The North Carolina economy is expected to contract by 1.5 percent during 2009, UNC Charlotte economist John Connaughton reported today in his quarterly economic forecast for the state. The current year’s decline follows a falling-off of 0.3 percent experienced during 2008.
Overall, Connaughton expects the North Carolina economy to decline during the first two quarters of 2009, but to see modest growth in the second half of the year. In the first quarter, Gross State Product (GSP) decreased by an annualized real growth rate of 6.4 percent. During the second quarter, GSP is expected to decline again at an annualized real rate of -0.4 percent. GSP is expected to grow in the third quarter, for the first time in six quarters, at an annualized real rate of 3.3 percent. During the fourth quarter, North Carolina GSP is expected to continue the recovery and expand by an annualized real rate of 2.5 percent.
“The question now is, how strong and sustained will the recovery be?” Connaughton said. “On the positive side, consumer confidence is rising, although still at very low levels, and the index of leading indicators has increased in each of the last three months. In addition, interest rates remain low and the Federal stimulus package is beginning to come online.
“However, the banking sector – which is critical to recovery – remains troubled,” he continued. “Today, the banking system is still holding more than $700 billion in excess reserves, and this is money that is not being lent to facilitate the recovery.”
Connaughton is a professor of economics in the Belk College of Business at UNC Charlotte. He has served as director of the Economic Forecast since 1981.
2009 Sector Analysis and Employment Outlook
Eight of the state’s eleven economic sectors are expected to experience declines during 2009. The sectors with the strongest expected declines are:
• Construction, with a projected real decline of 10.1 percent
• Finance, Insurance and Real Estate (FIRE), with a projected real decline of 3.0 percent
• Durable goods Manufacturing, with a projected real decline of 2.9 percent
• Retail Trade with a real decline of 2.6 percent
• Wholesale Trade with a real decline of 1.9 percent
• Nondurable Goods Manufacturing, decline of 1.3 percent
• Agriculture with a projected real decline of 0.9 percent
• Government with a projected real decline of 0.7 percent
For 2009, North Carolina establishments are expected to lose 102,700 net jobs, a decrease of 2.5 percent over the 2008 level.
The state’s seasonally adjusted unemployment rate began the year at 9.7 percent, over two percentage points higher than the United States rate. By August, the North Carolina rate had risen to 11.1, while the United States rate was at 9.4 percent. Both the U.S. and North Carolina unemployment rates are expected to continue to rise during the year, and by December the North Carolina unemployment rate is expected increase to 11.2 percent.
2010 Forecast
For 2010, North Carolina real GSP is forecast to increase by 1.5 percent over the 2009 level.
In first quarter of 2010, GSP is expected to increase by an annualized real rate of 2.8 percent. For second quarter, GSP should again increase by an annualized real rate of 2.2 percent. Expansion will continue in the third quarter, with GSP expected to pick up and record an annualized real growth rate of 3.1 percent. In the fourth quarter of 2010, GSP is also expected to grow at an annualized real rate of only 2.3 percent.
2010 Sector Outlook and Employment Outlook
Six of the state’s eleven 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 3.8 percent
• Retail trade, 3.3 percent
• Wholesale Trade, 2.6 percent
• Finance, Insurance and Real Estate (FIRE), 1.8 percent
• Transportation, Warehousing, Utilities and Information (TWUI), 1.6 percent
• Government with a projected real increase of 0.5 percent
For 2010, North Carolina establishments are expected to gain 22,700 net jobs. Job growth should begin once again in December 2009, ending 22 months of decline.
Seven of the state's ten nonagricultural sectors of the economy are expected to experience employment increases during 2010. The sectors that are expected to display the strongest employment growth are:
• Wholesale Trade at 6.6 percent
• Construction, 5.0 percent
• Services and Retail Trade at 2.1 percent
“The expectation is that the North Carolina economy should begin a modest recovery during the second half of 2009,” Connaughton said. “The recession, which began in December 2007, is expected to last at least six quarters. This would make the 2008-2009 recession the longest downturn since the 1982 recession which lasted 16 months.
“The two most recent recessions were quite short,” Connaughton added. “Both the 1991 and 2001 recessions lasted only eight months each. This recession is likely to be 17 or 18 months in length.”
The UNC Charlotte Economic Forecast is published quarterly by the University of North Carolina at Charlotte. The full report is available at forecast. Connaughton will release his next Forecast report in December.