Beige Book Update Shows Some National, Little Regional Growth

Beige Book Update Shows Some National, Little Regional Growth


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.

The Federal Reserve released its latest update of national and regional economic activity on July 27th. Overall, national activity appears to be improving across most sectors, while results indicate minimal growth in the mid-Atlantic states, including North Carolina.

National Highlights

  • Continued economic growth, though “the pace has moderated in many Districts”
  • Reduction in gas prices helped increase consumer spending
  • Continued improvement in nonfinancial services
  • Increased transportation activity
  • Manufacturing improving, with optimistic outlooks from parties in several districts
  • Little change in current residential real estate conditions, while nonresidential real estate improved
  • Some growth in commercial and business loan activity, and little improvement in supply of quality credit conditions
  • Agriculture sector stressed by extreme summer heat and drought in several areas
  • Continued strength in energy sector activity
  • Softening or little change on hiring, with wage pressures “subdued”
  • Price pressures “moderated”, in part because firms cannot pass along actual costs increases to customers because of market conditions
Richmond District/Mid-Atlantic Highlights
  • Overall activity was relatively unchanged
  • June improvement in manufacturing stalled in July
  • July port activity improved, compared to June, though soft conditions persist with respect to imports and inventory
  • Retail performance was mixed
  • Improvement in service sector
  • Increased loan demand
  • Pick-up in real estate activity, compared to last year
  • Slight labor market improvement, especially with temporary staffing
  • “Fantastic” July for tourism industry
“Beige Book” reports are compiled 8 times per year. The July 27th report can be accessed online at this link.

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

UNC Economist Releases New Update

UNC Economist Releases New Update

Karl W. Smith, Assistant Professor Public Economics and Government for the UNC School of Government, recently published another edition of his Economics Bulletin. You can download this report for free at this page on the School of Government website.

Dr. Smith’s report highlights national and statewide economic activity on the basis of several indicators, including unemployment, inflation and productivity. His analysis leads to the following conclusion (excerpted below):

North Carolina was hard hit by the most recent recession in large part because of significant job losses in the financial sector. It is unlikely that the state’s financial industry will recover anytime soon. North Carolina faces significant headwinds moving forward. Nonetheless, the baseline forecast is for steady if tepid growth. Unemployment will remain high for some time, and restructuring will be difficult, particularly in the Charlotte region.
On the other hand, policy makers should be aware that significant risks still remain. The opportunity for stimulus funding is fading. Either the state budget will have to shrink in size or it will have to consume a larger fraction of economic resources. Either choice will involve significant sacrifice on the part of the state’s residents. This will cause obvious difficulty in balancing the state budget, but it also means that the very likely possibility of state employee layoffs will cause economic activity to be further slowed.

To see the actual report, click here (PDF).

What NC Economists are Saying

What NC Economists are Saying

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 Unger, director of the Philosophy, Politics, and Economics Program at Duke University, offers some historic insight into the period some are trying to compare the present to, the mid-1930’s.

Dr. Michael Walden, William Neal Reynolds Distinguished Professor for the Department of Agricultural and Resource Economics at North Carolina State University, suggests the recent growth is slowing down considerably.

Finally, Dr. James Kleckley, director of the Bureau of Business Research in the College of Business at East Carolina University, focuses his attention on the job front, and how its lack of growth is an even bigger issue than the economy as a whole.

Summer Conference Presentations Now Available

Most of the presentations from last week’s NCLGBA Summer Conference are now available for download at the following link:

Summer 2010 Conference Resources

We still have a few presentations that have not been forwarded to us and will be posting them as soon as they are submitted.  Work also continues on the videos we took of select workshops and will be posting those for online viewing over the next couple of weeks. Stay tuned!

Economists offer economic outlook for North Carolina

Economists offer economic outlook for North Carolina

The Charlotte-based Economics Group with Wells Fargo Securities, led by past NCLGBA Conference presenter John Silvia, today released an economic outlook for the activity in North Carolina. The report offers an overview of past economic performance across the state, as well as for the Charlotte, Triad, and Triangle metro areas, in an effort to develop some observations of anticipated activity going into the future.  This is something definitely worth reviewing and possibly sharing with senior management and elected leaders.

Thanks to NCLGBA member Evans Ballard (Salisbury) for brining this to the attention of the NCLGBA Listserv.

North Carolina Outlook (April 28, 2010): Economics Group, Wells Fargo Securities (pdf)