This post may be updated as information become available over the course of the next couple days.
With the New Year comes resolutions, and predictions. This is especially true about the direction of the economy. During our Winter Conference, Wells Fargo Economist Michael Brown shared a few, as noted in the following slides:
The day before this presentation in Asheville, fellow Wells Fargo Economists John Silvia, Jay Bryson and Mark Vitner shared their 2014 Economic Outlook. Overall, they see continued growth in the overall economy, while they are less “excited” about accelerating employment growth, a challenging issue for many places across North Carolina and the rest of the country.
This week, economic outlook presentations hosted by the North Carolina Chamber of Commerce (Monday) and Greater Raleigh Chamber of Commerce (Friday) offered additional perspectives.
NC Chamber/NC Bankers Association Economic Outlook
Most notable presentations during this annual morning meeting and luncheon were a conversation on the future of North Carolina’s military presence, and its economic impact, along with an update from Governor Pat McCrory.
Two of the strongest economic voices in the Mid-Atlantic headlined this event. Wells Fargo’s John Silvia joined Richmond Fed District President Jeffrey Lacker for a comparative presentation of outlooks for the coming year, as well as discussion with the audience.
Several noted economists across the state have updated their outlooks for the coming year.
Dr. Michael Walden shared his seasonal and start-of-year outlook back in December. Dr. Walden anticipates 2.75% growth in 2014 for the national economy, with 100,000 new jobs for North Carolina residents, though many of those will be concentrated in select metropolitan areas, like Asheville, Charlotte, Raleigh and Durham.
Dr. Woody Hall with UNC-Wilmington shared his outlook for Southeastern North Carolina earlier this week during a forum hosted by the Wilmington Area Chamber of Commerce. Hall predicts 2.5% economic growth for the Wilmington-New Hanover County area in 2014, consistent with 2.5% growth this past year.
NC House Released Budget Proposal, Comparison to Senate Available
The NC House released their 2013-15 biennium budget proposal late Sunday evening. The bill will be debated in the House Appropriations Committee, starting 8:30am tomorrow morning (click here to listen to the meeting as it happens).
Late this afternoon, the NC League of Municipalities published a comparison (click here to view) of how the House plan impacts cities and towns within the state, and how these impacts compare to the version already passed by the Senate. Overall, the House version appears to avoid some of the more noticeable cuts to programs and allowances provided for municipal governments, including the following:
Senate budget eliminates the provisional hold harmless allotment for select local governments, while the House version continues it
Senate budget eliminates funding for the NC Rural Center, reallocating funds for a new program to be administered by the Department of Commerce. The House proposal, on the other hand, does not eliminate funding and actually increases funding by $3.4 million in FY 2015.
Senate budget eliminates the Clean Water Trust Fund, while the House proposal continues and increases funding support.
Senate budget reduces Parks & Recreation Trust Fund Grant program by approximately $16.5 million, while the House proposal does not.
We will update this post to include analysis of the House proposal for counties once it becomes available from NCACC.
The NC House will likely vote this week on a tax reform bill that was revised last week to provide some protection for municipal governments with respect to their revenue from utility franchise taxes.
A rundown comparing the House plan to the Senate plan and an alternative proposal (provided by the NCLM) has been updated to reflect these changes (click here to view).
The previous version of HB 998 provided that each city and town would receive distributions each year in the future equal to the amount it received in electricity and natural gas franchise tax distributions for FY 13-14. The new version of the bill will continue to keep city electricity and natural gas revenue at the FY 13-14 level or higher, but only if sales of gas and electricity do not decline below the FY 13-14 level. While such a decline in electricity sales is unlikely, the sensitivity of natural gas sales to winter temperatures makes a decline in these sales more possible.
