The North Carolina economy will grow modestly in 2013 after losing some traction in 2012, UNC Charlotte economist John Connaughton reported today in his quarterly forecast for the state.
Connaughton expects the North Carolina economy to increase by an inflation-adjusted rate of 1.5 percent during 2013. The first quarter Gross State Product (GSP) is expected to increase at an annualized real rate of 1.7 percent. During the second quarter, GSP is expected to increase again, at an annualized real rate of 1.7 percent. In the third quarter, GSP is expected to pick up and record an annualized real growth rate of 2.9 percent. In the fourth quarter of 2013, GSP is expected to grow at an annualized real rate of 2.8 percent.
“For 2013, the North Carolina economy is expected to reverse the 2012 pattern of modest GSP decline,” Connaughton said, “but growth in the first half of the year will be slow as a result of several factors: continued uncertainty in Europe, tax increases and spending cuts, and gasoline price increases over the past two months.
“While we avoided going over the ‘fiscal cliff’ on January 1, we did not avoid tax increases,” Connaughton continued. “The compromise reached by the Congress and the President resulted in tax increases of $160 billion for U.S. households in 2013. Another $85 billion in spending cuts as a result of sequestration took effect on March 1. Both the tax increases and spending cuts will negatively impact U.S. Gross Domestic Product during 2013. In addition, gas prices have risen by 50 cents per gallon since December 2012; this increase takes another $100 billion out of consumers’ pockets that they could be spending on other products in the economy.”
Connaughton, the Babson Capital professor of financial economics in the Belk College of Business, presented his quarterly forecast to 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.
2013 Sector Outlook
Thirteen of the state’s 15 economic sectors are forecast to experience output increases during 2013. The sectors with the strongest expected growth are:
- Business and Professional Services, with a projected real increase of 4.0 percent;
- Transportation, Warehousing and Utilities (TWU), with a projected real increase of 2.5 percent;
- Other Services, with a projected real increases of 2.4 percent;
- Wholesale Trade, with a projected real increase of 2.1 percent;
- Information, with a projected real increase of 1.9 percent;
- Agriculture, with a projected real increase of 1.7 percent; and
- Hospitality and Leisure Services, with a projected real increase of 1.6 percent.
2013 Employment Outlook
Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,069,900 persons in December 2013, an increase of 1.6 percent over the employment level in December 2012. Connaughton expects the state to gain 65,300 net jobs during the year.
Ten 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:
- Nondurable Goods Manufacturing at 3.6 percent,
- Government at 2.3 percent, and
- Educational and Health Services at 2.2 percent.
Both the U.S. and North Carolina unemployment rates are expected to remain constant throughout 2013, and by December 2013 the North Carolina unemployment rate is expected to be around 9.0 percent.
2012 in Review
Using updated government data, Connaughton has recalculated his forecast for 2012 and now expects the state economy to decrease by 0.4 percent over the 2011 level. This decline follows very modest growth in 2011 and interrupts three years of slow growth since the recovery began.
“While both the U.S. and state recoveries began in July 2009, for North Carolina it has been a weak recovery,” Connaughton said. “For 2012, the U.S. economy recorded slow growth of 2.2 percent in GDP and was able to avoid a double-dip recession. However, for North Carolina 2012 turned out to be much weaker than the U.S. In addition to an overall annual decline in GSP, the second and third quarters produced successive quarters of decline, which amounted to a double-dip recession for the state.”
The state’s unemployment rate also hampered growth in 2012. North Carolina’s seasonally adjusted unemployment rate began 2012 at 10.4 percent, almost two percentage points higher than the United States rate. By December the North Carolina rate had fallen to 9.2 percent, while the United States rate had fallen to 7.8 percent.
For 2012, first quarter Gross State Product (GSP) increased at an annualized real rate of 1.0 percent. During the second quarter, GSP decreased at an annualized real rate of 1.3 percent. In the third quarter, GSP decreased again, at an annualized real rate of 1.2 percent. In the fourth quarter of 2012, Connaughton expects GDP to pick up and record an annualized real growth rate of 2.2 percent.
2012 Sector Analysis
Nine of the state’s 15 economic sectors are forecast to experience modest output increases during 2012. The sectors with the strongest expected growth are:
- Construction, with a projected real increase of 2.9 percent;
- Business and Professional Services, with a projected real increase of 2.8 percent;
- Information, with a projected real increase of 2.3 percent;
- Hospitality and Leisure Services, with a projected real increase of 2.0 percent;
- Transportation, Warehousing and Utilities (TWU), with a projected real increase of 1.5 percent;
- Mining, with a projected real increase of 0.6 percent; W
- Wholesale Trade, with a projected real increase of 0.3 percent;
- Other Services, with a projected decline of 0.2 percent; and
- Retail Trade, with a projected decline of 0.1 percent.
Seasonally adjusted nonagricultural employment in North Carolina reached 4,004,600 persons by December 2012, an increase of 1.8 percent over the employment level in December 2011. The state gained 72,400 net jobs during the year.
2012 Employment
Ten of the state's 14 nonagricultural sectors of the economy experienced employment increases during 2012. The sectors with the strongest employment increases in 2012 were Business and Professional Services at 4.6 percent, Wholesale Trade at 4.1 percent, and Hospitality and Leisure Services at 3.1 percent.
“By the end of 2012 the state had replaced only 154,200 of the 333,400 jobs lost during the recession,” Connaughton said. “That means that 46.3 percent of the total jobs lost have been replaced over the last three years. At this pace it will take another three or four years to gain back the jobs lost during 2008 and 2009.”
The full Forecast report is available at /forecast. Connaughton will present his next Forecast report in June 2013.