Midyear Economic Forecast Roundup: Subdued expectations

Several North Carolina economists have offered their perspective on the current condition of business and trade in North Carolina, across the country and around the world. Their general consensus tends to project continued slow growth, far from the level most want to see after the downturn just a few years ago.

Late last year, forecasters were optimistic about what 2012 would bring. Activity in the final quarter of 2011 picked up significantly, including in the Tar Heel State. National Real Gross Domestic Product (GDP) grew at 3%, while North Carolina’s Real Gross State Product grew 3.4%.

Optimism, however, quickly transformed into uncertainty by the end of the first quarter of 2012. According to the UNC Charlotte Economic Forecast, Gross State Product only grew 1.7% from January to March, with 2.5% growth expected for April through June. Substantial volatility in oil prices, causing unleaded gasoline to almost eclipse $4 per gallon this past spring, along with economic unrest in Europe, did not help continued sluggish activity across sectors here in the United States.

On June 27th, the Economics Group at Wells Fargo predicted global GDP growth of 3% for 2012, a level below the 40-year-average established by the International Monetary Fund (3.6%). They following growing consensus from economists that US Real GDP will only grow 2% this year, with growth in China dropping to 8% and Europe likely slipping into a recession due to the impact of more than $3 Trillion in outstanding government debts across the Eurozone.

Lack of job growth is perhaps the greatest indicator of the current, sluggish state of activity. In his summer analysis, Dr. Michael Walden of North Carolina State University indicates that recent job growth is not sufficient when compared to the impact of the downturn that hit the US hard from 2007 to 2010.

Although total jobs have increased over the last two years, through May 2012 slightly less than half of the job losses from the recession have been recovered.

Dr. Michael Walden also explained how certain factors are causing North Carolina’s unemployment rate to remain higher than the national average, in spite of noticeable growth in jobs and economic activity in areas like Raleigh, Durham and Asheville.

North Carolina’s elevated unemployment rate appears to have resulted from the state’s reliance on manufacturing as well as its attractiveness to in-migrating households seeking work. If both of these measures in the state had been at national averages, the state’s peak employment rate would have been over 2 percentage points lower.

Wells Fargo economist John Silvia expressed concern about the makeup of current job activity, stating that 44% of new jobs this year came from 4 “low-pay” sections of the economy (service industries, low skill level work).

The UNC Charlotte forecast predicts unemployment in North Carolina will be at 8.6% by year end, with total year GSP growing 2.1%. Unfortunately, their forecast does not expect significant improvement in 2013, with an end of year unemployment rate of 8.3% next year and GSP growth only 2%.

Today’s Snapshot Update from the Richmond District of the Federal Reserve provides some perspective on the current activity within the state, showing the following:

  • Same home prices have finally started increasing value again, according to latest monthly updates from CoreLogic.
  • Total employment in May was up 0.3% in the state compared to a year ago, with most of the growth centered on transportation, trade, utilities, medical and educational services, and government.
  • North Carolina’s 9.4% unemployment rate for May is significantly higher than national (8.2%) and District-wide (7.6%) rates.
  • Median family income is growing strong in select metropolitan areas like Asheville, Durham and Winston-Salem, while real personal income only grew 0.6% in the last year.
  • North Carolina building permit activity and housing starts are growing at rates above national and district averages this spring.

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