The Senate Finance Committee gave its approval this week to HB 248 Taxpayer Debt Information Act, which would require bond order information to include an estimate of the interest to be paid on the bond, and would require that any bond referendum include a statement that the bond repayment will include interest and that additional taxes may be required for repayment. The League opposed the original version of the bill because it required the estimate of the amount of interest be written into the referendum. Bond attorneys had indicated to the State Treasurer that this requirement could invalidate a debt issuance because interest rates at the time of the issuance are likely to be different than estimated rates submitted on the ballot. The current version of the bill avoids this problem.
LGC Issues Memo on New Unemployment Insurance Requirements
The Local Government Commission distributed guidance last week on the requirements regarding reform of the Unemployment Insurance program adopted by the Governor and General Assembly earlier this year.
The state’s gross domestic product grew 2.7% last year, on pace with all of our neighboring states except Tennessee, though higher than the regional (2.1%) and national (2.1%) aggregates.
Comparatively-speaking, North Carolina continues to outperform the regional and national economy, a trend that has continued since 2005.
Walden’s Outlook for Summer 2013
NC State University Economist Dr. Michael Walden recently-published his Economic Outlook for the summer. You can view it here (PDF).
Here’s some of Dr. Walden said about the North Carolina economy at the present:
Evidence suggests the North Carolina economy has been growing slightly faster than the national economy. Growth in both labor compensation (a proxy for gross domestic product) and payroll employment has been better in the state during the past three years. The state’s retail, housing, and public revenue sectors also show solid signs of having turned the corner to improvement…
North Carolina is expected to add over 100,000 payroll jobs in both 2013 and 2014, and by the end of 2014 the state’s jobless rate will have dropped to 6.8%. Four factors will push the state’s economic recovery: a manufacturing revival, a construction surge, a boost in college graduates attracting knowledge-based industries, and an influx of retirees. The Triangle and Asheville regions will have unemployment rates under 6% by the end of 2014, while Rocky Mount will still have a double-digit jobless rate…
True to the state’s pattern of a more volatile business cycle, labor compensation fell relatively more during the peak recessionary year of 2009 in North Carolina than in the U.S. However, the rebound in labor compensation in 2010, 2011, and 2012 has been as strong or slightly stronger in the state than in the nation. The state’s different economic structure – primarily its greater reliance on manufacturing – is the primary reason given for both deeper recessions and stronger recoveries in North Carolina compared to the country…
The economic divides in North Carolina likely won’t close in the near future. Economic trends and technologies appear to be favoring metropolitan areas over non-metropolitan regions. As growth continues, metropolitan areas will likely expand their geographic scope – hence, counties designated as metropolitan will likely increase in the future. Challenges will persist for bringing
economic growth to all regions of North Carolina.
Here are Dr. Walden’s forecasts for national, statewide and metropolitan unemployment.
Wells Fargo Economics
Leading Indicators Continue Slow Growth Trend
The national index of Leading Economic Indicators (LEI), updated earlier today, only increased 0.2% for October, indicating continued slow growth.
The six-month annualized rate of change in the LEI has
weakened since the start of the year, but remains well above the
negative 3.5 percent rate which often signals recession…
After the interest rate spread, the next largest contribution was
the Leading Credit Index, followed by first-time claims for
unemployment insurance. As fewer people file for jobless
benefits, this component pushes LEI higher.
BLS/NC Employment Security October Sees Continued, Slow Employment Growth
Total Employment in North Carolina increased by nearly 44,000 in October, according to last week’s release of seasonally adjusted employment and unemployment data. The adjusted unemployment rate declined from 9.6% to 9.3%. Since last October, the state has gained a little more than 95,000 jobs.
With respect to nonfarm payrolls (more accurate depiction of permanent workforce), North Carolina only saw an increase of 8,000 jobs in October, all the result of private sector employment growth (+8,900). Since last October, total nonfarm payrolls have grown by 35,700, with private sector growth of 40,000. This means that there have been some employment losses in the public sector, reflecting the need for state agencies and local governments to reduce their workforces in response to permanent fiscal challenges.
Overall and private payrolls still remain more than 6% below pre-recession high levels.
