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January 2011
North Carolina Economy Ends 2010 with Modest Expansion
By John E. Connaughton, Ph.D.

     The North Carolina economy is expected to end 2010 with a modest expansion, according to UNC Charlotte economist John Connaughton in his quarterly economic forecast for the state.

     Connaughton expects the state to grow by 1.4% over the 2009 level, following a decline of 2.9% experienced during 2009

     The North Carolina economy experienced a small increase in Gross State Product (GSP) during the first quarter of 2010. During this quarter, GSP grew by an annualized real growth rate of 2.5%. During the second quarter, North Carolina GSP dipped and recorded an annualized real growth rate of 0.3%. During the second half of the year, GSP growth is expected to be stronger than the growth experienced during the first half of the year; third quarter GSP is forecast to increase by an annualized rate of 3.2%, while fourth quarter GSP is forecast to increase by an annualized rate of 3.5%.

     “The national economy has been able to put together five consecutive quarters of expansion, while the North Carolina economy has struggled to put together three quarters of growth,: Connaughton says. “The state’s economic growth during this time has only been sufficient to stem job losses, but not to generate job growth.

     “We have been able to struggle through 2010 without a ‘double dip,’ but the sluggish economic growth during the past year really hasn’t felt much like a recovery,” Connaughton adds.

     2010 Sector Analysis: Connaughton expects eight of the state’s 11 economic sectors to experience growth during 2010. The sectors with the strongest expected increases are:

• Mining, with a real increase of 11.3%;

• Agriculture, with a real increase of 6.2%;

• Services, with a real increase of 4.1%;

• Government, with a real increase of 2.8%;

• Transportation, Warehousing, Utilities and Information (TWUI) with a real increase of 2.2%; and

• Wholesale Trade, with a real increase of 1.4%.

     Two other sectors—Retail Trade with a real increase of 0.9% and Nondurable Goods Manufacturing with a real increase of 0.3%—are also expected to grow, but with increases of below the overall GSP growth of 1.4%.

     2010 Employment: For 2010, North Carolina establishments are expected to have a net gain of 30,000 jobs, an increase of 0.8% over the 2009 level. The 2010 job gains follow the loss of over 282,000 jobs during the 2008-09 recession.

     North Carolina’s seasonally adjusted unemployment rate began 2010 at 11.1%, over 1.5%age points higher than the United States rate. By October, the state rate had dropped to 9.6, matching the national rate of 9.6%. Both the U.S. and North Carolina unemployment rates are expected to continue to decline slightly during the year, and by December 2010 the North Carolina unemployment rate is expected to decrease to 9.5%.

    “While the recovery in GSP is underway, job growth is likely to lag,” Connaughton notes, “North Carolina lost over 282,000 jobs during 2008 and 2009, and it is likely to take four to five years to regain the lost jobs. Job growth will be the biggest problem for both the U.S. and North Carolina economies over the next several years.”

     2011 Forecast and Sector Outlook: For 2011, Connaughton is forecasting state GSP to increase by 3.2% over the 2010 level.

     First quarter GSP is expected to increase by an annualized real rate of 3.3%. During the second quarter, GSP should again increase by an annualized real rate of 3.3%. In the third quarter, GSP growth is expected to remain stable and record an annualized real growth rate of 3.2%. In the fourth quarter of 2010, GSP is expected to increase by an annualized real rate of 3.7%.

     Only seven of the state’s 11 economic sectors are forecast to experience output increases during 2011. The sectors with the strongest expected growth are:

• Transportation, Warehousing, Utilities and Information (TWUI) with a projected real increase of 6.2%;

• Finance, Insurance and Real Estate (FIRE) with a projected real increase of 5.1%;

• Government, with a projected real increase of 4.7%;

• Services, with a projected real increase of 3.4%; and

• Retail Trade, with a projected real increase of 3.0%.

     Two other sectors are also expected to experience output growth but at rates less than the overall state level: Mining, with a projected real increase of 2.7%; and Wholesale Trade, with a projected real increase of 2.1%.

     2011 Employment Outlook: For 2011, North Carolina establishments are expected to gain 38,300 net jobs, an increase of 1.0% over the employment level in December 2010.

     Seven of the state’s 10 nonagricultural sectors of the economy are expected to experience employment increases during 2011. The sectors with the strongest employment increases in 2011 are Wholesale Trade at 5.2%, Retail Trade at 2.3% and Services at 1.8%.

     Content provided by John Connaughton, professor of economics in the Belk College of Business at UNC Charlotte and director of the UNC Charlotte Economic Forecast published quarterly by the University of North Carolina at Charlotte since 1981. The full UNC Charlotte Economic Forecast (December 7, 2010) is available at www.belkcollege.uncc.edu/forecast.

John E. Connaughton is a professor of economics in the Belk College of Business at UNC Charlotte
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