The North Carolina economy continues its slow trek to recovery, with 2014 poised to be a “breakout year,” UNC Charlotte economist John Connaughton reported today in his quarterly forecast for the state.
According to Connaughton, N.C. Gross State Product (GSP) is expected to reach a level of $480,071.0 million in 2013, a real (inflation-adjusted) increase of 2.1 percent over the 2012 level. This growth forecast in 2013 would follow a moderate GSP increase of 2.7 percent in 2012.
For 2014, Connaughton expects the state economy to increase by an inflation-adjusted rate of 3.3 percent.
“After a disappointing 2011, the state’s economy showed signs of life in 2012,” said Connaughton, the Babson Capital Professor of Financial Economics in the Belk College of Business. “During the first quarter of 2013, this moderate growth pattern slowed as a result of the fiscal measures put into place at the first of the year. However, the U.S. economy is strong enough overall to absorb the tax increases as well as the sequestration cuts that came later in the first quarter.
“Stronger growth is expected during the second half of the year as consumer confidence continues to rise,” he continued. “And, for the first time in this recovery, the housing sector is starting to show some life.”
Connaughton 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 Overview and Sector Outlook
For 2013, first quarter GSP increased by an annualized real rate of 0.7 percent. During the second quarter, GSP is expected to increase at an annualized real rate of 3.0 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 3.1 percent. In the fourth quarter of 2013, GSP is expected to grow at an annualized real rate of 3.0 percent.
All 15 of the state’s economic sectors are forecast to experience output increases during 2013. The sectors with the strongest expected growth are:
- Mining, with a projected real increase of 8.5 percent;
- Educational and Health Services, with a projected real increase of 5.4 percent;
- Business and Professional Services, with a projected real increase of 4.9 percent;
- Agriculture, with a projected real increase of 3.5 percent;
- Transportation, Warehousing and Utilities (TWU), with a projected real increase of 3.3 percent;
- Information, with a projected real increase of 2.5 percent;
- Wholesale Trade, with a projected real increase of 2.2 percent; and
- Construction with a projected real increase of 2.2 percent.
2013 Employment Outlook
Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,085,400 persons in December 2013, an increase of 1.3 percent over the employment level in December 2012. The state is expected to gain 53,100 net jobs during the year.
Eleven 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 Information at 4.2 percent, Hospitality and Leisure Services at 3.7 percent, and TWU at 3.5 percent.
The North Carolina seasonally adjusted unemployment rate began 2013 at 9.5 percent, almost two percentage points higher than the United States rate. By July the North Carolina rate had fallen to 8.9 percent, while the United States rate had fallen to 7.4 percent. Both the U.S. and North Carolina unemployment rates are expected to decline throughout 2013, and by December the North Carolina unemployment rate is expected to be around 9.0 percent.
2014 Economic Forecast
Connaughton forecasts the state economy to increase by an inflation-adjusted rate of 3.3 percent during 2014. For 2014, first quarter GSP is expected to increase at an annualized real rate of 3.6 percent. During the second quarter, GSP is expected to increase at an annualized real rate of 3.2 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 3.3 percent. In the fourth quarter of 2014, GSP is expected to also grow at an annualized real rate of 3.3 percent.
All 15 of the state’s economic sectors are forecast to experience output increases during 2014. The sectors with the strongest expected growth are:
- Agriculture, with a projected real increase of 16.5 percent,
- Educational and Health Services, with a projected real increase of 8.9 percent,
- Business and Professional Services, with a projected real increase of 5.3 percent,
- Construction, with a projected real increase of 4.8 percent, and
- Other Services with a projected real increase of 4.2 percent.
2014 Employment Forecast
Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,171,400 persons in December 2014, an increase of 2.1 percent over the employment level in December 2013. The state is expected to gain 86,000 net jobs during the year.
Twelve of the state's 14 nonagricultural sectors of the economy are expected to experience employment increases during 2014. The sectors with the strongest employment increases in 2014 are Construction at 4.6 percent, Durable Goods Manufacturing at 4.3 percent, and Nondurable Goods Manufacturing at 4.2 percent.
Connaughton said that several recent and developing factors suggest that 2014 could represent a breakout year for the North Carolina economy:
- In 2013 the U.S. avoided going over the ‘fiscal cliff.’ “While we did not avoid a tax increase, the impact was much less than the worst case scenario,” Connaughton said.
- Consumers are returning to the economy. The August 2013 consumer confidence index rose to 81.5, the highest in almost six years.
- For the first time in five years, we are seeing sustained increases in housing prices. The Case-Shiller Home Price Index increased by 12.1 percent from June 2012 to June 2013, for the 20 City Composite.
- Because of the improvement in the economy during 2013, the projected budget deficit for the 2013 fiscal year is down to $759 billion, or 4.6 percent of GDP. This compares to the 2012 fiscal year budget deficit of $1.1 trillion, which was the fourth consecutive year of budget deficits in excess of one trillion dollars.
“All of these factors will contribute to a 2014 growth rate that, for the first time in five years, will feel like a recovery,” Connaughton said.
The full Forecast report is available at http://www.belkcollege.charlotte.edu/forecast. Connaughton will release his next Forecast report in December 2013.