Wells Fargo Economics November Outlook focuses Globally
This month’s video outlook from Wells Fargo Economics Group provides further analysis on current global economic conditions and how they are influencing conditions here in the US. This month’s outlook host, Wells Fargo Economist Michael Brown, will present an Economic Update during the Winter 2012 NCLGBA Conference in Concord on December 7th.
Dr. Walden’s Index of Leading Economic Indicators in North Carolina did show a slight increase for September (+0.2%), ending four consecutive months of decline. All of the measures incorporated into the index showed improvement except building permits, which fell by 25%.
Compared to a year ago, the overall index is up 2.4%, with all categories except personal earnings showing improvement.
2012 has been a good year for the housing market, compared to where its position since the start of the last recession. Existing sales continued to improve in October, volume increasing 2.1% to an annual rate of 4.79 million units.
Finviz/Gas Buddy Oil Prices Rise with Middle East Tension, Gas Prices Slide Little More
Some parts of NC are seeing retail prices for Regular Unleaded below $3.20/Gallon this week. Crude prices did go above $90/bbl this week as a result of hostilities initiated by terrorists in Gaza against Israel, creating concern for a prolonged conflict and potential supply disruptions. Weak demand, however, does limit the impact of this developing situation, especially here in the US.
Firms responding to the November Business Outlook Survey reported declines in business activity this month following the disruptive effects of Hurricane Sandy on the region. The survey’s indicators for general activity, which had shown improvement in October, fell back into negative territory this month. Firms reported slight declines in shipments, employment, and hours worked. Indicators for the firms’ expectations over the next six months were near their levels in the previous month, but expectations for future employment and capital spending have weakened in the last two months.
Thursday evening, Wells Fargo Economics Group released their latest North Carolina Outlook. Their analysis points to how global downturn and uncertainty over the pending Federal “fiscal cliff” put negative pressure on economic activity within the state this year, as well as create potential decline going into 2013.
Metro-specific analysis is also included in the Outlook for Asheville, Charlotte, Raleigh, Greensboro and Winston-Salem.
The National Retail Federation is predicting 4.1% annual growth in retail sales during the 2012 holiday season (November-December), while Wells Fargo also forecasts growth at 3.8%. While below last year’s 5.6% growth rate, it is still above the 3.1% rate reflecting the 10-year average.
Today, the BLS reported a 7.9% seasonally-adjusted national unemployment rate for October 2012, slightly above last month’s 7.8% rate. Nonfarm payroll increased 171,000 in October, with private sector workforce growth of 184,000. Growth in the services sector continued to outpace goods-production (click here for quick overview of sector performance).
Labor force participation remains below 64%. At the October 2011 participate level of 64.1%, unemployment would be 8.3%, with the rate remaining near or above 10% at pre-recession participation levels. Total nonfarm payroll is still more than 4 million jobs less than early 2008, prior to the start of the recession.
NC Employment Security/BLS NC Counties, Metro See September Payroll Gains
95 of 100 North Carolina Counties and all of the State’s Metropolitan Areas saw increases in nonfarm payroll in September. County payroll growth for the month (1.67%) was close to the year-to-year growth rate for September (1.77%), reflecting the ongoing issues North Carolina is having with sustaining increasing in employment.
Metropolitan areas saw average 1-Month job growth of 1.6%, with 12-Month growth clocking in at an average of 2.7%. Rocky Mount, struggling with among the highest unemployment rates for NC Metropolitan Areas, had the strongest 12-Month job growth at 4.4%.
Gas Buddy/AAA/WTVD “Demand Destruction” Helps Bring Gas Prices Down
Among the effects of Superstorm Sandy, North Carolina residents are noticing another significant drop in gas prices. This is due to the fact that while the storm did not disrupt national gasoline refinery or pipeline activity, the devastation and loss of end delivery infrastructure in the Northeast has created temporary “demand destruction” forcing prices to come down in other areas.
In the past week, the state average for unleaded as dropped 2.5%, and pump prices in many locations today are less than $3.30/gallon.
