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While unemployment rates are the lowest seen in years, and retail sales have returned to what they were before the Great Recession, the economic forecast for 2014—both locally and nationally—is modest: a growth rate of about 2.5 percent.
Influenced in part by a lag in the number of people returning to the workforce, among other indicators, the prediction was the number that a crowd of about 250 people turned out to hear at the 22nd annual Economic Forecast Breakfast put on by the Wilmington Chamber of Commerce.
Held Thursday at the Wilmington Convention Center, the program offered outlooks by Richard Kaglic, a senior regional economist with the Charlotte branch of the Federal Reserve Bank of Richmond, and William “Woody” Hall, professor of economics and senior economist at UNCW’s Cameron School of Business.
Kaglic said he expects to see a national growth rate above 2 percent—in line with last year’s 2.5 percent—though not any higher than 3 percent. A reason for that, he said, is the labor force is growing at a low rate—about 2 percent. While the country is seeing an increase in employment and a decline in unemployment—what Kaglic described as two of three signs of a healthy labor market—he said the economy is missing the third: a growing labor market.
Kaglic also said wages are growing at 2 percent, describing those as making up 70 percent of the economy.
“If you’ve got 70 percent of your economy that seems to be stuck at a 2 percent growth rate, you’re going to be hard-pressed to find something much beyond that in topline GDP (gross domestic product) growth,” Kaglic said. “So the question is: Where is that going to come from?”
Locally, Hall said a different trend is true for the Wilmington metro area, particularly regarding the labor force.
“There is a difference between what’s happening in southeast North Carolina and what is happening statewide, what is happening nationally. We’ve seen increases in employment recently in southeastern North Carolina that exceed the reductions in unemployment,” he said.
Hall said unemployment rates have slightly declined over the past year, while seasonally adjusted unemployment rates have dramatically declined since November 2012.
The latest numbers from the N.C. Department of Commerce show New Hanover County’s unemployment rate dropped nearly a full percentage point in November 2013 to 6.7 percent—two points lower than it was the year before. Compare that to New Hanover’s peak unemployment during the recession: 10.5 percent in August 2011.
Hall provided other peak-number comparisons: Brunswick County’s was nearly 12 percent in October 2009, compared to 7.9 percent this past November; Pender County’s was 13 percent in September 2011, compared to 8.1 percent in November.
“These unemployment rates—even though we’re talking about, for example, in New Hanover County, about 7 percent, which by the way is the same as the national unemployment rate in November 2013—pale in comparison to what the average unemployment rate was in 2007-2008. The unemployment rate is still twice what it was prior to the onset of the recession,” Hall said.
Nationally, Kaglic said the unemployment rate—currently about 7 percent— is coming down “faster than what most folks had anticipated,” though he emphasized the aforementioned lag in people returning to the labor market.
“What typically happens in a recovery, it’s normal to see people leave the labor force during the course of a recession,” Kaglic said. “But traditionally, when the economy starts to expand again, when jobs are being created, we start to see folks flow into the labor force. And that’s just not happening this go-round.
“The labor force participation rate in the United States is continuing on a downward trend. Currently, we’re sitting near the lowest levels that we’ve seen since the late 1970s, early 1980s. In the long-term, you want more people participating in the labor force,” he said, “because at the end of the day, your economy can’t grow without workers.”
Hall said significant improvements have been seen locally in retail sales and in New Hanover County’s room occupancy tax, describing the former as “at least one sector that has recovered virtually completely from the hits that it took in the recession.”
“Let me state: Retail sales, at least on a 12-month moving total basis, are back to where they were prior to the 2008-2009 recession,” he said. “Collections from the 2 to 3 percent room occupancy taxes are back to where they were prior to the onset of the recession.”
Hall said tourism has increased in the state by 8.3 percent, with New Hanover and Brunswick ranking ninth and 10th respectively among the state’s 100 counties. Container shipping at the Port of Wilmington has also shown improvement, though Hall noted it has yet to “come back” to pre-recession movement. Existing home sales are also on the rise, and Hall said foreclosures are on the decline.
“It’s still got a long ways to go to get back to where it was in ’05,” Hall said of the housing market.
Kaglic said there are signs to be optimistic about in 2014, noting equity markets are up and similar increases in consumer and business confidence. But he said there is not enough evidence to expect growth much higher than the current 2 percent.
“I think we’ll probably see a little better than that—maybe 2.5 to 3 percent. But I don’t think you’re going to see beyond 3 percent in 2014,” Kaglic said, noting again the impact of the labor market data.
“As a society, we can only make as much goods and services as we have the number of people producing the stuff and how much stuff they can produce. So the economy can only grow as fast as changes in labor inputs and changes in productivity will allow it to grow.
“Unless you see something change in those two,” Kaglic said, “we as a society are going to be hard-pressed to produce more goods and services.”