Analysis Brief – April 7, 2014 (NC Economic Outlook Summary)

Don’t forget about our upcoming Summer Conference, July 16th-18th at Grandover Resort in Greensboro (click here for more info).

NC Economic Outlook Summary

Wells Fargo released a seasonal outlook on North Carolina’s economy late last Thursday (click here). The report covers several metrics and provides comprehensive information on statewide trends. Here are the highlights:

  • Statewide employment conditions are improving, with net growth in jobs across all industry groups within the state and significant reductions in the unemployment since last summer. Professional and business services provide the largest share of job growth (4.5%).
  • About 70% of job growth the past 4 years took place in the Raleigh, Durham-Chapel Hill and Charlotte metro areas (MSAs).
  • Statewide manufacturing job growth lags other sectors, creating issues of disparity with manufacturing-intensive areas of the State.
  • Commercial real estate activity improving in areas of strong job growth.
  • Apartment construction in Charlotte is matching demand, while Raleigh’s increased construction rates (compared to demand) provide a slight increase in vacancies.
  • Single-family housing construction permits continue showing some improvement, but they still fall significantly below pre-recession levels.
  • Housing market prices, as measured in North Carolina by the CoreLogic HPI, show continued, modest improvement, with the metric appearing close to pre-recession levels. Nationally, the rate of recent growth is faster, but the index remains significantly below pre-recession levels.

The report also included these highlights regarding North Carolina’s key metro areas:

  • Raleigh experienced 4% year-to-year growth in total nonfarm employment, driven by nearly 10% growth in business & professional services.
  • Employment growth remains slow in Greensboro and Winston-Salem, reflecting continued challenges in the Triad area.
  • Asheville and Charlotte experienced strong growth in line with statewide trends (~3% to 4%), with Asheville’s housing market also recovering at a strong rate.

Following requests from several jurisdictions, we asked for and received chart sets for each North Carolina metro (see links below for PDFs):

North Carolina (Statewide)

Asheville

Burlington

Charlotte

Durham-Chapel Hill

Fayeteville

Greensboro

Greenville

Hickory

Jacksonville

Raleigh

Rocky Mount

Wilmington

Winston-Salem

Connaughton Updates Sector Growth, Job Forecasts

Last month, UNC-Charlotte’s John Connaughton produced his spring 2014 economic forecast, reporting 2013 gross state product (GSP) growth of 2.5% and 2014 GSP growth of 3%. Agriculture experienced the most significant year-to-year growth in GSP for 2013 (+22.7%), following by entertainment & hospitality (+4.9%), transporting, warehousing & utilities (+4.3%) and business & professional services (+4.1%). Manufacturing was relatively unchanged (+0.1%) and reflected about 20% of the total state economy (second to finance, insurance and real estate). Agriculture is expected to grow another 11% in 2014, with manufacturing projecting 2.7% growth, 2.2% for entertainment & hospitality, and 1.8% for business & professional services. Connaughton also anticipates net statewide job growth of 60,200 jobs  (1.5%) in 2014, slightly less than 2013 growth (64,500, up 1.6%). Connaughton found the information sector with the highest rate of growth in 2013 (+7.6%), but he does not anticipate sector growth continuing at the same pace for 2014 (+0.7%), surpassed by transportation/warehousing/utilities (+3.3%), construction (+3.7%), and entertainment/hospitality and business/professional services (+1.7%).

Walden’s LEI Outlook Not Promising

For March, the NCSU Index of Leading Economic Indicators, presented by Dr. Michael Walden, experienced another decline, dropping 1.6% to its lowest level since last August. The overall trend remains positive, and 6% than last March, and is potentially impacted in recent months due to traditional winter slow down and worse-than-usual weather. Permit activity, hours worked and employment earnings all showed declines, as did the number of jobless claims. Click here to review the March report.

