Economic Update (August 6th Edition)

With the plethora of information out there in recent weeks, including release of new GDP and State and Local Employment Data, it doesn’t hurt to take a look at what’s going on.

Don’t forget to check out the Economic Update presentation from our Summer Conference

State & Local Employment – June 2014

These stats were published early last week and reflect the impact of summer transition for education and other academic year-oriented workers. Prior to the recession, these employment reductions would be offset by increases due to summertime employment, often by high school and college students. While that is still the case in selection locations (often tied to resorts and vacation destinations), much of North Carolina does experience employment decline in June, though the unemployment rate remains relatively unchanged due to a corresponding decrease in the active labor force (they’ll be back in the fall, or have retired).

Take a look at the following charts to see how things are going right now for North Carolina Counties and MSAs:

Jun14NCempMSA

 

Jun14NCcounty12mth

 

Jun14NCcountyYr14As you can see, despite the June adjustment, most North Carolina counties have experienced employment growth since the start of 2014, and the majority are ahead of their counts from last June.

Other Sources

The following notes are pulled from a variety of sources, including multiple Wells Fargo Economics reports. You also might want to take a look at the following reports and updates published this summer by prominent NC economists:

Dr. Michael Walden’s Summer 2014 Economic Outlook

Dr. John Connaughton’s Babson Capital/UNC Charlotte Economic Forecast

GDP/GSP (BEA, Connaughton)

  • National: 2nd Quarter up 4% (year-to-year), real GDP 2.4% (up less than 1% compared to revised 1st Quarter); 1.8% growth in 2013; strong export growth, stable trade deficit
  • Statewide: +2.3% in 2013 (first year outpacing National growth since recession); Manufacturing -0.4%

Employment (BLS & NC Commerce, 8/1/14)

  • National (July): Up 209,000, 12-month average at 214,000 (still below break-even), participation still at 63%; increase in health benefit costs still outpacing total benefits, 50% more growth than wages
  • North Carolina (June): Down 26,700 for month, up 57,000 year-to-year; 2013 +1.8%,-0.2% in Manufacturing; Since 2010, strongest growth in Professional/Business Services, weakest in Manufacturing and Construction; private sector real hourly wages declined 4 of last 5 years

Short-Term Economic Outlook (Leading Economic Indicators, Walden)

  • National: Increased 0.3% in July, up 3% in 2014
  • North Carolina: No change for July, up 4.5% year-to-year; unemployment claims down 50%, permits down 13%, employee hours up 5.6%, earnings up 3.5%

Business & Consumer Confidence (Multiple Sources)

  • Small Business Optimism improving, but still below growth point; hiring plans improving; most concerned about impact of regulations
  • Consumer confidence improving, up for July but still below pre-recession levels
  • Spending growth still outpacing income

Retail Sales (Census & NC Department of Revenue)

  • National: +4.3% year-to-year, driven by vehicle sales; +3.6% for 2014
  • North Carolina: Up 3% for 2014

Loan Demand (Senior Loan Officer Opinion Survey)

  • Home loan demand back up to summer 2013 levels (cycle restored), more banks loosening standards
  • Strong demand for auto loans and revolving debt
  • Stronger cyclical demand for commercial & industrial loans (still not at pre-recession levels)

Construction (US Department of Commerce)

  • Total current activity value still below $1 Trillion (pre-recession high, $1.2 Trillion)
  • Residential construction fell slightly in June, still up 7% compared to last year
  • Non-residential construction down nearly 3% in June, still up nearly 5% compared to last year
  • State & local government activity still sluggish (no growth since end of recovery)
    • Analysts consider this a “significant drag” on economic activity

Industrial Output (ISM; Richmond Fed)

  • Nationally: Factory orders up 3%, shipments up 4%, composite index recovering from winter slump
  • Mid-Atlantic (IncludesNC): Strong outlook across all indicators

Non-Manufacturing Output (ISM; Richmond Fed)

  • National: Composite, new orders and employment indices up to pre-recession levels, outlook positive
  • Mid-Atlantic (IncludesNC): Positive movement across indicators, strong expectations for future demand
  • Carolinas: Positive outlook, though softening some; challenge finding qualified workers

Consumer Spending (BLS)

  • 4% growth in personal income and personal expenditures
  • Significant inflation impact on expenditures
    • Core: +2.5% pace
    • Total: +3.0% pace
  • Strong growth in durable growth sales, up 14% in last 3 months, 5.8% year-to-year

Vehicle Sales (Wells Fargo, ESRI)

  • Annualized rate up 1 million in 2014 (16.5 million)

Housing (Multiple Sources)

  • Starts improving, but NOWHERE near pre-recession levels
  • Multi-family > Single-family
  • National and State prices up 5%
  • Millenials aren’t buying house (and maybe won’t)

An Agricultural State (Wells Fargo, Connaughton)

  • 1.6% of GDP (significantly greater than neighboring states), $7.7 Billion in Output (9th largest in US)
  • 28,800 employees (6th highest in US)
  • 2013 saw 16.4% growth in National Output, continued growth expected in 2014
  • North Carolina: 21.6% growth in 2013; forecast 10.9% growth in 2014 (strongest of sectors)

The Fed’s Strategy (Wells Fargo)

  • Eliminate QE asset purchases in October (estimate $2.5T in Treasuries on books EOY, $1.8T in MBS)
  • Need to raise interest rates (inflation, GDP growth); current environment detrimental to security and liquidity-focused investors (savers, Seniors, local governments)
  • Growth in asset purchases mirrors stock market performance since 2009

Summary: Condition & Predictions

  • Wells Fargo: Growth impact with broaden beyond strong present sectors (energy, technology, motor vehicles)
  • Walden (NC State)
    • Total household wealth improving on financial side, housing wealth stagnant
    • Anticipate 2.5% inflation in 2014 (highest since 2011)
    • Localized growth disparities likely to persist
  • John Connaughton (UNCC)
    • 2014: +1.9% GSP Growth , +0.8% in Manufacturing; +1.5% Statewide employment growth (59,700 jobs), +2.6% in Manufacturing
    • 2015: +2.1% GSP Growth, +2.1% Agriculture, +1.4% Manufacturing; +2.4% Employment (101,500 jobs), +5.1% Manufacturing (strongest sector)

 

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