Silvia, Brown discuss State of NC Economy

Silvia, Brown discuss State of NC Economy

On Tuesday, June 14th, Dr. John Silvia and Michael Brown of the Wells Fargo Economics Group hosted a conference call discussion on their analysis of the state of North Carolina’s current economy.

Their analysis showed that economic growth in North Carolina (based on GDP) is sustained, but not as the pace of prior recoveries. From an employment perspective, Dr. Silvia concluded that the Tar Heel State is encountering “a whole new ballgame.”

The call included a review of a presentation on economic indicators for the State as a whole, as well as four of its metropolitan areas. Silvia and Brown also responded to listener questions, providing some significant insight on the long term future for the State as it moves forward from a prolonged recession and recovery.

Copies of the presentation, along with information on accessing a replay recording of the conference call (good until July 15th), are available for download:

Download June 14th NC Economy Conference Call Presentation Here (PDF)

Download Information for June 14th NC Economy Conference Call Replay Here (PDF)

Link to News&Observer Story on Conference Call

Below is an itemized summary of conference call highlights:

From Presentation on Overall North Carolina Economy

  • Don’t have enough data for all NC metro areas, but do have enough consistent data for a certain set
  • Economic growth (based on GDP) is sustained, but not as the pace of prior recoveries
    • Poses a challenge for businesses and governments
  • Employment performance reflects “a different ballgame”
  • NC Coincident Index currently shows 1.3% growth
  • Total NC GSP grew 4% in 2010, diversified across most sectors (due to diversified economic mix)
    • Government GSP grew 1%
    • Information grew most at 7%
    • Manufacturing grew 6% (doing well on output, not as much on job growth)
  • Slide 8 (NC employment cycle) shows that statewide employment is still 7% below pre-recession peak level, has remained there for about 18 months
    • Labor market is changing
  • Most growth in Professional and Business Services employment (5%), Leisure and Hospitality (2.5%) and Finance (2%); Government down almost 2%; statewide employment change in last year up little less than 1%
  • Raleigh is best performing of metros on relative employment; Greensboro performing below state average
  • Personal income growing since 2009Q4 (up 4.2% in 2010)
  • Charlotte and Raleigh have per capita income higher than state average, rest of metros at or below average
  • NC has among least disparities of per capita income between metropolitan areas
  • Most significant job growth and income is in Professional and Technical Services, followed by Health Care (reflective of education)
  • Personal income cycle (for the employed) has broken back above pre-recession area (after long, deep decline)
  • Office absorption doing well
MSA Discussion (Asheville, Charlotte, Raleigh and Greensboro)