PNC Identifies Improved Business Owner Outlook

PNC Bank’s latest survey of NC-based small-and middle-market business owners (click here) provided some room for optimism in coming months. 48% of respondents indicated anticipated growth in sales over the next six months, up significantly from 34% last October. Expectations for increased profit grew slightly from 32% to 37%, while hiring growth expectations grew a little, from 8% to 12%. Increased anticipation for growth was also met with slight reduction in respondents expecting contraction in sales (from 9% to 7%) and profits (from 17% to 16%). An unchanged 8% still anticipate decreasing staff, while 76% anticipated remaining the same. With respect to economic outlook, strong optimism declined with respect to both the national (from 11% to 8%) and in-state economies (from 15% to 10%), with prospects for North Carolina still remaining stronger than nationally. Moderate optimism on the state optimism grew from 41% to 54%, helping reduce pessimism from 42% to 36%. At the same, the survey also showed declines or continued lows in the rates of businesses anticipating upcoming capital investment (53%), pay raises (19%), taking out new loans (14%), and housing price increases (39%). Substantial majority of respondents (70%) do not anticipate increasing prices during the next six months.

Gas Prices, Now and Upcoming

Fuel040714

Crude oil prices have subsided some from recent spikes facilitated by unrest in Ukraine, now within a couple percentage points of last year’s mark. As for fuel, prices for unleaded are picking up with the arrival of the spring, though are still a few cents below their levels 12 months ago. The Energy Information Administration (EIA) will release its next short term outlook this Tuesday. Their March report anticipates stable prices for the coming year, with potential for a decline in annual average price for 2015. Locally, Diesel prices also appear to be showing some reduction, at least not growing in relation to recent increases with unleaded.

 

Analysis Brief – October 14, 2013

Just because the Federal Executive Branch is turning off websites and not issuing economic reports as a result of their Shutdown does not mean there is nothing to report.

Where are We on the Shutdown & Debt Ceiling?

(From NASBO) As of the morning of Monday, October 14, Congress has yet to reach an agreement on both ending the federal government shutdown and raising the debt ceiling. The partial shutdown of federal government services has now been in effect since fiscal 2014 began on October 1, while the Treasury Department says it will be unable to meet its obligations beginning on Thursday, October 17. For months, the U.S. Treasury has been taking what are known as “extraordinary measures” to extend the nation’s borrowing authority while complying with the statutory debt limit, which was officially reached in May of this year. Late last week, negotiations between the administration and the House broke down and most of the discussions regarding raising the debt ceiling and ending the shutdown are now taking place in the Senate. A bipartisan group of senators has been working on a plan that would reportedly extend the debt ceiling longer than the previously discussed six-week period, would include a two-year delay on the 2.3 percent tax on medical devices that was included as part of the Affordable Care Act, and would fund the federal government at least into next year. Currently, there is an impasse in the Senate regarding the length of a continuing resolution (CR) and the funding levels, with some Republicans in the Senate pushing for a longer CR that would include a second year of sequestration cuts, while Democrats have expressed concerns about new sequester cuts scheduled to be implemented in mid-January. Some Republicans have expressed a willingness to give federal agencies greater flexibility in carrying out the sequester cuts, but do not want to see the overall spending cap raised in fiscal 2014.

Need Economic Information?

As you may have noticed, agencies within the Executive Branch shut down several websites that serve as regular sources of data for public sector analysis, including that at the local level. If you are looking for substitute sources of data, please consider the following alternatives:

Google Public Data (National Unemployment & GDP)

NC Division of Employment Security (State & Local Employment Data)

AccessNC (State & Local Economic Data)

FRED – Federal Reserve Economic Data (Repository of Economic Data)

US Bureau of Labor Statistics (Employment & Unemployment Data)

NC State Data Center (Population, Economics, etc.)

How’s the Job Market?

While national reports on unemployment from BLS are suspended for now as a result of the shutdown, we do have another metric available, courtesy payroll processing firm ADP:

Private sector employment increased by 166,000 jobs from August to September… The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. August’s job gain was revised down from 176,000 to 159,000.

Strongest sector growth was in trade/transportation/utilities (+54,000). Small businesses (less than 50 employees) added 74,000 jobs, while large businesses (500 employees or more) grew by 64,000.

