Connaughton forecasts continued slow growth for state economy

Wednesday, December 12, 2012

North Carolina will have its fourth year of slow but uninterrupted economic growth in 2013, UNC Charlotte economist John Connaughton reported in his quarterly forecast for the state.

However, Connaughton cautioned that economic uncertainty in Europe and the ongoing negotiations on tax increases and the “fiscal cliff” may have a negative impact on the state and national economies in the coming year.

Connaughton, the Babson Capital professor of financial economics in the Belk College of Business, presented his quarterly forecast Dec. 11 to more than 130 members of the Charlotte business community and the media at a luncheon held at UNC Charlotte Center City. The forecast is funded by Babson Capital Management LLC.

2012 Overview

Connaughton expects the North Carolina economy to increase by an inflation-adjusted rate of 0.6 percent during 2012.  For 2012, first quarter Gross State Product (GSP) increased at an annualized real rate of 1.5 percent.  During the second quarter, GSP increased at an annualized real rate of only 1.2 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 2.3 percent. In the fourth quarter of 2012, GSP is expected to continue the slow pace of growth and increase at an annualized real rate of 2.0 percent.

Ten of the state’s 15 economic sectors are forecast to experience output increases during 2012. The sectors with the strongest expected growth are:

 

  • Business and Professional Services with a projected real increase of 4.2 percent;
  • Mining with a projected real increase of 3.4 percent;
  • Hospitality and Leisure Services with a projected real increase of 2.8 percent;
  • Information with a projected real increase of 2.7 percent;
  • Construction with a projected real increase of 2.4 percent;
  • Transportation, Warehousing and Utilities (TWU) with a projected real increase of 1.5 percent;
  • Finance, Insurance and Real Estate with a projected real increase of 1.4 percent and
  • Educational and Health Services with a projected real increase of 1.0 percent.

 

“For 2012, both the U.S. and state economies have been very close to entering a double-dip recession,” Connaughton said. “GSP growth in 2012 has been a little weaker than the growth rates during 2011 and 2010.  The modest growth during the first two years of the recovery, followed by the weak growth expected during 2012, will continue the pattern of weak job growth experienced during this recovery.”  

2012 Employment Outlook

Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 3,970,400 persons in December 2012, an increase of 1.0 percent over the employment level in December 2011.  The state is expected to gain 38,300 net jobs during the year.

Ten of the state's 14 nonagricultural sectors of the economy are expected to experience employment increases during 2012.  The sectors with the strongest employment increases in 2012 are:

 

  • Wholesale trade at 3.0 percent;
  • Business and Professional Services at 2.6 percent and
  • Hospitality and Leisure Services at 2.4 percent.

 

“By the end of 2012, the state is expected to have replaced only 120,100 of the 333,400 jobs lost during the recession,” Connaughton added. “That means that 36.0 percent of the total jobs lost will have been replaced in the last three years.  At this pace it will take another four or five years to gain back the jobs lost during 2008 and 2009.”

The North Carolina seasonally adjusted unemployment rate began 2012 at 10.2 percent, almost two percentage points higher than the United States rate.  By October the North Carolina rate had fallen to 9.3 percent, while the national rate had fallen to 7.9 percent. Both the U.S. and North Carolina unemployment rates are expected to remain constant throughout the rest of the year, and by December the North Carolina unemployment rate is expected to be 9.3 percent.

2013 Forecast

Connaughton expects the North Carolina economy to expand by an inflation-adjusted rate of 1.8 percent during 2013.  For 2013, first quarter GSP is expected to increase at an annualized real rate of 1.8 percent.  During the second quarter, GSP is expected to increase at an annualized real rate of 1.6 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 1.7 percent. In the fourth quarter of 2013, GSP is expected to grow at an annualized real rate of 2.3 percent.

Fourteen of the state’s 15 economic sectors are forecast to experience output increases during 2013. The sectors with the strongest expected growth are:

 

  • Business and Professional Services with a projected real increase of 6.2 percent;
  • Transportation, Warehousing and Utilities (TWU) with a projected real increase of 2.4 percent;
  • Four sectors – Agriculture, Retail Trade, Information, and Other Services – each with projected real increases of 2.3 percent and
  • Durable Goods Manufacturing with a projected real increase of 1.9 percent.

“For 2013, the economy is expected to continue the 2012 pattern of modest GSP growth,” Connaughton said. “Continued economic instability in Europe and uncertainty about tax increases in 2013 are the main concerns and the principal reasons that growth in both 2012 and 2013 will be sluggish.

“There are no quick fixes in Europe,” he added. “The Eurozone problems will be with us for several years, and because Europe represents the largest U.S. export market, their double dip in 2012 will be influential in determining U.S. growth rates for several years.”

Connaughton also noted that tax uncertainty continues to weaken consumer and business confidence, adding to the Eurozone drag. “The possibility of going over the ‘fiscal cliff’ on Jan.1, 2013 is an even greater concern,” he said. “Should Congress and the president not agree on a tax plan and the Bush tax cuts phase out and sequestration spending cuts begin, the modest growth currently forecast for 2013 becomes a recession.” 

Connaughton estimates that the potential tax increases and spending cuts will impact national Gross Domestic Product (GDP) by over $500 billion for 2013, representing nearly three percent of GDP. “The take-home income impact will be felt by almost all Americans and produce spending cuts by consumers and investment cuts by businesses,” he said.

2013 Employment Outlook

Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,027,200 persons in December 2013, an increase of 1.4 percent over the employment level in December 2012.  The state is expected to gain 56,700 net jobs during the year.

Ten of the state's 14 nonagricultural sectors of the economy are expected to experience employment increases during 2013.  Connaughton expects the sectors with the strongest employment increases in 2013 to be nondurable goods manufacturing at 3.2 percent, government at 2.1 percent, and retail trade at 2.0 percent.

The full Forecast report is available online. Connaughton will present his next forecast in March 2013.