  • Significant contraction with business and professional services (fewer retirees moving in), but continued growth in hospitality and leisure
  • Employment still 6% below pre-recession peak (trough lasting 24 months so far)
  • Asheville is a “drive to” destination, and gas prices will impact tourism
  • Nearly 6% growth in past year with professional and business services; declines with goods production, education, health services and government
  • Total employment still 8% less than pre-recession peak (has lasted about 24 months)
  • Some recent good news with job growth (Freightliner adding 600 jobs)
  • Some “headwinds” toward stability
  • MB: Based on current (slow) pace of recovery, it is likely that it will take “several years” for employment to return to pre-recession peak levels
  • JS: Charlotte will see a “quick blip” from the Democratic National Convention next year, creating unusual numbers created by temporary employment
  • 2.5% gob growth in past year, 9% for professional and business services, all sectors listed have seen growth or minimal decline (even government grew 2%, mostly on local level due to minimal tax base disruption)
  • Continue to see attractive environment for high-paying jobs
  • Employment cycle shows road to recovery, now 2% below pre-recession peak, though moving positively
  • Stagnant overall job activity in last year (slight increase); and layoff announcements continuing that reflect structural changes (10.3% unemployment rate)
  • Employment cycle shows that MSA is still more than 8% below pre-recession peak (almost reached 10% decline); long recovery a reality
Q&A (did best to capture their comments; did not inject commentary, so this what they said)
JS = John Silvia & MB=Michael Brown
  • It is important that North Carolina “deal with the hand its dealt” and “aspire for better times”
  • Current economy reflects modest employment gains, especially for modest and low skilled workers
  • Consumer spending is more modest
  • More than likely, state income and sales tax revenue will grow at a more modest rate than in the past, poses challenges
  • Home prices are down, and building permits are weak; mean that property tax bases will not be growing
  • Advantages for NC: well-educated, tech-savvy population; good climate; low (general) business costs
  • Economic growth within the state right now is “subpar”
  • Tourism growth will be limited by economic growth in general, will directly impact locations dependent on this industry (i.e., Asheville)
  • JS: Important to consider “pace of economic growth” compared to “pace of growth of commitments”; not where it was expected
  • Changes in structural unemployment? JS: Challenge today is that high school graduates do not have the skills they need for employment, even in manufacturing (computer literacy); big current challenge is lack of computer literacy amongst older population
  • Challenge for the unemployed include developing new skills and relocating
    • JS: “How do you get people to understand that they may have to move? What is your alternative?”
    • Greater magnitude problem for North Carolina since WWII
  • JS: Recovery losing steam? Market projected that economy would get back to 3% growth, and that’s not happening. Economy has lost steam due to several issues (Europe, gas prices, natural disasters); we do have sustained growth, but we have to deal with a 2% to 2.5% situation (unlike the past); don’t need to “dream” about a different hand
  • JS: Distribution of post-recovery jobs are very skewed; reflect competitive strengths and market preferences
    • We can compete on the basis of smart jobs, not unskilled
  • JS: Non-residential construction is improving (not overbuilt, seeing growth w/architectural buildings); state and federal governments see need for infrastructure development (Yadkin River Bridge); residential construction still in a 2-3 year (if not longer) “work out” period
  • JS: Seeing the same pattern with employment that NC has shown for last 20 years (pockets of decline in isolated, rural areas); NC has tried to help these areas, but they are just not economically competitive (if that means moving, that means moving)
  • JS: Inflation is rising, but this is not Jimmy Carter inflation; we’re seeing 3% inflation, higher rate than many retiree portfolios focused on cash and treasuries; don’t worry about deflation or hyperinflation, but focus on impact of 3% inflation
  • JS: Manufacturing output is growing, and it has higher value than before
  • JS: For younger people, goal is to encourage them to get at least a technical education (will provide sufficient opportunity, even better than 4-year schools)
  • MB: From an economic development perspective, educational composition of workforce is important to attracting jobs; climate is favorable to reducing supply chain disruption
  • MB: Does the (local) population have the skills sets for the jobs of tomorrow?
  • JS: “Hope” is not a strategy; there are some opportunities for older workers in their hometowns, but there are no guarantees on anything; more than likely, they need to get more education and move (started getting a little frustrated here); America has always been a country of movers; we need to get this across to people, including high school students (what to do? where to go?)
  • JS (on Agriculture): People like to eat and drink wine, so there is opportunity; dollars to doughnuts, this state can do it; challenge is dealing with technology involved and global competition; world is moving up the protein chain (opportunity for us)
  • JS (on inflation): Food and energy prices are coming up; significant impact on middle and lower income citizens; composition of spending by income category is different; less exposure to inflation the more income you earn

Chart of Note: Consistent Look at Unemployment

Chart of Note: Consistent Look at Unemployment

By Kenneth Hunter

NOTE: The following represents the analysis-based opinion of the author and do not reflect those of his employer or any other affiliations

Last August, I wrote up a post for the ASPA Blog that looked at North Carolina’s published unemployment rate and critically-compared it to how it would look if labor participation was kept constant, rather than fluctuated on a monthly basis. As the graph below from that report showed, unemployment rates would be significantly higher if participation was locked-in at a long-term, pre-recession average for the State (72.5%).

