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

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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)




Durham-Chapel Hill







Rocky Mount



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


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 22, 2013


We’re going back to Asheville, December 11th-13th, for our 2013 Winter Conference at the Omni Grove Park (Inn). Click here for the registration packet and hotel reservation information. Members need to act quickly in order to take advantage of the group hotel rate!

Click here for a recent column by our Winter Conference Keynote Speaker, Steve Straus.

Remember, in order to take advantage of the Membership Rate for the Conference, you need to renew your members for 2013-14.

Also, if you are asked by your Purchasing Office for our E-Verify Affidavit, click here to download a copy.

FY 2014 Powell Bill Allocations Grow… Slightly

NCDOT released their FY 2014 Powell Bill Allocation Report earlier this month. Overall allocations increased 2% compared to last year, with most of the 507 eligible municipalities seeing little to no growth in allocations.

Click here to view “State of Powell Bill” Analayis at

Click here for NCDOT FY 2014 Powell Bill Allocation Report (PDF)

Data Backup Expected After Shutdown

With the end of the Federal shutdown, expect delays in delivery of monthly and quarterly economic data. As it becomes available, it will be featured in future briefs.

Construction Spending Improves

Today’s report showed that August construction spending was up 0.6% nationally in August , with the August increase upgraded to 1.4%. Home improvement activity, which would drive retail sales tax revenue, remains “restrained” according to Wells Fargo, with stronger growth in multi-family construction over the summer than single-family housing.

Slow Job Growth Disappoints


Wells Fargo predicts that Quantitative Easing will continue at existing levels, with August employment report from BLS showing only an increase of 148,000 jobs. The national unemployment rate did drop to 7.2%, but this was once again driven more by labor force contraction rather than employment growth.

NC’s Job Growth Created by Metros

How significant of a difference in job growth in North Carolina’s metropolitan areas compared to the rest of the state?

  • Since January 2007, North Carolina payroll has grown by 75,771 (unadjusted, as of August 2013).
  • In that same timeframe, North Carolina MSA payroll has grown by 135,660. This means non-MSA areas have seen net payroll contraction of nearly 60,000 during the same period.

For the first 8 months of this year (January-August), non-MSA payroll growth (+21,703) kept pace with slower-than-expected MSA payroll growth (+23,482). At the same time, non-MSA payroll growth for the period was its lowest level since 2009.

Analysis shows most of the non-MSA payroll growth in the first 8 months of the year is seasonal, followed by drop-offs in the final four months of the year. Conversely, MSAs continue to see growth in later months, influenced by overall growth, larger presence of holiday retail and year-around employment needs.

In the final four months of 2012, non-MSAs saw net payroll contraction of more than -20,000. Since the start of the last recession, MSAs have contributed more than 80% each year to net job growth in North Carolina (92% in 2012 alone).

As for MSAs themselves, the Top 10 MSA labor markets accounted for nearly 134,000 net payroll increase since January 2007.

Possible Bright Spot on Retirement Contributions

(From NCLM) The Local Government Employees Retirement System Board of Trustees heard this week that the financial condition of the retirement system could allow the FY14-15 employer contribution rates to be reduced 0.13 percentage points below the FY13-14 level. Favorable market returns on invested assets and lower than assumed payroll increases led to the improved financial condition. The Trustees will decide early in 2014 whether to use the improvement to reduce the employer contribution rate by the full 0.13 points, or to use some or all of the available funding to provide a cost of living adjustment to retiree benefits.

Overview of Provisions in Legislation ending Shutdown, Raising Debt Ceiling

(From NASBO) Late in the evening on October 16, Congress voted to pass a bill (HR 2775) to fund the federal government through January 15, 2014 and suspend the debt ceiling until February 7, 2014. The Treasury Department will likely be able to take extraordinary measures to continue borrowing past February 7. The Senate passed the measure by a vote of 81-18, and the House followed by approving the measure by a vote of 285-144. The bill was signed into law by President Obama shortly after midnight on October 17, ending a 16-day long government shutdown and extending the Treasury Department’s ability to borrow to help pay for federal expenses. As part of the agreement, the House and Senate also agreed to establish a bicameral budget committee to negotiate a broad budget deal for fiscal 2014, with instructions to complete a conference report by December 13 to allow lawmakers time to draft and pass appropriations before stopgap funding expires in mid-January.

