The North Carolina economy declined by 0.3 percent during 2008 and is expected to fall another 1.8 percent in 2009, UNC Charlotte economist John Connaughton reported today in his quarterly economic forecast for the state.
However, Gross State Product (GSP) should begin to stabilize during second quarter and may signal a technical end to the recession, according to Connaughton.
The decline in 2008 ended nearly six years of growth in North Carolina, including a growth rate of 2.4 percent in 2007.
“This recession began at the end of December 2007 and continued to get worse throughout 2008,” said Connaughton, a professor of economics in the Belk College of Business. “It started in the residential construction industry, spread to the financial sector and has now spilled over to a number of other sectors.
“Both manufacturing and retail trade are feeling the effects of the overall slowdown, and have contributed to the state’s overall decline and the significant drop in GSP during the fourth quarter of 2008.”
Connaughton, a highly-regarded expert on regional and state economic issues, has served as director of the UNC Charlotte Economic Forecast since 1981.
2008 In Review
Overall, the North Carolina economy declined during three of the four quarters in 2008. In the first quarter, GSP decreased by an annualized real growth rate of 1.1 percent. During the second quarter, GSP growth picked up and recorded an annualized real growth rate of 0.6 percent. In the third quarter GSP declined again with an annualized decrease of 1.4 percent. For the fourth quarter, North Carolina GSP contracted considerably, by an annualized real rate of 4.7 percent.
2008 Sector Analysis
Seven of the state’s eleven economic sectors experienced declines during 2008. The sectors with the strongest declines were:
• Agriculture, with a real decline of 13.4 percent;
• Construction with a real decline of 10.1 percent;
• Durable Goods Manufacturing, with a real decline of 3.6 percent;
• Retail Trade, with a real decline of 2.6 percent;
• Nondurable Goods Manufacturing, with a real decline of 2.1 percent;
• Mining, with a real decline of 1.8 percent; and
• Finance, Insurance and Real Estate (FIRE), with a projected real decline of 1.4 percent.
2008 Employment Analysis
During 2008, the North Carolina economy lost 120,000 net jobs, a decrease of 2.9 percent over the employment level in December 2007. Nine of the state's ten nonagricultural sectors of the economy experienced employment declines during 2008. The sectors with the strongest employment declines in 2008 were:
• Durable Goods Manufacturing at 9.0 percent;
• Construction at 7.0 percent; and
• Nondurable Goods Manufacturing at 5.7 percent.
2009 Forecast: Stabilization to Begin
For 2009 the North Carolina economy is expected to continue to decline, with real GSP dropping by 1.8 percent below the 2008 level.
First quarter GSP is expected to continue the decline which began in 2008, with real annualized GSP expected to fall by 4.7 percent.
During the second quarter GSP should stabilize, increasing at an annualized real rate of 0.6 percent. “This would signal a technical end to the recession,” Connaughton said, “but with the meager growth expected, it will not feel like the recession has ended.”
In the third quarter, GSP is expected to begin a rebound and record an annualized real growth rate of 2.0 percent. In the fourth quarter of 2009, GSP growth is expected to continue, but at an annualized real rate of only 1.3 percent.
2009 Outlook by Sector
Nine of the state’s eleven economic sectors are forecast to experience output declines during 2009. The sectors with the strongest expected declines are:
• Construction, with a projected real decline of 7.2 percent;
• Agriculture, with a projected real decline of 5.1 percent;
• Finance, Insurance and Real Estate (FIRE) with a projected real decline of 4.1 percent;
• Retail Trade, with a projected real decline of 3.1 percent;
• Durable Goods Manufacturing, with a projected real decline of 2.8 percent;
• Wholesale Trade, with a projected real decline of 2.4 percent;
• Nondurable Goods Manufacturing, with a projected real decline of 1.4 percent;
• Transportation, Warehousing, Utilities and Information (TWUI), with a projected real decline of 0.8 percent; and
• Services, with a projected real decline of 0.2 percent.
2009 Employment Outlook
For 2009, North Carolina establishments are forecast to lose 123,500 net jobs, a decrease of 3.0 percent below the 2008 level.
Eight of the state's ten nonagricultural sectors of the economy are expected to experience employment declines during 2009. The sectors that are expected to display the strongest employment declines are:
• Construction at 18.9 percent;
• Durable Goods Manufacturing at 17.0 percent; and
• Nondurable Goods Manufacturing at 9.0 percent.
The seasonally-adjusted unemployment rate in North Carolina began the year at 9.7 percent, more than two percentage points higher than the United States rate. By April, the state’s rate had risen to 10.8 percent, while the United States rate was at 9.8 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 11.3 percent.
“The North Carolina economy should begin a modest recovery during the second half of 2009, Connaughton said. “The recession, which began in December of 2007, is expected to last at least six quarters. This would make the 2008-2009 recession the longest since the 1982 recession, which lasted 16 months. The two most recent recessions, in 1991 and 2001, were quite short; they lasted only 8 months each. This recession is likely to be 17 or 18 months in length.”
2010 Forecast
For 2010, the North Carolina GSP is expected to increase for the first time in two years. Real (inflation adjusted) GSP is expected to increase by 1.9 percent over the 2009 level.
Seven of the state’s eleven economic sectors are forecast to experience growth during 2010. The sectors with the strongest expected growth forecasts are:
• Finance, Insurance and Real Estate (FIRE), with a projected real growth rate of 3.1 percent;
• Government, with a projected real growth rate of 2.6 percent;
• Services, with a projected real growth rate of 2.5 percent;
• Transportation, Warehousing, Utilities and Information (TWUI), with a projected real growth rate of 2.2 percent; and
• Wholesale Trade, with a projected real growth rate of 1.9 percent.
In addition, the construction sector should experience economic growth for the first time in two years, but at a modest 0.9 percent.
The UNC Charlotte Carolina 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 September.