Economic Update – March 18, 2015

What’s Up with Local Sales Tax?

Keith Lane, Senior Budget Analyst in Durham County, shared an updated report on sales tax revenues for all 100 North Carolina counties, showing significant increases for most, along with lower refunds levels.

Click to Download County Tax History Data

Keith discussed his findings, along with other observations on intergovernmental revenues, during a recent phone interview (see below).

Click Here to Download Municipal Tax History Data

Senate Tax Reform

North Carolina Senate leaders are putting together a plan to redistribute local sales tax revenues. Article 39 revenues, currently distributed on the basis of point of sale (by County) would be distributed instead on the basis of distribution of Statewide population. Initial analysis, as reported by the media, indicate 80 rural counties would see increases in local sales tax revenues, while 20 urban counties would see decreases.

Under a per-capita plan, many higher-poverty, more rural counties such as Greene, Caswell and Jones, would see their sales tax revenues more than double.

Mecklenburg County and its towns and cities would lose about $35 million, a 16 percent drop.

Wake County and its cities and towns would collectively see a drop of about $18 million, or 13 percent, according to the projections by legislative staff.

Raleigh’s share of the loss would be about $8 million, according to documents.

Keith Lane prepared a County-by-County analysis of the impact of the proposed reforms, based on what is known at present about the likely reform plan. Anyone interested in checking the current estimation to ensure validity should contact Keith directly, klane@dconc.gov.
Click Here to Download Analysis

 

Legislature Looking at Incentive Changes

Significant discussion has taken place recently about efforts by the McCrory Administration to restore the State’s Historic Preservation Tax Credit and replenish available incentive funds under the revised JobGRO Program (formerly JDIG). NC Commerce officials presented their plan for JOBGro during Tuesday’s Senate Finance Committee meeting, and were met by criticism by some Senators concerned about past distribution of incentives and likely benefits of such a program. Information on these program, and their impact on jobs, are available for download below:

JobGROW Program Overview

Economic Development Overview (NC Commerce)

Economic Incentive Analysis (Kenan Institute)

JDIG Job Performance

Speaking of Economic Development

Last week, Golden Leaf Foundation President Dan Gerlach provided an overview of their economic development purposes to the Rocky Mount Area Jaycees. You can view the slide presentation here, or watch it below (Starts at 1:39).

Wells-Fargo March Economic Outlook

Check out their latest discussion broadcast below:

Metro Rents Going Up, Raleigh-Cary 15th Highest

A report this week from the National Association of Realtors showed residential rates in Metropolitan Areas increasing 15% nationwide over the past 5 years, surpassing average income growth of 11% for the same period.

Raleigh ranked 15th highest amongst 70 metro areas studied.

While the NAR report emphasized the importance of increasing housing starts in booming areas in order to ensure housing affordability, especially for younger families, it’s important to note potential changes in housing choices influenced by the desire of the Millenial generation for central city living and avoidance of liabilities and commitments created by home ownership, despite some recent research expressing continuation of traditional housing trends.

Crude Retreating Again, Outlook Relatively Stable, Gas Prices Slightly Declining

After several weeks of recovery in crude oil and approximately 20% increases in gasoline prices from winter lows, prices are following back down for both commodities. The biggest loser is crude, with April 2015 contract down below $45/bbl.

CrudeOil 18March2015

The EIA Energy Outlook does see crude prices returning to $75/bbl by the end of the year, with gasoline price stabilizing close to the current $2.40-$2.50/gallon nation average.

EIA Outlook Mar15

Statewide averages have fallen again to around $2.30/gallon. This does not appear to be lessening the gap with our neighbors in South Carolina, which are approximately 18 to 20 cents/gallon cheaper.

GasBuddy18Mar15

NC Leading Indicators Downward Since Fall

Dr. Michael Walden’s Index of North Carolina’s Leading Economic Indicators fell 1.7% in January, the fourth of the past six months to see a decline

Feb15Walden

First-time unemployment claims picked up 12% in January, though they remain nearly 18% below their level a year ago. Building permit activity also decreased 16%, though they remain 4% compared to last January.