Key Provisions Included in Bill:
The bill, reflecting an agreement reached by Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY), funds most government operations at fiscal 2013 post-sequestration spending levels. The Congressional Budget Office (CBO) estimates that the legislation results in budget authority of approximately $986.3 billion on an annualized basis. The measure makes only one minor change to the Affordable Care Act by providing for stricter income verification requirements for individuals applying for health care exchange subsidies. Other key bill provisions of relevance to states are summarized below. Many of these provisions were added to the measure as new anomalies shortly before the bill was passed.

State Reimbursements: Section 116 of the bill includes explicit language to clarify that states that “used state funds to continue carrying out a Federal program” or furloughed federally-funded employees “shall be reimbursed for any expenses that would have been paid by the Federal Government during such period had appropriations been available, including the cost of compensating furloughed state employees.” The legislation stipulates that this provision applies only to federal programs that states were carrying out prior to the shutdown. The provision applies to any period in fiscal 2014 when a lapse in appropriations occurs, not just the shutdown that took place in October 2013.

Effective Date: Under the bill, fiscal 2014 appropriations are retroactively dated to begin on October 1, 2013, which should help ensure federal grants to states are made whole and do not see any reductions as a result of the shutdown.

Temporary Extensions for Expired Mandatory Programs: The bill extends authorizations for several programs that expired at the end of federal fiscal 2013, such as Temporary Assistance for Needy Families (TANF) and related programs, the Supplemental Nutrition Assistance Program (SNAP), the Emergency Food Assistance Program (TEFAP) Commodities, and the Senior Farmers’ Market Nutrition Program.

Backpay for Furloughed Federal Employees: Section 115 of the measure provides for retroactive pay for federal employees, as well as District of Columbia employees, who were furloughed during the shutdown.

Low Income Heating Assistance Program (LIHEAP): A provision is included to clarify the LIHEAP formula for the distribution of funds to states to ensure funds are allocated consistent with previous years.

Additional Funding for Fire Suppression: Two sections in the bill provide additional funds for the Interior Department and the Forest Service to support firefighting activities.

Disaster Aid for Colorado: One provision raises the cap on federal highway emergency relief funds that can be distributed to the state of Colorado from $100 million to $450 million, to be used to support repair and recovery efforts from recent flood damage.

Budget Autonomy for the District of Columbia: The bill provides the District of Columbia the authority to use local funds to operate throughout fiscal 2014.

Federal Funds Information for States (FFIS) published a budget brief for subscribers providing more in-depth analysis of the bill and its implications for major grant programs for states. This FFIS table, available to the public, lists overall funding levels for major discretionary and mandatory grant programs based on the October 17th budget agreement.

Provisions Excluded from Bill
It is also worth noting several provisions that were excluded from the bill. During the final round of negotiations in Washington over a deal to end the shutdown and raise the debt ceiling, there was talk of a deal that would include additional flexibility for federal agencies to implement reductions under the sequester. However, such a provision was left out of the final agreement. While Congressional Republicans generally favor such a change, Democrats view it as a mechanism to help keep the sequester in place and therefore have been inclined to oppose additional flexibility for agencies. Another item missing from the bill is a provision explicitly allowing for states to be reimbursed for the expenses incurred from opening national parks during the shutdown. The U.S. Interior Department has said it would need explicit permission from Congress to authorize reimbursement to states for such expenses. Companion bills that would do this have already been introduced in both the House (HR 3286) and Senate (S 1572). During negotiations leading up to the agreement, there were also proposals to prohibit the Treasury Department from using “extraordinary measures” to avoid breaching the debt ceiling and delay the need for a debt limit increase. However, no such provision was included in the final bill.

Articles of Interest

McCrory predicts State might be forced to expand Medicaid (NC Spin)

Mental Health Gaps jeopardize Public Safety (Civitas)

Amtrak reaches Agreements with State to preserve Corridors (Press Release)

Amtrak sets Ridership Record (Press Release)



Analysis Roundup – May 31, 2013

Next Analysis Roundup will be published Monday, June 10th

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Followup on Tax Reform, League Analysis Now Available

Yesterday, we shared an overview of the tax reform plans introduced for legislative review yesterday in the NC House and Senate Finance Committees (click here for the summary).

This afternoon, the NC League of Municipalities published its comparative analysis of how each plan would impact local government revenues, specifically looking at the impact on municipalities. You can view it by clicking here.

