Tar Heel State “Weak” in latest Richmond Fed Snapshot

Tar Heel State “Weak” in latest Richmond Fed Snapshot

North Carolina is part of the Richmond District of the Federal Reserve Bank. Each month, Richmond Fed economists prepare an Economic Snapshot of the district and provide detailed information on each of its states, as well as summaries of MSA performance.

Click here to access the latest Richmond Fed Economic Snapshop, released on October 7, 2011

Summary of the District Overall

  • Performance is “sluggish”
  • Net month-to-month job losses of 7,500 in August, fueled mostly by government employment reductions; total jobs still 50,000 higher compared to last year
  • District unemployment rate is lower than National Average, due in large part to strong performance in Washington, DC MSA (i.e., federal government influence)
  • Business conditions “did not change notably”; new manufacturing orders “fell sharply”
  • New housing permits rose, but new housing construction starts fell
  • Revised personal income estimates (via BEA) show a more significant drop in personal income during the official recession period than thought before. Pre-recession incomes were at a higher per capital level, and the level of decline during the recession was greater as well (revised from about 2.5% to 4%)

Observations on North Carolina

  • Conditions “remained weak in recent months, with mixed conditions in labor and housing markets”
  • State did gain 16,500 jobs in August, with the net made entirely possible by the rehiring of public school teachers (+16,800), Year-to-year total employment is up more than 21,000, while government employment is down 14,700.
  • State unemployment rate is above 10% and is higher than the national and Richmond District rates
  • Housing construction activity is up from recent droughts, still below last year’s (depressed) levels
  • Revised personal income estimates from BEA show a similar trend to the Richmond District as a hole. Unfortunately, while District PCI has already rebounded to eclipse pre-Recession levels, North Carolina PCI is still approximately 2% below full recovery (not including inflation). Overall drop as a result of the recession to per capita income (from highest point to lowest point) was revised from 4.1% to 6.5% (and this does not take into account the impact of inflation.

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

FY12/FY13 State Budget: Counties facing significant impact

FY12/FY13 State Budget: Counties facing significant impact

This serves as a compliment to our more recent post on the municipal revenue impact of the State Budget now planned for debate and vote in the North Carolina House of Representatives next week.

The NC House will debate and vote next week on the State Budget for the coming biennium (FY12/FY13). In order to balance the budget in light of a substantial deficit and a pledge by the now-GOP majority to eliminate a “temporary” sales tax increase passed in 2009, the proposed budget makes significant cuts to funding for services provided and administered at the county level. The NC Association of County Commissioners (NCACC) has prepared a summary of the county-oriented impacts, which include:

  • $72 million reduction in school capital funding from corporate income tax proceeds;
  • Reductions of individual (per pupil) allotments and select special-purpose education grant programs;
  • Reduces More at Four and Smart Start by 20%;
  • Reduces statutory appropriation for Clean Water Trust Fund from $100 million to $10 million;
  • Diverts $16.4 million from the Parks & Recreation Trust Fund and Natural Heritage Trust Fund;
  • Transfers the Employment Security Commission to the Department of Commerce;
  • Proposes moving state misdemeanants with sentences of less than 180 to County jails, and proposed subsequent judicial fee increases to accommodate shift;
  • Reduces library funding by 15%;
  • Eliminates funding of County-based veterans affairs programs;
  • Require that local government support functions of the Department of Revenue and the State Treasurer be paid for out of local sales tax revenues. This proposal would reduce local sales tax revenues by two-tenths of 1 percent (0.2%);
  • Eliminates the Health and Wellness and Tobacco Trust funds;
  • Diverts Golden Leaf Funds for the biennium to the general fund;
  • Calls for a comprehensive review of state, university, and school compensation plans

Additional updates on legislative activity of interest to county governments can be found at the NCACC’s Legislative Information Page. You can also check out their “The Week in the General Assembly” videos on their YouTube channel.

NC Leading Indicators Index Drops in September

NC Leading Indicators Index Drops in September

One new measure of economic health for the Tar Heel State is the Index of North Carolina Leading Economic Indicators, developed and published monthly by N.C. State University Economist, Dr. Michael Walden.

In its most recent report, updated for September, the leading indicator index fell 0.8% compared to August. The index was near even (+0.1%) with its level in September 2009.

The index include five components, some of which showed significant volatility during September:

  • Economic Cycle Research Institute Weekly Leading Index: +1.0% for 1-month, -4.3% for 1-year
  • Statewide Initial Unemployment Claims: -3.6% for 1-month, -30% for 1-year
  • Statewide Building Permits: -15.2% for 1-month, -32% for 1-year
  • Average Weekly Hours, NC Manufacturing Jobs: +0.2% for 1-month, +3.3% for 1-year
  • Average Weekly Earnings, NC Manufacturing Jobs: -2.7% for 1-month, +2.4% for 1-year

Leading indicators are often used to predict economic activity within the upcoming 6 months. While Dr. Walden’s index has shown a downward trend since April 2010, he does not declare this as the on-set of another recession within the state.

Click here to access the October 2010 NCLEI Report (PDF)

NC Treasurer Cowell Hires New State Pension Fund Manager

As reported this afternoon by Carolina Journal, North Carolina State Treasurer Janet Cowell has hired Shawn Wischmeier, current Chief Investment Officer for the Indiana Public Employees’ Retirement Fund, to take over as Chief Investment Officer of the North Carolina Retirement Systems.

According to the Carolina Journal article, Wischmeier has helped lead Indiana’s pension program through a significant transformation into one of the strongest plans in the country. Their investment portfolio grew 22.61% in value in 2009, higher than the national average of 19.76% and significantly higher than North Carolina’s own performance of 15.08%.