "Concerns over the European debt crisis and the U.S. debt ceiling debates resulted in a sharp decline in consumer confidence. Second, the U.S. banking system spent 2011 improving their balance sheets and deflecting lawsuits over bad mortgage practices, not facilitating economic growth."
Twelve of the state’s 15 economic sectors experienced output increases during 2011. The sectors with the strongest growth were:
· Mining with a real increase of 7.7 percent;
· Business and Professional Services with a real increase of 5.1 percent;
· Wholesale Trade with a real increase of 4.2 percent;
· Hospitality and Leisure Services with a real increase of 4.1 percent;
· Finance, Insurance and Real Estate (FIRE) with a real increase of 3.0 percent;
· Educational and Health Services with a real increase of 2.2 percent;
· Other Services with a real increase of 1.9 percent and
· Information with a real increase of 1.9 percent
2012 Forecast, Sector Analysis and Employment
Connaughton is forecasting that the North Carolina economy will increase by 2.1 percent during 2012. For 2012, first quarter GSP is expected to increase by an annualized real rate of 1.7 percent. During the second quarter, GSP is expected to pick up and increase by an annualized real rate of 2.5 percent. In the third quarter, GSP growth is expected to record an annualized real growth rate of 1.9 percent. In the fourth quarter of 2012, GSP is expected to grow at an annualized real rate of 2.0 percent.
Fourteen of the state’s 15 economic sectors are forecast to experience output increases during 2012. The sectors with the strongest expected growth are:
Retail Trade with a projected real increase of 6.1 percent;
Hospitality and Leisure Services with a projected real increase of 4.2 percent;
Educational and Health Services with a projected real increase of 3.8 percent;
Business and Professional Services with a projected real increase of 3.7 percent;
Wholesale Trade with a projected real increase of 3.2 percent;
Transportation, Warehousing and Utilities (TWU) with a projected real increase of 3.0 percent;
Other Services with a projected real increase of 2.5 percent and
Agriculture with a projected real increase of 2.1 percent
Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 3,995,700 persons in December 2012, an increase of 1.6 percent over the employment level in December 2011. The state is expected to gain 63,500 net jobs during the year.
Nine of the state's 14 nonagricultural sectors of the economy are expected to experience employment increases during 2012. The sectors with the strongest employment increases in 2012 are:
· Education and health services at 3.2 percent;
· Retail Trade at 2.9 percent and
· Business and Professional Services at 2.8 percent
"While the recovery in GSP is underway, job growth is likely to lag," Connaughton added. "North Carolina lost 333,400 jobs during 2008 and 2009, and we expect to replace 145,300 jobs by the end of the year. At the current pace it is likely to take another 4 or 5 years to regain the lost jobs. Sluggish growth will be the biggest problem for both the U.S. and North Carolina economies over the next several years."
North Carolina’s seasonally-adjusted unemployment rate began 2012 at 10.2 percent, almost 2.0 percentage points higher than the United States rate. By April, the North Carolina rate had fallen to 9.4, while the national rate had dropped to 8.1 percent. Both the U.S. and North Carolina unemployment rates are expected to decline slightly throughout the year, and by December the North Carolina unemployment rate is expected to be 8.5 percent.
2013 Forecast, Sector Analysis and Employment
Looking ahead to 2013, Connaughton expects the North Carolina economy to increase by 2.0 percent, with 14 of the state’s 15 economic sectors forecast to experience output increases. The sectors with the strongest expected growth are:
Educational and Health Services with a projected real increase of 5.1 percent;
Business and Professional Services with a projected real increase of 4.4 percent;
Other Services with a projected real increase of 4.4 percent;
Hospitality and Leisure Services with a projected increase of 4.1 percent and
Transportation, Warehousing and Utilities (TWU) with a projected real increase of 4.0 percent
"The good news is that despite Europe’s problems, the U.S. economy continues to grow," Connaughton said. "By 2013, U.S. banks should be in their best position since the financial collapse of 2008. It’s quite likely that by 2014, the U.S. and North Carolina economies should pick up their growth significantly."
Seasonally-adjusted nonagricultural employment in North Carolina is expected to reach 4,067,100 persons in December 2013, an increase of 1.8 percent over the employment level in December 2012. The state is expected to gain 71,400 net jobs during the year.
Twelve of the state's 14 nonagricultural sectors of the economy are expected to experience employment increases during 2013. The sectors with the strongest employment increases in 2013 are Educational and Health Services at 3.9 percent; Hospitality and Leisure Services at 3.6 percent; and Nondurable Goods Manufacturing at 3.4 percent.
The full Forecast report is available at /forecast/. Connaughton will present his next Forecast report on September 11, 2012.
About Babson Capital Management LLC
Babson Capital Management LLC and its subsidiaries serve institutional investors around the globe and have $142.8 billion in assets under management as of March 31, 2012. 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.belkcollege.charlotte.edu or www.facebook.com/BelkCollegeOfBusiness.