Here is further analysis from today’s NCLM League LINC newsletter:

The League thanks the sponsors of all three bills for working to limit the fiscal consequences of tax reform to municipalities. Of the three bills, HB 998 appears to provide the cleanest mechanism for ensuring that no individual city or town’s revenues will decrease under tax reform.

The House is expected to approve HB 998, possibly as part of its version of the budget. Prospects for the Senate bills are less clear. Although supported by the Senate leadership, SB 677 contains some provisions that are expected to meet resistance, such as applying sales tax to food and medicine not covered by insurance. The Governor already has indicated that he opposes such measures, as well as a sales tax expansion that imposes the responsibility to collect taxes on too many businesses. The eventual compromise plan may include elements of all three bills. Fiscal impact information is available on only two of the bills, HB 998 (impact) and SB 394 (impact), but some of the figures in the impact statements do not appear to reflect the actual bill language. Sufficient data is not yet available to allow city-by-city impacts to be estimated. Only SB 394 would significantly affect municipal revenues for FY 13-14.

All three bills would expand the local sales tax to cover services, but the range of services covered varies widely, with SB 677 applying the tax to most services delivered to consumers, but not on business-to-business transactions. Both Senate bills would affect the municipal privilege license tax, SB 394 by eliminating it and SB 677 by capping it at $500 per location. Each of the three bills would eliminate the franchise tax on electricity and natural gas and the local distribution of a portion of such taxes, but the bills differ in how this revenue would be replaced. Both Senate bills also would eliminate the local distribution of beer and wine taxes and the local government sales tax refund. SB 677 also would reduce the local sales tax rate, but it would cap sales tax refunds to non-profits.

Each of the bills attempts to ensure that cities and towns receive as much revenue under its new system as they do under the current system, but how this would be done varies.

HB 998 would replace the franchise tax revenue with a distribution equal to the amount of franchise tax each municipality received during FY 13-14. Combined with the additional revenue received from the sales tax expansion, HB 998 would ensure that each city and town would receive at least as much revenue in the future under the new tax system as it did during FY 13-14.

SB 677 includes a transitional hold harmless provision that would ensure that each municipality receives as much revenue in FY 14-15 and FY 15-16 as it did from sales taxes and the repealed state-collected taxes during 2014. It would not hold citiesharmless for the privilege tax change. The hold harmless would phase out by 10 percent each year and expire after FY 24-25.

SB 394 includes a hold harmless only for the electricity franchise tax, but its combination of tax changes are designed to provide each city and town with more revenue than under the current system. Sufficient data is not yet available to determine whether this goal is met at the individual municipality level, or only in the aggregate.

In reference to the point made about the Governor’s preferences, Governor McCrory did indicate he prefer a “measured” tax reform effort similar to that of the House, as opposed to that of the Senate.

Employment Continues to improve in most of NC

The NC Division of Employment Security released April 2013 employment and unemployment statistics for counties and metropolitan areas this week. Overall, they found that unadjusted unemployment rates declined in 97 of North Carolina’s 100 counties.

32 counties have rates still above 10%, compared to 42 in March. 75 counties saw actual increases in employment for the month, with 17,252 jobs added in April compared to March (+0.4%).

Dare County had the largest growth in jobs for the month (2,730).

In-depth statistics on local unemployment are available at their Demand Data Driven Delivery System (D4) website (click here).

Economic Updates from Richmond Fed District

The Richmond District of the Federal Reserve provides monthly updates on economic data for its region and each member state, including North Carolina. It is a good way to see how we size up with our neighbors and other states in the Mid-Atlantic.

Click on the links below for their latest monthly reports, many of which were updated this week and today:

Regional Survey of Business Activity

Regional Survey of Business Conditions

Regional Mortgage Performance Summaries

Survey of Business Conditions for the Carolinas

Economic Indicators

District Snapshop

LGC Delays Debt Term Limit Resolution

From Deputy State Treasurer T. Vance Holloman:

The staff of the Local Government Commission (LGC) has received numerous comments, and continues to receive comments, concerning a proposed LGC resolution that documents our long-standing approach to establishing debt term limits.  I want to thank each of you who have responded for your interest and for the time you have taken to respond.  The comments we have received reflect a great deal of thought and analysis on your part.  In order to give your comments the thorough consideration they deserve, the decision has been made to remove this resolution from the LGC’s June 4th agenda.  We anticipate that the resolution will be considered at the August meeting.  In order to incorporate your comments into the proposed resolution, we request all comments be made by the end of the day on June 14th.  We anticipate releasing an updated proposed resolution sometime in the late June, early July time period.  You will be given an opportunity to comment again before the resolution is presented to the LGC in August.  You may submit your comments to me at, Tim Romocki at or Robin Hammond at

Thank you for your interest in this matter.

