RALEIGH – North Carolina’s strong recovery following the onset of the global pandemic continues, but there is now an increasing likelihood of a recession that could change the lives of those who live in the state.
That’s according to a new report authored by Dr. Michael Walden, a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University. Walden provides an economic outlook for North Carolina as well as a report on the state’s current economic condition, as of the second quarter of 2022. Walden, a WRAL TechWire contributor, shared the report directly with WRAL TechWire.
The report was issued on the same day that The Associated Press reported US consumer confidence edged lower in May.
“The Conference Board said Tuesday that its consumer confidence index dipped to 106.4 in May – still a strong reading – from 108.6 in April,” the AP noted.
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Impact of recession in North Carolina
According to the report, North Carolina has fared better than the nation, on average, in each of the last three recessionary periods based on three indicators: drop in real gross domestic product, total quarters to recover to pre-recession gross domestic product, and unemployment rate.
Walden concludes that “North Carolina’s relative economic performance during recessions has improved in the 21st century.”
And that’s due to the state’s changing economic structure, as the state’s economy has diversified in the prior half century.
Still, even though North Carolina may face a recessionary environment with greater resiliency than the nation at-large or other states or regions, a recession may come all the same.
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And with a recession would come the potential for an economic pull-back and an impact on the state’s labor market.
Walden’s analysis looks at multiple forecasts, including a “no recession” forecast and a recession-based scenario.
The report’s “no recession” scenario sees an increase in North Carolina real GDP at an annualized rate of 2.5% with the state’s unemployment rate declining to 3.2% by the end of 2023.
But in a recession (real GDP would decline for two quarters) which in Walden’s forecast would occur in the fourth quarter of 2022 and the first quarter of 2023, he forecasts real GDP to decline by “slightly more than 3%, which suggests a relatively mild recession. ”
In this forecast, the state’s unemployment rate would reach 5.2% but drop to 4% by the end of 2023.
That’s considered mild, or modest. And should a recession occur, it is expected to be so, according to Walden. That’s because “household debt payments as a percentage of their income are at forty-year lows,” the report notes.
In addition, more households have more available cash or cash equivalents, and many households have added to financial savings due to a variety of factors including federal stimulus programs and more limited buying opportunities due to supply chain disruptions and full or partial lockdowns following the pandemic, the report notes.
An economic forecast from Dr. John Connaughton, a professor of financial economics at the University of North Carolina at Charlotte, put the odds of a country falling into a recession during 2022 at 50-50 earlier this year.
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An inconsistent recovery
While the state’s economic recovery following a dip in the second quarter of 2020 after the onset of the global COVID-19 pandemic continues to outpace the national economy, it has not been consistent across sectors, the report notes.
North Carolina’s aggregate production gained 16% compared to the national gain of 15% from the bottom of the so-called “Covid-19 recession” to the end of the calendar year 2021, the analysis found.
But while the information technology sector and professional services sector have seen the largest economic gains in the state, construction, hospitality and leisure, transport and warehousing, and personal services experiences the smallest gains in the state’s economy. And for those four sectors, “their GDP levels are still lower than prior to the pandemic,” the report states.
North Carolina has also outpaced the nation when it comes to employment trends, with rural parts of the state recovering at the highest rate of anywhere in the state, according to data from the North Carolina Department of Commerce, and Walden’s economic report.
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Those areas, which are considered to be any area in the state that is geographically based outside of a designated metropolitan statistical area, or MSA, led the state’s employment gains by reaching a rate of 106% of employment in April 2022 compared to employment levels in February 2020, according to Walden’s forecast.
Raleigh’s MSA saw a 105% employment recovery during that same period, and Durham-Chapel Hill’s MSA saw a 103% employment recovery in that time. North Carolina, statewide, has recovered 102% of jobs since February 2020, as of April 2022. But the metropolitan areas of Winston-Salem, New Bern, Greenville, Greensboro-High Point, Goldsboro, and Rocky Mount have not yet recovered to pre-pandemic employment levels, according to Walden’s analysis of data from the US Bureau of Labor Statistics.
Long-run outlook: “upbeat”
But in the long view, North Carolina’s economic forecast is “very positive for several reasons,” the report states.
This upbeat forecast anticipates that the state’s population will continue to increase due to each of the three factors that contribute to a change in net population: an excess of births over deaths, in-migration from other states, and foreign immigration.
By 2050, North Carolina is expected to be home to 13.8 million people, where the state’s population was 10.5 million in 2020.
With that population growth, Walden forecasts an expansion of the state’s labor force. Further, the forecast anticipates a widening of economic development beyond the state’s most populous metropolitan areas and greater investments in high-speed internet access that could open up regions of the state for residential living and for business growth.
“The biggest challenges for North Carolina in future decades – indeed, the biggest challenges for most states – will relate to the labor market,” the report reads. “One challenge will be to monitor the changing skill needs of the workforce as the future economy evolves at a faster pace than in the past.”
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