The North Carolina economy is expected to continue its seventh year of economic expansion in 2008, according to UNC Charlotte economist John E. Connaughton, who released his quarterly forecast for the state today.
Connaughton is optimistic for the state overall, in spite of several areas of concern. “Both rising energy prices and sub-prime credit problem have affected consumer behavior,” he said. “Rising gasoline prices are taking income out of consumer’s pockets and slowing purchases in other sectors, and the sub-prime credit scare is negatively affecting consumer’s confidence to purchase big-ticket items,” he added. “These two factors together slowed the North Carolina economy during 2007 and are likely to continue to be a problem into 2008.”
Nevertheless, Connaughton expects the real, inflation adjusted Gross State Product (GSP) to increase by 2.2 percent over the 2007 level. By quarter, Connaughton predicts that GSP will increase by an annualized real growth rate of 2.9 percent in the first quarter and 3.3 percent in the second quarter. He expects GSP growth to drop off in the third quarter to 2.5 percent but anticipates a rebound in the fourth quarter, with an annualized real rate of 3.0 percent.
2008 Economic Forecast by Sector
Connaughton expects eight of the state’s 11 economic sectors to experience growth during 2008. The sectors with the strongest expected growth forecasts are:
- Agriculture, with a projected real growth rate of 7.7 percent
- Mining, 5.0 percent
- Services, 4.8 percent
- Wholesale Trade, 4.3 percent
- Government, 4.1 percent
- Transportation, Warehousing, Utilities, and Information (TWUI), 2.7 percent
- Retail Trade, 2.6 percent
Three sectors – Durable Goods Manufacturing, Nondurable Goods Manufacturing, and Construction – are expected to experience an output decline during 2008.
2008 Employment Outlook
Connaughton expects growth in the state employment level in 2008. He forecasts that N.C. establishments will add 34,700 net jobs, an increase of 0.8 percent over the 2007 level.
Six of the state's ten nonagricultural sectors of the economy are expected to experience positive employment growth during 2008. The sectors that are expected to display the strongest employment growth rates in 2008 are Retail Trade at 2.8 percent, Wholesale Trade at 2.3 percent and Services at 1.9 percent.
The state’s unemployment rate in April 2008, the latest month for which official figures are available, was 5.4 percent, slightly higher than the U.S. rate of 5.0 percent. Connaughton expects the North Carolina rate is remain stable for the duration of 2008.
“Rising energy prices and the sub-prime related credit crunch have consumers on the rocks,” he said. “Consumer spending represents 70 percent of U.S. GDP, so if consumers are nervous the economy is in trouble."
Connaughton reported that consumer confidence has fallen dramatically since last July, when the Conference Board reported a peak level of 111.9. The figure for April 2008 was 62.8. “For the past several months, many economists have been suggesting that the economy will fall into recession,” Connaughton said, “but on the positive side, the Federal Reserve Bank has been very aggressive in dealing with the credit problem. The Federal Funds Rate has dropped dramatically, from 5.25 percent in September 2007 to its current level of 2.0 percent. As a result of this action, the worst is probably behind us at this point. ”
2007 Results
Following the release of official government data, Connaughton reported that the North Carolina economy grew by 2.4 percent during 2007, a rate weaker than the of 4.3 percent growth experienced during 2006.
Overall, the North Carolina economy grew during all four quarters of 2007. During the first quarter, GSP increased by an annualized real growth rate of 2.6 percent. During the second quarter, GSP growth slowed down dramatically, to an annualized real growth rate of only 0.1 percent. In the third quarter, GSP growth increased by an annualized rate of 1.5 percent. In the fourth quarter, GSP growth recorded an annualized real growth rate of 0.9 percent.
2007 Sector Analysis
The economic sectors with the strongest growth rates in 2007 were
- Mining with a real growth rate of 7.9 percent
- Government, 6.5 percent
- Services, 5.7 percent
- Wholesale trade, 5.7 percent
Four other sectors experienced growth during 2007 but at rates less that the overall state growth rate of 2.4 percent. These sectors were Construction, 2.1 percent; Retail Trade, 1.3 percent; Finance, Insurance, and Real Estate (FIRE), 0.8 percent; and Transportation, Warehousing, Utilities, and Information (TWUI), 0.7 percent.
2007 Employment Results
For 2007, Connaughton reported that the North Carolina economy added 67,200 net jobs, an increase of 1.6 percent over the employment level in December 2006. Seven of the state's ten nonagricultural sectors of the economy experienced positive employment growth during 2007. The sectors that displayed the strongest employment growth rates in 2007 were Services at 3.6 percent, Wholesale Trade at 2.9 percent, and Government at 1.6 percent.
The UNC Charlotte Carolina Economic Forecast is published quarterly by the University of North Carolina at Charlotte. The full Forecast report is available at www.belkcollege.charlotte.edu/forecast.
Connaughton will release his next report in September.