The resolution (click here to view the full PDF document) would have set in place the following guidelines:

General Obligation Bonds: “…the normal maturity will be twenty (20) years or less, with exceptions for special circumstances or needs, and a requirement of even principal payments annually so that approximately one-half of total principal will be repaid within ten (10) years. Some flexibility may be allowed at the beginning of a term to allow blending with the existing debt service schedule of the Unit. In no case should the term allowed exceed the expected useful life of the asset being financed.”

Installment Purchase Contracts and Certificates of Participation (Limited Obligation Bonds): “…the normal maturity will be twenty (20) years or less with a requirement of level principal payments for governmental activities so that approximately one-half of total principal will be repaid within ten (10) years. Level annual payments may be permitted for debt issued to acquire assets supported by user fees so that customer charges may remain fairly constant from year to year. Some exceptions may be appropriate for larger projects with an asset life extending beyond twenty (20) years such as parking facilities.”

Revenue Bonds: “…the normal maturity shall be between twenty (20) and twenty-five (25) years depending on the life of the asset, with some exceptions for large enterprise financings with longer asset lives. For revenue bonds, the normal bond structure contemplates level annual payments to reflect the normally level stream of revenues generated by the project. With even annual payments, principal payments are initially smaller and increase gradually over the term of the financing much like a home mortgage amortization. Sometimes an exception might be in order to allow a term of thirty (30) to forty (40) years for projects where the asset financed has a longer useful life, such as a nuclear power facility.”

Refunded debt: “…the expectation is that net present value savings from the refunding will be at least three percent (3%) of the amount of bonds or debt refunded. There should be no extension of maturities, and level annual savings. In no event should an original term combined with a refunded term exceed forty (40) years.”

Restructured Debt: “…the (jurisdiction) must be experiencing severe, unforeseeable loss of revenues or additional expenditures. In no event should an original term combined with a restructured term exceed forty (40) years.”

USDA Refinancing: “…the (LGC) has concluded that the USDA terms are no longer advantageous or necessary for (jurisdictions) to achieve its capital improvement goals. When the USDA loan is refinanced with a conventional tax-exempt loan, it should be placed on a conventional footing from the date of the original loan in relation to the remaining term. The (jurisdiction) should have the capacity to make level principal payments and to pay the balance of the loan over the remnant of the period of twenty (20) to thirty (30) years from the date of the original loan. The savings to the (jurisdiction) should be due primarily to actual interest rate-created savings as opposed to solely cash savings realized by shortening up the term. In no event should an original term combined with a refinanced term exceed forty (40) years.”

Economic Commentary from Wells Fargo

Click Here to view this week’s report


  • The second look at Q1 GDP growth showed little change from the first release. The economy grew at a 2.4 percent annualized rate. Personal consumption was revised slightly higher.
  • Personal incomes were flat in April as was wage and salary growth. Personal spending contracted for the month, falling 0.2 percent.
  • Consumer confidence bounced back sharply in May as consumers’ expectations of future economy growth improved.


Analysis Roundup for November 21, 2012

Watch the skies… “gobble, gobble”

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.

NCSU/Dr. Michael Walden
NC Leading Indicators Improve a Little

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.

Wells Fargo/Modeled Behavior
October Home Sales Continue Market Improvement Trend

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.

In a blog post, UNC School of Government Economist Karl Smith provides some analysis on the appearance of growth in housing starts, a prediction he discussed during his presentation at the Winter 2011 NCLGBA Conference. If trends pick up in a manner consistent with his original prediction (which he admits anticipated housing growth sooner in 2012 than what actually took place), overall economic activity might look better in 2013.

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.

Articles of Interest

Philadelphia Fed – November 2012 Business Outlook Survey

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.

WSJ – Investment Falls Off a Cliff

Forbes – The Entrepreneurs of Plymouth Rock

WITN – Computer Frozen, Message Says You’re Under FBI Investigation

GovLoop – Either Way a Fiscal Cliff

TBJ – Top 7 Emerging Trends in Real Estate

Bloomberg – Hospital Medicare Cash Lures Doctors as Costs Increase

St. Louis Fed – Price Level Targeting… The Fed Has It About Right(?)