“The correct interpretation from these results is that the state economy will continue to expand, but the rate of expansion may soon begin to lag. While certainly not worthy of an “R” (recession) warning, it will be important to note in coming months if improvements begin to taper as the economic recovery reaches its sixth anniversary.”

Economic Update – February 16, 2015

EDITOR’S NOTE: We were asked not to post the Federal Reserve presentation during the Winter NCLGBA Conference due to a media blackout in advance of presentations made after the first of the year. This update includes more recent outlook reports and analysis from multiple parties, including the Richmond Fed.

Richmond Fed President Discusses 2015 Outlook

Richmond Fed President Jeffrey Lacker presented his 2015 Economic Outlook during a speech in Richmond on January 9th. Dr. Lacker expressed optimism for continued growth in the national economy in the coming year. Here are the highlights of his remarks:

  • While GDP growth in 2015 may revert to its post-recession average of around 2 ¼ percent, there are reasons to believe that growth could rise to between 2 ½ and 3 percent this year.
  • We have seen pickups at other times during this expansion, only to see them subside, but the recent strength in consumer spending and the decline in the saving rate suggest the current higher growth rate can be sustained. Many labor market indicators also have strengthened.
  • The economy still faces some challenges, however, including sluggishness in the housing market, potentially weaker exports and declines in government spending.
  • Inflation is currently below the FOMC’s target of 2 percent but is likely to move closer to 2 percent after energy price movements subside.
  • The FOMC has no pre-set timetable for raising the federal funds rate target. Policymakers should strive to look through transitory phenomena to assess the appropriate path for interest rates.

For more, watch the video of his comments, watch the video below:

We cam also now make Dr. Kaglic’s presentation from the Winter Conference available again. Please click here to download.

How’s North Carolina Faring

Last week, Wells Fargo released their periodic outlook on the North Carolina economy. Overall, things are looking good. Here are some highlights from the report:

  • 2014 nonfarm payroll grew 2.8% statewide (+114,000), ahead of the national rate (+2.3%); trend consistent including and excluding 2 largest metros (Raleigh & Charlotte)
  • Job growth across all sectors, except for the public sector (third-largest)
  • Professional & business services increased 7.7% outside Raleigh & Charlotte metros, +9.7% is professional & technical subset
  • North Carolina now 9th most populated state, surpassing Michigan (1% in 2014)
  • Manufacturing growth broad-based, most significantly with skilled labor (shortages)
  • 12.4% growth in exports, continue multi-year trend
  • Some slowing in housing market, moderation in sales and price appreciation
  • Statewide home prices still down 4.8% from prerecession highs (national is 13.4%); 7.4% of homeowners underwater on mortgages (10.3% national)
  • Multi-family construction significantly outpacing single-family construction (remain flat), apartment vacancy rates starting to tick up
  • Wage growth at 3.7%, slightly below national (+3.9%) and at or below most border states (only Virginia is less +3.0%)
  • Anticipate another solid year of growth in 2015, continued growth focused in higher-skilled metros, more distribution to the rest of the state
  • State & local government employment could rebound; service sectors will grow in support
  • Year-to-year economic activity up 4.5% in November, consecutive growth since start on 2010, above pre-recession level

Click Here for Wells Fargo’s latest NC Outlook

For metro area analysis, please download one of the following chart sets:

Asheville

Burlington

Charlotte

Durham-Chapel Hill

Fayetteville

Greensboro-High Point

Greenville

Hickory

Jacksonville

Raleigh

Rocky Mount

Wilmington

Winston-Salem

State of North Carolina

The North Carolina Index of Leading Economic Indicators, published by NC State’s Michael Walden, finished the year with a 1% decline in December, primarily driven by sluggish wage activity. For the year, the state saw growth in construction permits issued and hours worked, along with a sharp decline with unemployment claims. While Dr. Walden does not believe the economic conditions indicate upcoming deceleration, lack of earnings growth may continue to pose a problem with limiting the rate of growth.