Since climbing to over $3.80/gallon shortly after Labor Day, the NC state average has dropped nearly 14%. In most metro areas, according to AAA, prices today are at or slightly above one year ago, though the state average is 21% higher than 2 years ago, reflecting considerable increases in gas prices and the impact felt on local budgets.
Training Opportunities
Next Wednesday, November 7th, 1PM ET – Unbalanced Mayhem: Trends, Challenges & Failures in Local Government Budgeting (Webinar Hosted by American Society for Public Administration & Association for Budgeting & Financial Management)
Presented by Kenneth Hunter, City of Rocky Mount, North Carolina
Across the country, local governments are struggling with fiscal pressures created by ongoing economic turmoil and its impact on revenues, expenditures and citizen quality of life. This presentation will examine specific challenges municipalities and counties encounter when developing annual budgets and how they impact local policy decisions with respect to personnel, capital, taxes and other facets of public administration. Click Here for Registration Info.
November 13th-15th – Intermediate Purchasing Seminar (UNC School of Government)
Friday, November 16th – Positive Problem Solving (UNC School of Government)
Facilitating positive change is the focus of this one-day leadership development workshop for public staff and elected officials who are interested in involving others, building on current assets, and engaging in joint problem-solving.
The course provides an opportunity for significant interaction with instructors and the chance to apply the course content to real-time work scenarios in class.
Wednesday, November 28th, 1PM ET – Michigan’s Emergency Manager Law: Fiscal Fix or Loss of Local Democracy? (Webinar Hosted by American Society for Public Administration & Association for Budgeting & Financial Management)
This webinar discusses the Michigan Emergency Law (EM law), passed in 2011. It is considered the most aggressive attempt by a state to modify and reign in local democracy in an attempt to solve a serious fiscal crisis. Most states take an approach where local officials are required to undertake certain actions in order to benefit from state support. Other states insert a financial control board which has the power to oversee city operations and potentially veto certain local decisions. Few states have implemented an approach that completely removes local decision making and local democracy. The question arises as the justification for such extreme action. Click Here for Registration Info.
Thursday, November 29th – Accounting & Auditing Update (UNC School of Government)
Presented by Greg Allison
This one-day course will focus on new and emerging governmental accounting and financial reporting requirements. Recent pronouncements and exposure drafts of the Governmental Accounting Standards Board (GASB) will be highlighted, as will the GASB’s technical agenda. (8 Hours CPE)
Program Topics:
Overview of current GASB projects related to pension accounting
Changes to the reporting of certain assets and liabilities
Accounting and financial reporting requirements of GASB Statement No. 54 and other recent statements
Highlights of the GASB’s new Comprehensive Implementation Guide
Common accounting and financial reporting problems
Last Friday, NC Employment Security and the US Bureau of Labor Statistics provided county-level updates for total employment and unemployment rates. 80 counties within the state experienced a decrease in total employment, while 73 saw a decrease in their unemployment rate. Reduced labor force participation within the working age population, caused in part by terminations of summer employment, attributed to this contrast in results.
Total nonfarm employment growth for September (Seasonally Adjusted) was 114,000 nationwide. Because of this and adjusted improvements to job growth reported in July and August, the national unemployment rate was reduced to 7.8%, its first sub-8% reporting since January 2009.
National employment participation continues to lag, though up slightly in September to 63.6% of the working age population. Since last September, the total labor force (those working or looking for work) has only increased 827,000, while the working age population has increased 3.7 million. If labor force participation was consistent with September 2011 (a distressing 64.1%, compared to a pre-recession average of 66% to 67%), the unemployment rate would be 8.5%.
On the bright side, since January 2011, private sector nonfarm employment has grown nationally by nearly 3.3 million.
North Carolina unemployment, as of August 2012, still remains among the highest rates in the country, and more than a full percent above the nationwide level.