Census – Facts for Features: Thanksgiving Day!

Have a Happy, Safe and Enjoyable Thanksgiving Holiday!


Analysis Roundup for October 5, 2012

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

BLS/NC Employment Security
Employment Picture Differentiate Across NC Counties

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.

National Employment Improves a Little in September

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.

National Job Growth Remains Subdued

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.

Dr. Walden
September NC Leading Indicator Index Dropped 0.8%

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.

NC Treasurer
New Website, e-Newsletter Launched

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.

Click here to sign-up for Treasurer Cowell’s e-newsletter.

Wells Fargo Economics Group
October 5th Weekly Commentary Highlights

  • September job growth met expectations, but adjusted improvement for summer was unexpected;
  • Economic activity in Europe and China remains sluggish;
  • Interest Rates should remain low as a result of QE3;
  • Low interest rates should have positive influence on car and truck sales

Oil below $90, Unleaded below $3.70

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:

Wilmington Star News: Industry seeks 30% increase in homeowners insurance premiums for beaches, inland

Triad Business Journal: Bank of North Carolina awarded SBA “preferred lender” status

Triangle Business Journal: Wake OKs changes to make RTP more urban

ASPA Blog: Management Lessons from the Haul Road

NCDOT: Economic Assessment for I-95 Improvements Begins


Analysis Roundup for September 21, 2012

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

BLS/NC Employment Security
North Carolina Unemployment Rate Highest in Southeast

This morning’s release of state-based employment data was not good for the Tar Heel State. Seasonally adjusted statistics indicate only 1,100 nonfarm payroll jobs created in August, while total unemployed grew by 5,900. North Carolina’s unemployment rate rose from 9.6% to 9.7%, making it slightly higher than South Carolina (9.6%) and keeping it significantly above other states in the Southeastern US.

Overall, 26 states saw their jobless rates go up. North Carolina’s unemployment rate remains among the highest in the nation.

Special Report
Quantitative Easing Returns for the Long-Term

At least through the remainder of the year, the Federal Reserve will be engaging in the purchase of Mortgage-Backed Securities in an effort to help improve general economic growth.

This latest round of “Quantitative Easing” was announced last Thursday by Federal Reserve Chairman Ben Bernanke following the latest meeting of The Fed’s Open Market Committee.

Officially, the purpose of Quantitative Easing (QE) is for the Federal Reserve to expand the supply of available money and use it to purchase low-risk securities. As a result, according to the official explanation, holders of other capital will redirect their investments to those with higher risks in an effort to achieve some sort of positive return.

Unlike prior rounds of QE that had specific limits on how much in securities could be bought overall, QE3 sets a monthly limit of $40 billion. At the present, it is intended to last through the end of the year. The Fed will also continue to move its holdings of short-term securities into long-term securities (i.e., Operation Twist) at a rate of $45 billion a month, for a total monthly impact of $85 billion.

While Chairman Bernanke mentioned QE3 being in place through the end of year, he also indicated that the program would be open-ended based on the evaluation of economic benchmarks:

From Wells Fargo Economics Group:

Importantly, the Fed noted that if labor market conditions do not improve “substantially”, it would continue the MBS bond-buying program plus potentially undertake further easing measures. Moreover, the Fed “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens”. Bottom line, whenever rates do rise, we should expect a more gradual-than-normal tightening process to unfold.

Following the announcement late last week, general market activity was positive going into the weekend. However, with the arrival of less-than-impressive earning reports from several major corporations, along with continued reports suggesting lackluster overall economic performance, markets are trending downward.

Increasing the money supply via QE3 has the potential to facilitate greater inflation, especially with commodities. Initially, crude oil remained near $100/barrel following the QE3 announcement, though its price has dropped into the mid-to-low $90’s due to disappointing economic news. We’ll see later if this is having any impact on actual prices for gasoline.

Wells Fargo Economics Group
Second Half 2012 Outlook Undercut

Wells Fargo Chief Economist John Silvia cut the group’s projection for second half GDP growth to 1.5%, based on a host of negative reports involving most of the elements contributing to overall economic activity. Watch the video to learn more, or find a full summary of the comments here at Diminished Return.