Click Here for Dr. Walden’s January 2015 Index

State Revenue Outlook

January’s revenue report from the General Assembly’s Fiscal Research Division shows current FY 2015 revenues approximately $200 million below budgeted target (-2%). Sales tax (+6.2%) growth and above-target corporate income tax revenue (+$57 million) are helping offset but have not completely made up for loss of personal income tax revenue (-11.3% compared to last year, 2.7% below target). These trends reflect the impact of personal and corporate income tax rate reductions and personal income tax restructuring.

For fiscal year 2015, Fiscal Research predicts continued economic growth, including:

  • 3.2% GDP Growth
  • 3.8% growth in total personal income, 2.6% growth in wages
  • 6.1% growth in retail sales

Last week’s memo from Fiscal Research on revenue projections forceasts total State tax revenues growing $586.4 million (+2.9%) for FY 2015. However, the forecast would still fall 1.3% below budget ($271 million), primarily due to lower-than-projected wage growth. FY 2016 revenue growth is projected at 3.2% ($680 million).

Southern States Outlook

Wells Fargo Economic also took a look at the Southern Region, which also shows widespread economic growth and a positive outlook for the coming year. Here are some highlights:

  • Most state close to or above 3.9% national wage growth level
  • 3.6% GDP growth in 2014; 4.0% projected in 2015
  • Oil price decline will have some impact, but stronger diversification will lessen impact and retain potential for growth
  • Technology continues to be a strong growth sector
  • Increasing urbanization led by inward migration of younger households (job opportunities, lifestyle, etc.)
  • New industries, led by aerospace and automobiles, rebuilding manufacturing sector
  • Traditional industries also seeing improvement (including furniture and textiles); business deals in sector back to pre-recession levels for region

Click Here to View the Southern States Outlook

Small Business Outlook

The latest Small Business Optimism Index did fall unexpectedly by 2.7%, a likely indication of early-year uncertainty and continued worry over healthcare and benefit costs. At the same time, 15% of firms indicated plans to hire in the first quarter of 2015, and 25% reported higher compensation to start the new year.

Oil & Gas Price Review

Crude oil prices have rebounded back to above $50/bbl, likely an indication of the impact of reduced supply by some producers, especially the United States. Gasoline prices have also rebounded back to over $2.15/gallon for unleaded in most North Carolina markets. These prices are at least $0.10/gallon more than neighboring states, with South Carolina prices still close to $2.00/gallon or less.

 

 

 

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.

Summer Conference in New Bern, July 13th-15th!

Summer Conference in New Bern, July 13th-15th!

Information is now available and registration is now open for the NCLGBA Summer 2011 Conference, July 13th-15th at the Hilton Riverfront Hotel in New Bern.

Several great workshops have been planned for the conference, providing an opportunity for attendees to get valuable information and gain professional certification credits. Workshop topics include:

  • Opening panel discussion focused on leadership development through the ranks of an organization from the budget analyst level to the executive management level.  Special guests for this session include Hickory City Manager, Mick Berry and High Point Assistant City Manager Pat Pate.
  • Review of the 2011 General Assembly session and the impact of the new State budget and other legislation, provided by the NC League of Municipalities’ Karl Knapp and the NC Association of County Commissioners’ Rebecca Troutman.
  • Economic Update from Michael Walden, PhD, North Carolina State University
  • Transforming Utilities – Tips and practical examples for dramatically changing  approaches to customer service.
  • Balancing Your Budget – The Critical Role of Community Values: Presentation of a new, interactive game that focuses on the importance of selecting and using community values to determine revenue increases and budget reductions during tough times.
  • Making Grants Happen –  Presenters experienced with the arts of seeking, writing and managing grants will share what they have learned and explain how municipalities and counties can best obtain and coordinate these efforts.
  • Promoting Tourism with the Past and Present – Highlights strategic initiatives used to create a productive tourism industry, integrating recent development with the city’s historic past (off-site session).
  • Presentation on North Carolina History by Dr. Freddie Parker, North Carolina Central University.
  • Revaluation and Revenue Neutral Tax Rates – What the current economic situation means for the future of property valuations and tax collections.

To learn more about the upcoming Summer Conference, visit the information page on our website or download the (revised) information packet and registration form.