Consumer Debt Increasing, Optimism Muted

Total consumer debt grew by nearly $14 billion in September, with the increase entirely due to nonrevolving debt growth likely tied to purchases of housing and vehicles. Revolving debt (i.e., credit cards) actually dropped by nearly $1 billion.

The Conference Board’s Consumer Confidence Index dropped more than 2% in September, driven by a more significant drop in future expectations.

Says Lynn Franco, Director of Economic Indicators: ‘Consumer Confidence decreased in September as concerns about the short-term outlook for both jobs and earnings resurfaced, while expectations for future business conditions were little changed. Consumers’ assessment of current business and labor market conditions, however, was more positive. While overall economic conditions appear to have moderately improved, consumers are uncertain that the momentum can be sustained in the months ahead.’

Small business owners also expressed pessimism, with the NFIB Optimism Index dropped 0.2 points, with an 8-point drop in future business condition expectations.

optimism-components-nfib-201310

 

(From Wells Fargo)The September figure from the NFIB does not fully reflect the effect of the government shutdown. Still, anxious anticipation of the shutdown may have been reflected in the fact that the biggest drag on the index was an eight point drop in expectations for improvement in the economy. One of the questions in the survey asks small businesses about the single most important problem that they face. In the early stages of the recovery in 2010, the answer was overwhelmingly business concern about poor sales.

That concern has been displaced more recently as businesses now cite regulation and taxes as their top concerns. The drop in expectations for improvement in the economy combined with smaller declines in earnings trends and hiring plans were enough to swap the more modest gains in other areas. One notable bright spot was the three point increase in rising expectations for future sales.

Homebuilders are also showing some slowing of expectations.

HousingIndexSep13

 

(From Wells Fargo) Confidence among home builders has improved markedly over the past year, with the NAHB/Wells Fargo Housing Market Index (HMI) increasing 18 points. Recently, however, gains have slowed; in September, the HMI was unchanged at 58 and up only two points from July. In addition to noting continued difficulty securing financing for new developments and rising labor costs, higher mortgage rates are reportedly weighing on builder sentiment. A dip in mortgage rates since the FOMC’s announcement not to begin tapering may spur some buyers to pull the trigger and lead to a pickup in single-family sales. Prospective buyer traffic continued to rise in September, indicating buyers remain in the market, even if they are slightly more hesitant. However, with increased turmoil in Washington weighing on the outlook, it would not be surprising to see builder confidence dip in October.

 Housing Market Impacted by Shutdown (Because…)

The US Department of Agriculture’s Rural Housing Services programs, which provide approximately 132,000 home loans a year, have been shut down due to absence of continued Federal funding. At the same time, the lack of access to Federal agencies and associated records is hindering the loan approval process for many more

(From LA Times) Housing lenders rely on a variety of government data, such as verification of borrowers’ income, which are unavailable with the partial closure of the Internal Revenue Service and other agencies.

The mortgage industry has found creative ways to work around the shutdown. Banks are getting data from other sources. Sometimes they’re simply taking the risk of making loans without some information.

Nevertheless, the shutdown is delaying loans around the country. And some experts warn that home lending could be much more severely disrupted if the political stalemate in Washington persists much longer.

‘How much momentum are our fragile housing markets going to lose?’ said Debra Still, chief executive of Pulte Mortgage and head of the Mortgage Bankers Assn. ‘The longer we’re shut down, the more it’ll negatively affect housing.’

New Memos from LGC on Cost Allocations and Component Units

Memo #2014-07 (Proper Accounting Treatment for Cost Allocations) seeks to address observed, inappropriate use of transfers between funds to account for cost allocations. Proper methods for showing cost allocations are discussed.

Memo #2014-08 (Operation and Accounting for Discretely Presented Component Units, including Tourism Development Authorities) discusses how to correctly operate and account these types of units within local jurisdictions.

FAQ Available from SOG on E-Verify Requirement

Norma Houston at the School of Government prepared this FAQ on application of the E-Verify Affidavit requirements required of local governments as a result of legislation passed in the General Assembly.