Click here for link to alternative posting of the ASPA post

This week, the impressive news site Business Insider featured a similar graph that compared “published” national unemployment with an alternative rate, utilizing a constant national labor participation rate (67%). In light of the substantial decline in labor participation incorporated into January 2011 unemployment statistics reported by the BLS last week, the graph below is a pretty telling indicator of how uncertain we are when it comes to the health of the market and the overall economy.

Graph developed by Albert Edwards of Societe Generale

The 67% participation rate reflects labor involvement in 2000, as well as its long-term average prior to the recession. From a comparative perspective, labor force participation in the early-1960’s was a little over 50%, reflecting societal and workplace norms and practices of the time.

While we do not know if a constant participation rate will be incorporated into long-term changes to the calculating and reporting of critical statistics, the alternative look does provide us with a chance to seriously evaluate and consider what is “real” when it comes to the state of our national, state and local economies.

What’s the rest of 2010 going to look like?

One fiscal year ends and another begins for local government in North Carolina. Economically-speaking, what should we expect?

Yesterday’s outlook commentary from Wells Fargo Economics Group offers a few projections for the remainder of Calendar year 2010:

  • Economic growth for 2010 is considered “subpar” with Real GDP expected to remain at a 2% growth rate.
  • So far, performance is not showing any sustainable growth trend that could be use as a precursor for stability.
  • Federal spending growth will continue to have an impact on GDP performance.
  • Modest economic growth with respect to GDP likely means that the employment picture will not improve significantly, as also evident by this morning’s unemployment report.

Click here for a copy of the Wells Fargo Securities Economics Group report.

Monitor of “Credit Quality” also gives Picture of Current Economy

The Economics Group of Wells Fargo Securities published a Special Commentary this morning on current Credit Quality. The information included in this report not only indicates the present environment for personal and business financing, but also includes information that can be used to develop an overview understanding of the current national economy.

Overall findings with the current report are not promising in terms of indicating potential short-term economic expansion or growth. Here are some highlights:

  • Consumer credit balances have declined significantly over the 18 months, with April experiencing a modest $1 Billion increase. Revolving debt (i.e., credit card) balances are down nearly 10% compared to 12 months ago. Credit card delinquency rates are now below 6%, continuing to decline from historic highs reached in the past 2 years.
  • Consumer spending is picking up with a modest 2.6% increase compared to 12 months ago. Median home prices are also still 1% below where they were a year ago, though this is an improvement from the 15% decline experienced in recent months.
  • Total bankruptcy filings picked up slightly in the first quarter of 2010 due to a similar increase in personal filings. Levels are still below historic highs in 2005, prior to the implementation of bankruptcy reform laws.
  • Consumer inflation remains stable at 2.2%. However, inflation for businesses (as measured by the Producer Price Index) is now at 5.5%.
  • Private Wages & Salaries did pick up their growth rate slightly in the first quarter of 2010 at 1.5% (annual rate).
  • Total loan delinquency rates are still growing, now 7.5% for the first quarter of 2010. Commercial delinquencies are not at 9.2%, continuing growth to levels last seen during the S&L Crisis of the early-1990’s.  The largest annual growth in delinquencies has been in residential real estate loans, while the past quarter saw the largest growth coming from agricultural loans. Delinquencies are growing across all real estate categories, declining this past quarter for commercial & industrial and consumer loans.
  • Annual retail sales growth reached 5.2% in April, though future forecasts of consumer activity have declined in most major purchase categories (homes, auto, appliances). Only about 11.3% anticipate personal income increases over the next 6 months.
  • The Delinquency Plus Foreclosure rate declined  to 14.01% for the first quarter of 2010, coming off record highs of around 15% in 2009. This is entirely due to a drop in historically-high delinquencies, while foreclosures continue to grow (now 4.63%).
  • Approximately 16.4% of Subprime loans are now in foreclosure