For the first time in five years, 2014 is poised to be a “recovery year” for the North Carolina economy, UNC Charlotte economist John Connaughton reported today in his quarterly forecast for the state.
According to Connaughton, N.C. Gross State Product (GSP) is expected to reach a level of $498,354.1 million in 2014, a real (inflation-adjusted) increase of 3.0 percent over the 2013 level. This growth in 2014 would follow two years of modest improvement in the North Carolina GSP and generate the first sustained period of uninterrupted growth during the state’s recovery. Connaughton pointed to several key indicators of economic strength, including stable consumer confidence, sustained increases in housing prices, a projected decrease in the federal budget deficit, and the first budget passed by U.S. Congress in years.
Connaughton, the Babson Capital professor of financial economics in the Belk College of Business, presented his quarterly forecast to members of the Charlotte business community and the media at a luncheon held at UNC Charlotte’s Center City campus. The Forecast is funded by Babson Capital Management LLC.
2013 in Review
For 2013, first quarter GSP declined slightly by an annualized real rate of 0.1 percent. During the second quarter, GSP growth increased substantially to an annualized real rate of 3.6 percent. In the third quarter, GSP recorded an annualized real growth rate of 2.3 percent. In the fourth quarter of 2013, GSP is expected to grow at an annualized real rate of 4.1 percent.Fourteen of the state’s fifteen economic sectors are forecast to experience output increases during 2013. The sectors with the strongest expected growth are:
- Agriculture with a projected real increase of 22.7 percent;
- Educational and Health Services with a projected real increase of 4.9 percent;
- Transportation, Warehousing, and Utilities (TWU) with a projected real increase of 4.3 percent;
- Business and Professional Services with a projected real increase of 4.1 percent;
- Wholesale Trade with a projected real increase of 3.6 percent;
- Other Services with a projected real increase of 2.9 percent; and
- Finance, Insurance, and Real Estate with a projected real increase of 2.9 percent.
2013 Employment Outlook
Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,090,700 persons in December 2013, an increase of 1.4 percent over the employment level in December 2012. The state is expected to gain 58,400 net jobs during the year.
Ten of the state's fourteen nonagricultural sectors of the economy are expected to experience employment increases during 2013. The sectors with the strongest employment increases in 2013 are information at 7.1 percent, business and professional services at 4.2 percent, and TWU at 3.3 percent.
The North Carolina seasonally adjusted unemployment rate began 2013 at 9.5 percent, almost two percentage points higher than the United States rate. By November, the North Carolina rate had fallen to 7.4 percent, while the United States rate had fallen to 7.0 percent. Both the U.S. and North Carolina unemployment rates are expected to continue to fall, and by December the North Carolina unemployment rate was expected to be around 7.0 percent.
2014 Economic Forecast
The North Carolina economy is expected to increase by an inflation-adjusted rate of 3.0 percent during 2014. For 2014, first quarter GSP is expected to increase at an annualized real rate of 2.1 percent. During the second quarter, GSP is expected to increase at an annualized real rate of 3.5 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 2.9 percent. In the fourth quarter of 2014, GSP is expected to grow at an annualized real rate of 2.8 percent.
All fifteen of the state’s economic sectors are forecast to experience output increases during 2014. The sectors with the strongest expected growth are:
- Agriculture with a projected real increase of 11.9 percent;
- Construction with a projected real increase of 4.2 percent;
- Other Services with a projected real increase of 4.1 percent;
- Government with a projected real increase of 3.8 percent;
- Wholesale Trade with a projected real growth rate of 3.6 percent;
- Transportation, Warehousing, and Utilities (TWU) with a projected real increase of
3.4 percent; and - Finance, Insurance, and Real Estate with a projected real increase of 3.3 percent.
2014 Employment Forecast
Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,149,900 persons in December 2014, an increase of 1.4 percent over the employment level in December 2013. The state is expected to gain 59,200 net jobs during the year.
Twelve of the state's fourteen nonagricultural sectors of the economy are expected to experience employment increases during 2014. The sectors with the strongest employment increases in 2014 are construction at 3.8 percent, wholesale trade at 3.2 percent, and TWU at 3.2 percent.
Connaughton said, “Several recent developing factors suggest that 2014 could represent a breakout year for the North Carolina economy.”
- For the first time in years the U.S. Congress has passed a budget. This effectively puts a closure on sequestration and allows for government agencies to cut spending, without furloughing employees.
- Consumers are returning to the economy. The December 2013 consumer confidence index stood at 78.1, stringing together six months of good performance.
- For the first time in five years we are seeing sustained increases in housing prices. The Case-Shiller Home Price Index increased by 13.6 percent from October of 2012 to October 2013, for the 20 City Composite.
- Because of the improvement in the economy during 2013, the projected budget deficit for the 2013 fiscal year is down to $680 billion, or 4.1 percent of GDP. This compares to the 2012 fiscal year budget deficit of $1.1 trillion, which was the fourth consecutive year of budget deficits in excess of one trillion dollars.
“All of these factors will contribute to a 2014 growth rate that, for the first time in 5 years, will feel like a recovery.” Connaughton said.
The full forecast report is available online.