Click Here for Copy of E-Verification Affidavit (PDF) for Distribution to Vendors

Department of Revenue clarifies Impact of Sales Tax Law Changes

(From NCLM) At (last) week’s meeting of the legislative Revenue Laws Study Committee, the Department of Revenue indicated that it was interpreting a tax reform provision expanding the sales tax to cover service contracts differently than had been assumed during the legislative debate on tax reform. In the fiscal note for House Bill 998, this provision was assumed to apply to all service contracts for maintenance and repair of automobiles or personal property subject to sales tax. This expansion, included in HB 998, was expected to generate $1.9 million in new municipal revenue statewide during FY 2013-14 and over $4 million in future years. The Department is interpreting the provision in HB 998 to apply only to service contracts where the retailer selling the contract is the entity that provides the service. This will reduce the number of contracts subject to the sales tax and the amount of revenue to be received by an unknown amount. The Committee will consider recommending a legislative change to make clear that the sales tax should apply to all service contracts, regardless of which entity provides the service. Such a change would not take effect until July 1, 2014, however, so revenue this year will be reduced.

League of Municipalities Releases New Legal Memos

(From NCLM) he North Carolina League of Municipalities’ Legal and Government Affairs teams have prepared a selection of memos providing additional detail on some changes of note that were made during the 2013 Session of the General Assembly. The memos address the following:

NLC Annual Report Shows Improved Fiscal Results for Cities

The National League of Cities’ 28th annual survey of city finance officersreveals an overall picture of a gradually improving economy and improving city fiscal conditions. A majority of city finance officers report that their cities are better able to meet financial needs in 2013 than in 2012.

This is largely a result of slowly improving housing markets and increased consumer spending, which are strengthening local tax bases and economic outlooks in local and regional economies. However, continued high levels of unemployment, uncertainty about federal and state actions, and long-term pension and health benefit obligations continue to constrain the potential for strong economic growth for many cities.

Click Here to Review NLC’s City Fiscal Conditions in 2013 report

What is the Future of Fiscal Federalism?

(From ABFM) Originally, the first plenary session of the 2013 ABFM Conference, held Thursday, was meant to focus on the impact of this year’s Federal Budget sequestration on state governments.

For the panelists and audience, however, the presentations and discussion provided an opportunity to look beyond sequestration and consider other factors impacting the intergovernmental fiscal relations…

Click Here to See the Rest of This Article at ABFM.org

Check out these slides shared during the presentation discussed above by Paul Posner of George Mason University.

How is North Carolina Looking?

Check out these charts from the latest update of economic indicators provided by the Federal Reserve Bank of Richmond


In his latest update to NC’s Leading Economic Indicator Index, NC State’s Mike Walden sees some overall improvement for the Tar Heel State, though much work remains to be done:
NCLEI13Oct

The NCSU INDEX OF NORTH CAROLINA LEADING ECONOMIC INDICATORS, a forecast of the economy’s direction four to six months ahead, took a strong jump in August, rising 4% from July and almost 8% from the year earlier. All components of the Index improved except for initial jobless claims, which rose 7%. But even initial jobless claims are well down from their recessionary peak, and the other components also were much improved from a year earlier. The Index suggests the state economy is in recovery mode and will continue so. However, this may not translate to large job gains, as this recovery has been marked by much stronger growth in output than in jobs.

Regional Economic Survey Results

From Federal Reserve Bank of Richmond

Where Do Gas Prices Stand?GasBuddy101413

 

Fuel prices are about 10% below the same time last year, and North Carolina is a few cents below the National Average, though we remain significantly above our neighbors to the south and north (sub-$3/gallon unleaded was spotted at pumps in Virginia this weekend).

Free Course Available on Pension & Retirement Finance

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In this (FREE) eight-week course, you will learn the financial concepts behind sound retirement plan investment and pension fund management. Course participants will become more informed decision makers about their own portfolios, and be equipped to evaluate economic policy discussions that surround public pensions. The course begins with the principles of financial economics, such as the distribution of outcomes when investing in stocks, bonds, or annuities. These serve as the building blocks for an understanding of different retirement strategies that can help you improve your asset allocation. Finally, the course applies these principles to government programs and policies.