The National Employment Report provided by payroll processor ADP (released today) shows US nonfarm private employment growing by 162,000 last month (seasonally-adjusted). Job growth for July and August were also revised downward by about 9%-10% per month.
About 89% of these new jobs (148,000) are in the service sector, while the remainder are in goods production. 50% of total reported job creation was with small businesses with less than 50 employees.
For the third month in a row, the North Carolina Leading Economic Indicator Index declined, this time falling 0.8% due to declining manufacturing and building activity.
North Carolina State Treasurer Janet Cowell recently-released a newly-designed website, along with a monthly e-newsletter.
The October issue of the newsletter, published today, features information on the Treasurer Office’s investigation of LIBOR Rate manipulation and State Pension Fund performance.
For the 2011-12 Fiscal Year, the Pension Fund achieved 2.21% growth, declining 1.23 during the second quarter of calendar year 2012. Recent losses were concentrated in global equity investments, while securities, real estate and private equity holdings performed well.
Despite tension in the Middle East, crude oil futures continued to slide, though they remain prone to intermittent volatility due to mixed economic signals. Whether or not employment growth is a sure thing in the US, continued economic slowdown in Europe and China is putting strong downward pressure on crude in comparison to its near-$100/bbl position in late-summer.
As for gasoline, we’re starting to see some relief, with the State average dropping below $3.70/gallon this week.
At the same time, North Carolina prices remain closer to the national average, indicating a peak price situation within the state itself.
QE3 may also play a role in keeping gasoline prices high, especially if greater inflation kicks in. Overall, gasoline prices not only significantly impact local government budgets, but they also have a large influence on disposable personal income. Higher fuel prices in August contributed to an increase in the level of total US retail sales, a situation where greater spending does not necessarily reflect improved economic activity.
Worth Checking Out
Here are some articles worth taking a look at involving NC local governments, or possible strategies for local budgeting and finance:
Dr. Michael Walden, William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences, provided a comprehensive overview of the national and state economies during the final session of the Summer 2012 NCLGBA Conference on July 27th in Wilmington.
Dr. Walden’s presentation and forecast presented attendees with a chance to learn about key structural issues shaping transformation for business, industry and consumer activity throughout North Carolina and the rest of the country. Walden’s analysis included a better-than-average evaluation of the disparity of the current recovery, with respect to NC and the rest of the country as well as between localities within the state.
Significant portions of Dr. Walden’s presentation were recorded and can be watched in the embed below, or at this page on YouTube.
Dr. Walden forecasts that US GDP will grow between 2.2% and 2.5% for 2012, while national unemployment hovering around 8%. In North Carolina, he anticipated job growth of approximately 60,000 through the end of the current year, with statewide unemployment closing the year near 9.2%.
Walden’s presentation included a conversation on the differences between recent economic fortunes at the state and national levels. Walden attributed some of North Carolina’s more prolonged recession, at least from the perspective of unemployment, on the State’s reliance on manufacturing.
The income per person numbers, generally referred to as “per capita income,” are derived by taking all income received by persons in the state and dividing by the population. Included in the income numbers will be money earned from working and income from pensions and Social Security as well as any funds received from public assistance. Also, the population includes everyone: working adults, retired persons and children.
Therefore, it is incorrect to interpret the per capita income calculation as the average amount a person earns from working. Fortunately, we do have those numbers, and they show a different trend for North Carolina. When we compare the average compensation (which includes earnings plus the value of any benefits like health insurance) per worker in North Carolina to the same measure for the nation, two results are seen.
Walden also maintains the North Carolina State University Index of Leading Economic Indicators (LEI). His most recently analysis through July 2012 suggests continued slowdown in the statewide economy, driven in part to consumer frugality facilitated by their continued deleveraging, an issue he addressed in his presentation to NCLGBA and best described by this slide from his presentation.
Three of the better-known economists in North Carolina commented on the current state of the economy late this week, in anticipation and response to today’s BLS unemployment report for August. Here is a sample what they posted on the LocalTechWire blog:
Dr. Michael Walden