Drought all but over for NC Farmlands

The USDA’s latest weekly report on pasture and range conditions finds that less than 10% of North Carolina’s fields are in “poor to very poor condition,” among the best ratings in the country and significantly better than the State’s modest results last year.

Overall, this is good news for the State’s agricultural economy, which should expect strong fall harvests, good prices in the commodities market, and great potential for winter crops and next year’s growing seasons.

NAHB/Wells Fargo & National Association of Realtors
Housing Growing, for a “New Normal” Environment

The latest update to the National Association of Homebuilders/Wells Fargo Housing Index shows continued improvement, as the index returned to a level unseen since mid-2006.

Housing starts over the summer improved compared to levels in recent years, though they are still significantly below levels that existed prior to the recession and bursting of the housing bubble.

Historic low-interest rates also contributed to a substantial increasing in sales of existing housing for August, with overall volume increasing 7.8% last month. For the year, sales are up 4.1%. Inventories of existing homes have also subsided from post-recession peaks, including a significant decline in distressed inventories.

However, we do not know how much distressed inventory being withheld by banks and investors still remains to be processed through the market. With the media home price increasing this year by 9.5%, there may be some reason to believe the worst is behind us, though it is not absolutely certain.

Oil slips a little, Gasoline does not 

Crude oil futures slipped a little this past week following news of continued economic uncertainty. Given the breakout of additional violence in the Middle East, including the murder of the US Ambassador to Libya, the fact that prices did not spike upward in light of growing hostilities on the ground suggests that the market for crude is stable, and thus demand is not growing on a global scale.

If global demand is not increasing, or is in fact declining, it is also an indication that China’s economic woes are greater than identified.

With respect to gasoline prices, there is typically a delay between fluctuations in crude to their appearance with respect to end product. At the same time, while corn prices have declined 7% in the past 2 weeks, they are still close to the historic high for the grain.

Consequently, we have yet to see a noticeable drop in prices for motor fuel compared to where they were at peak around the Labor Day holiday.

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:

Wilmington Star News: Brunswick board moves to take control of health, DSS agencies

Daily Southerner: Edgecombe County Manager discusses human services consolidation

Triad Business Journal: Can Greensboro learn from Raleigh about how to build a performing arts center? Shutterfly moving facility, 600 jobs from NC to SC

Charlotte Observer: Bank of America declines to confirm job cuts

Daily Southerner: LGC rules Princeville rehiring illegal

PA Times: Social Media, Government Engagement, and Generation Y

Triangle Business Journal: UNC to offer MPA Program Online

Training Opportunities

Here’s information on upcoming online training events

October 10th – 2pm ET – FREE – Governing Magazine presents “Streamline Budgeting: Break Free from Outdated Processes”

October 18th – 1pm ET – FREE – ASPA presents “Mentoring Essentials: What Every Mentor and Protege Should Know”

NAR Updates Economic Forecast

The National Association of Realtors prepares a monthly forecast of various national economic indicators, including GDP, employment, inflation, interest rates, home sales volume, and housing prices. Forecasts are extended on a quarterly and annual basis for two years.

To access this report (one-page, PDF), click on this link and then click on link under “Market Forecast”.

Silvia suggests “Wobbly Legs” holding up our economy

Earlier this week, John Silvia, the Charlotte-based Chief Economist of the Wells Fargo Securities Economics Group, gave a presentation to Cornell’s School of Hotel Administration that outlined concerns he had over current economic conditions. A “Special Commentary” containing information from the presentation is available below:

Special Commentary – Four Wobbly Legs Beneath the Throne of Economic Growth.

Silvia specifically pointed to four specific areas of uncertainty that could prove to be the difference between the start of long-term economic growth, a return to malaise, or the resumption of declining positions:

  • While aggregate job numbers might indicate an increase in employment opportunities, the distortion effect of the stimulus has focused most growth toward the public sector. In addition, job opportunities in skilled trades have disappeared in several parts of the country, creating a serious problem for groups of people “in the middle” that will either need retraining or relocation. Silvia’s commentary suggests that job supplies will not return back to pre-recession levels for two to three years, an estimate less austere than the five to six year estimate made recently by the Federal Reserve’s Open Market Committee.
  • Generally speaking, the future of the housing market will reflect significant corrections with respect to inventory, types of future construction, and reset of actual values due to manipulative impact of past financing and subsidy programs.
  • The growth and permanent presence of a true global market have served to minimize price changes in “core” products and services. As a result, many businesses believe they do not have the pricing power they possessed in the future, potentially minimizing the opportunity for continued significant growth in corporate profits. Therefore, recent growth in profits will likely subside, with no certainty that growth rates will be significant over an extended period of time.
  • The utilization of expanding Federal deficits and issuing unprecedented levels of Federal debt in an attempt to offset the negative impacts of the economic downturn have not created the desired impact. Silvia contends that permanent shifts in the structure of our economy and its influencing factors have changed the reliability of the “multiplier effect” associated with the Keynesian economic approach preferred in the public policy arena since the Great Depression.