The Finance of Retirement and Pensions will culminate in an interactive symposium about the challenges of U.S. pension systems. Held in January 2014 at Stanford Graduate School of Business, the event will feature representatives of the MOOC teams with the five most promising ideas for pension reform, who will present their proposals to a distinguished panel of faculty and experts in finance and public policy. Expenses will be covered by Stanford Graduate School of Business and the Hoover Institution.

(Instructor) Joshua Rauh is a Professor of Finance at the Stanford Graduate School of Business, a Senior Fellow (by courtesy) at the Hoover Institution, and a Research Associate at the National Bureau of Economic Research (NBER). He studies corporate investment and financial structure, private equity and venture capital, and the financial structure of pension funds and their sponsors. Rauh’s research on state and local pension systems in the United States has received national media coverage in outlets such as the Wall Street Journal, New York Times, the Financial Times, and The Economist. Before joining the Stanford faculty in 2012, he taught at the University of Chicago’s Booth School of Business and the Kellogg School of Management.

Lacker Discusses Importance of Human Capital as a Financial Investment

Click Here for Speech Transcript & Additional Information

Highlighted Points

  • Many efforts are aimed at helping students decide how to finance college. But these efforts beg an important question: Is college the right investment for every student
  • On average, the payoff to college is large, but only students who graduate realize high returns on their investment. Currently, the dropout rate is about 50 percent, perhaps because many students do not have an accurate assessment of their own readiness for college.
  • The flipside of the dropout problem is the failure of relatively high-achieving students to apply to college, perhaps because they overestimate the costs of college or underestimate the future payoffs.
  • This suggests that students would benefit from accurate information about the returns to schooling, the level of preparedness that is required to succeed in college and options such as community college, vocational training and apprenticeship programs.
  • In addition, research shows that poor and minority children are much less likely to have access to high-quality early education, which lays the foundation for future academic and labor market success. Greater investments in early interventions could help ensure that children’s future choices about human capital investment aren’t limited by their backgrounds.

Click Here for a Recent Presentation by Jeffrey Lacker on the History of the Federal Reserve

Analysis Roundup for September 7, 2012

Here’s this week’s collection of topics discussed in economic reports of note from financial institutions and government agencies.

NC State
Walden’s Leading Economic Indicator Index remains flat for August

Dr. Walden’s August Update of Leading Economic Indicators for North Carolina fell a slight 0.1% compared to July. This also happened to be the year-to-year rate of decline.

Initial jobless claims and manufacturing job hours and earnings for North Carolina workers all declined, offsetting gains seen in construction permits. The index also countered national leading indicators, which increased 0.7% for the month.

The state economy is essentially “treading water”, with no clear direction up or down.  The manufacturing sector has certainly slowed, but residential housing is showing some promising signs. Investors may be waiting for clearer signs from the upcoming election results.

Bureau of Labor Statistics
US Unemployment Rate drops to 8.1% because of some job growth, more labor pool decline

The seasonally-adjusted national unemployment rate for August was 8.1%, according to this morning’s report from the Labor Department’s Bureau of Labor Statistics. They report a 96,000 increase in total nonfarm employment for the month, moving the monthly average for 2012 to 139,000 (down from 153,000/month in 2011).

Including agricultural employment, total employment declined by 119,000 jobs in August to 142.1 million.

The total labor force contracted by 368,000 (seasonally-adjusted) reducing the participate rate to 63.5%. This is the lowest percentage since September 1981.

Private-sector employment grew overall nationally by 103,000 jobs, all of it due to service sector growth (+119,000). Goods-producing industries lost 16,000, with manufacturing (major component to North Carolina workforce activity) declining by 15,000.

Wells Fargo Economics Group’s analysis this morning of the report reaffirms their belief that overall national economic growth will remain below 2% for the rest of 2012.

An RBC economist also offered this assessment of how today’s employment report might influence action in the coming week from the Federal Reserve.

To help generate even greater job gains, the Fed is expected to keep policy highly accommodative. Fed Chairman Bernanke in hisJackson Hole speech last week signalled a preparedness to introduce additional ease if conditions warranted. Thus, next week’s Federal Open Market Committee (FOMC) could see the central bank extending the forward guidance (as to the maintenance of the current range for fed funds) to “sometime in 2015” from the reference to “late 2014” as indicated following the last FOMC in August. The disappointing August job gain will likely prompt discussion at the FOMC about the need for another round of asset purchases.

