US, NC economies liked 2018; maybe less in 2019

Jim Kleckley mug.jpg

James W. Kleckley
East Carolina University

Sunday, December 2, 2018

The U.S. and North Carolina “economies” have enjoyed 2018.

When we look at the latest establishment employment numbers for October we see that the nation’s workforce has grown by 1.7 percent over the past year. North Carolina’s growth has been even better, growing by 2.3 percent during the same timeframe. The current unemployment rates are also low.

The U.S. rate in October was 3.7 percent, while the N.C. rate was 3.6 percent. The nation and state have seen drops in these indicators over the past year. The North Carolina unemployment rate has fallen relatively faster in the past 12 months – a drop of 0.9 percentage points to a 0.4 percentage point drop for the nation.

These are not historically record numbers, but the employment climbs are better than we have seen since 2014-2015. The state unemployment rate has not been this low since June 2000.

When one dives into the statistics we see a real consistency in relative US-NC economic activity. Since 1990, when the nation is growing, NC is also growing – but by a bit more. When economic activity slows, or when we fall into a recession, the pendulum swings the other way. The state’s recessionary downturn (since 1990) has consistently been more severe.

A close look at NC’s economic health shows that the main driver to NC economic growth is national growth – not tax rate changes or other state-specific factors. This is because the great majority of our economic activity - production, distribution, and services – is explicitly related to activity outside our borders. Therefore, if we have a good idea how the national economy will perform in 2019, you can bet that the NC economy will perform in a similar fashion.

I am part of the National Association for Business Economics forecasting panel, and this is what our panel currently think will happen in 2019. The economy, as defined by the nation’s real Gross Domestic Product, will continue to grow. This year we expect to realize growth somewhere around 3.0 percent. In 2019 the growth should continue, but by a lesser amount – most likely around 2.5 percent. This means that employment should also grow, but not as robustly as we should see this year. The unemployment rate should remain below 4.0 percent, but for a variety of reasons will probably not fall too far below current levels.

Most of the NABE panelists believe that a recession is unlikely to occur anytime soon. However, there are a variety of risks on the horizon. Some we can control and some we can’t. And any one of these risks or events could impact growth and turn a positive forecast into shambles.

These risks include the effects of inflation; trade and tariff policies; immigration; consumer confidence; the stock market; or a possible international conflict. Each can be bad by itself, but also can reverberate through the economic system.

For example, rising inflation might cause the Federal Reserve to raise interest rates more quickly. If interest rates rise too much investment typically slows. Rising interest rates will also produce a more rapidly growing budget deficit. If the budget deficit grows more swiftly, Congress might cut Social Security and/or Medicare. If that happens, we might get more of a strain on the health care system – meaning our insurance rates will once again see a rapid rise.

James W. Kleckley, PhD ,Director, Professional Services and Research in the College of Business at East Carolina University.