On the final of these points, Silvia offers explicit warnings with respect to the actions being taken by politicians and public policy experts:

What have we observed as lessons for decision-makers from the events of the past year? From our viewpoint, there are three problems, or biases, that have hindered effective decision-making over the past year. First, and most critically, is the overconfidence bias of both public and private decision-makers. This is most readily seen in the public sector with the assertion on the economic multiplier effect and the prediction of jobs and growth. In reality, our economic models are not perfectly specified or perfectly rational. Instead, real-world decisions exhibit bounded rationality—we look for an answer that works, satisfices, not the perfect answer.7 We have limited resources of time and ability to try all solutions. Therefore, we find a solution that works, if only temporarily, or imperfectly. We “sacrifice.” Unfortunately, the multiplier approach that was used to guide public policy as a rule of thumb was a critical mistake given the implications of the size of the deficit in a global capital market as examined above as well as the special role of credit constraints in the current recession/recovery period. Private market decision-makers simply cannot rely primarily on such rules of thumb as an indication for future top-line revenue gains.

Second, there is a confirmation bias, certainly in public decision-making and, unfortunately in the media, where evidence in support of the suggested or enacted program is exulted and signs of failure ignored. The whole concept of “saved” jobs is a classic example of this bias. We cannot recall any discussion about stimulus “saving” jobs in either undergraduate or graduate courses. This concept presents a false target for success, especially given the real structural challenges for the labor market as highlighted in our earlier discussion. Moreover, “saving” public-sector jobs today by issuing more debt that must be repaid out of future generations and, therefore, cost future private-sector jobs, is a misleading enterprise. Politicians make political decisions, not economic ones, and awarding jobs to “what is” today at the cost of “what will be” tomorrow is not good economic policy. For the media, there is too much of a tendency to decide the answer before looking at the evidence. Political biases dictate the choice of sound bites and anecdotes, while the public fails to get the careful discussions and analysis it needs to make informed decisions.

Finally, there is a sunk cost problem where policymakers up the ante in their commitment to a program even as the program is a failure. Military escalation abroad and climbing Mt. Everest are classic examples of this bias.8 In public policy, continued large public subsidies to agencies and even private companies as well as consideration of a more of the same, just another stimulus program, reflects this bias. There is very little honest discussion in public circles on the failures of these programs—which is understood given the penalties to any public servant who ever admits a mistake. Many thoughtful analysts doubt the wisdom of another stimulus program given what we know as the high level of uncertainty of success.
For decision-makers, the problem remains to develop a set of guidelines for strategic decision-making given the wobbly nature of the outlook for economic growth and the high level of uncertainty, not simply of risk, in the environment. Finally, private decision-makers must also be aware of the decision-making traps that appear to have affected the effectiveness of decision-making in recent years.

Finally, there is a sunk cost problem where policymakers up the ante in their commitment to a program even as the program is a failure. Military escalation abroad and climbing Mt. Everest are classic examples of this bias.8 In public policy, continued large public subsidies to agencies and even private companies as well as consideration of a more of the same, just another stimulus program, reflects this bias. There is very little honest discussion in public circles on the failures of these programs—which is understood given the penalties to any public servant who ever admits a mistake. Many thoughtful analysts doubt the wisdom of another stimulus program given what we know as the high level of uncertainty of success.For decision-makers, the problem remains to develop a set of guidelines for strategic decision-making given the wobbly nature of the outlook for economic growth and the high level of uncertainty, not simply of risk, in the environment. Finally, private decision-makers must also be aware of the decision-making traps that appear to have affected the effectiveness of decision-making in recent years.

You can download a copy of this Special Commentary (PDF) below:

Special Commentary – Four Wobbly Legs Beneath the Throne of Economic Growth