Richmond District – Federal Reserve
What do you know, and not know, about migration?

The Richmond Fed’s Region Focus is a quarterly publication highlighting their research on various economic and statistical topics. Their latest issue (published this week) includes an interesting article on residential migration, an activity that often dramatically-impacts local government operations and finances.

While the article is written from the premise of trying to figure out if common arguments for recent decline in migration (underwater mortgages, telecommuting, etc.) are relevant with respect to actual data, the work really is a more effective means of understanding some common characteristics associated with migration and the demographic variables that influence its growth or decline, especially at the local level.

The latest Region Focus also includes two more great articles of interest to local governments. Their cover story focuses on the factors contributing to the declining size of our national labor force. They also include a short feature on the concept of “Charter Cities” and the recent establishment of them in Honduras.

Click here for all of the content from the latest Region Focus.

 

Wells Fargo Economics Group
Chartbook: How does commercial real estate factor into all of this?

The commercial real estate market did not see as much valuation volatility as the housing market did during and after the economic crisis in 2008 caused in part by the proliferation of risky mortgage-backed securities. However, the commercial property market could still pose a threat, and would have possibly over the last couple years if not for the Federal Reserve’s two prior rounds of quantitative easing. The latest commercial property chart book from Wells Fargo offers some background on the subject, which may be of interest to cities with high levels of commercial property.

The huge mountain of commercial real estate loans maturing around the middle of the decade has been one of the motivating forces behind the Fed’s monetary policy strategy, which has driven long-term interest rates down to historic lows and removed
much of the near-term interest rate risk. Lower interest rates have also made it possible to refinance and restructure a larger proportion of maturing and potentially problematic loans maturing later in the decade. Moreover, the drop in Treasury yields has also pushed liquidity into other areas, including stocks and real estate. Furthermore, higher stock market valuations have allowed insurance companies and pension funds to allocate a larger portion of their investment portfolio to real estate. A healthier equity market has also made it easier for REITS to raise funds.

However, investors should remember that all magic comes with a price. Ben Bernanke outlined what he believed the costs of the Fed’s asset purchase program have been and by his account they have been manageable. The yield curve has narrowed and inflation premiums, as measured by TIPS, have remained relatively low. This analysis misses one key point, which is the large increase in the demand for liquidity arising from the uncertainty surrounding the Fed’s unprecedented policy moves. Investors’ increased preference for liquidity has manifested in a number of ways, including significantly higher prices for assets with more certain cash flows. No cash flow is more certain than Treasuries, which means the Fed’s measure of potential costs may be flawed.

The drive for liquidity is also affecting commercial real estate. Demand has soared for well-located properties with strong tenants in deep, liquid markets like New York and San Francisco. While that sounds perfectly logical, it means that the most significant gains in commercial real estate values have been limited to a relative handful of projects in a small number of markets.

In other words, while the commercial real estate sector may seem somewhat healthy, it could be thrown into turmoil very easily. Future Federal Reserve policy, especially in light of sluggish overall economic growth and employment activity, could have profound impact.

 

Fuel Update

Crude oil prices remained between $94-$98/bbl for the week after Labor Day, and average North Carolina prices for regular unleaded stayed at or close to the $3.80/gallon mark influenced prior to the holiday by summer driving, rising corn prices and storm activity in the Gulf of Mexico.

Corn prices remain a concern with respect to their impact on ethanol.They are below highs experienced in mid-to-late August, but still at an oppressive price in trading.

 

USDA
Continued crop export growth expected for 2013

US Secretary of Agriculture Tom Vilsack expressed optimism following release of future export estimates should remain above and near record levels set in the recent past.

This year, total farm exports are expected to reach $136.5 billion, close to a record level set last year. The record is expected to be set again in 2013, when exports are projected to reach $143.5 billion.

Export value growth has been 50% since 2009, influenced by increased demand from developing countries along with higher food prices.

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.