The North Carolina economy is expected to grow by 3.9 percent during 2005, UNC Charlotte economist John Connaughton reported today in his TIAA-CREF/UNC Charlotte Economic Forecast for North Carolina . This growth forecast for 2005 is stronger than the growth rate of 2.9 percent experienced during 2004, but is slightly lower than Connaughton's September estimate of 4.2 percent.
For 2005, first quarter Gross State Product (GSP) increased at an annualized real growth rate of 3.6 percent. During the second quarter, GSP growth slowed slightly to an annualized real growth rate of 2.8 percent. In the third quarter, GSP growth again is expected to slow to an annualized real growth rate of 1.6 percent. In the fourth quarter of 2005, growth is expected to pick up to a forecast annualized real GSP growth rate of 2.5 percent.
The Forecast, funded by TIAA-CREF and published quarterly by the University of North Carolina at Charlotte , provides both a review of North Carolina 's recent economic performance and an estimation of the state's future growth. Connaughton, who directs the Forecast, is the TIAA-CREF professor of economics at UNC Charlotte's Belk College of Business.
“It is important for business and community leaders alike to recognize the significance that this economic forecast has in keeping us prepared for the future of our state's economy,” said Kevin Brown, TIAA-CREF vice president, client services. “As a leading employer in Charlotte, we at TIAA-CREF are pleased to make this important business resource available free to the public.”
According to Connaughton, the North Carolina economy has done fairly well during the past three years (2002 to 2004) and has, in fact, gained strength. In 2002, North Carolina real GSP increased by 2.6 percent. In 2003, real GSP growth picked up to a 3.3 percent growth rate, and in 2004, North Carolina real GSP grew by 2.9 percent. The growth rate projected for 2005 of 3.9 percent will be the strongest of the four year expansion. However, much of the 2005 growth occurred during the first half of the year. During the third and fourth quarters North Carolina 's GSP growth is expected to slow, and this slowing will set up a period of slower GSP growth for 2006. Connaughton attributes this slower growth during the second half of 2005 and into 2006 to several troubling economic indicators, such as the increasing United States budget deficit, unstable energy prices, the growing U.S. trade deficit, and a recent return of inflation.
“For 2005 both the United States and North Carolina economies are continuing to experience strong growth,” Connaughton said. “However, North Carolina 's economic growth is expected to slow during the second half of 2005 and fall behind U.S. performance.”
2005 outlook by sector: trasportation, construction lead growth
For 2005, ten of the state's eleven economic sectors are forecast to experience growth during 2005. The sectors with the strongest expected growth forecasts are:
transportation, warehousing, utilities, and information (TWUI) with a projected real growth rate of 9.3 percent;
construction at 9.0 percent;
wholesale trade at 6.2 percent;
agriculture at 5.9 percent; and
services with a projected real growth rate of 5.6 percent.
Five other sectors are expected to experience growth during 2005, but at rates less that the overall state growth rate of 3.9 percent. These sectors are
finance, insurance, and real estate (FIRE, with a projected real growth rate of 3.3 percent;
government at 3.1 percent;
retail trade at 2.3 percent;
mining at 1.8 percent; and
durable goods manufacturing at 1.0 percent.
Only one sector, nondurable goods manufacturing, is expect to decline during 2005.
2005 jobs outlook: N.C. to add more than 75,000 new jobs
For 2005, the North Carolina economy is expected to gain 75,500 net jobs, an increase of 1.9 percent over the employment level in December 2004. Nine of the state's ten nonagricultural sectors of the economy should experience positive employment growth during 2005. The sectors expected to display the strongest employment growth rates in 2005 are construction at 3.6 percent, services at 3.1 percent, and FIRE at 1.9 percent.
2006 forecast: N.C. will have fifth year of economic expansion
For 2006, the North Carolina economy is expected to continue its fifth year of economic expansion. Real (inflation adjusted) GSP is expected to increase by 2.1 percent over the 2005 level. The growth forecast for 2006 is slower than the growth rate of 3.9 percent expected during 2005.
For 2006, first quarter GSP is expected to increase at an annualized real growth rate of 1.6 percent. During the second quarter, GSP growth is expected to pick up slightly to an annualized real growth rate of 2.5 percent. In the third quarter, growth is expected to reach an annualized rate of 1.6 percent. In the fourth quarter of 2006, growth is expected to increase by an annualized real rate of 2.3 percent.
The expected growth of 2.1 percent in 2006 would represent the fifth consecutive year of economic expansion. The previous four years (2002 through 2005) have seen GSP growth increases in each year. The slower 2006 forecast reflects the cumulative effects of continued U.S. budget deficits, unstable energy prices, the growing U.S. trade deficit, and a recent return of inflation.
Nine of the state's eleven economic sectors are forecast to experience growth during 2006. The sectors with the strongest expected growth forecasts are transportation, warehousing, utilities, and information (TWUI) with a projected real growth rate of 7.4 percent;
wholesale trade at 4.1 percent;
construction at 4.0 percent; and
finance, insurance, and real estate (FIRE) at 3.2 percent.
2006 jobs outlook: more than 80,000 net jobs; construction expected to be strongest
For 2006 the state's economy should add 84,100 net jobs during the year. Eight of the state's ten nonagricultural sectors of the economy should experience positive employment growth during 2006. The sectors expected to display the strongest employment growth rates in 2006 are
construction at 6.0 percent,
government at 3.3 percent, and
services at 2.5 percent.
The North Carolina manufacturing sector continues to struggle during this recovery. Real output in the nondurable goods sector has been flat for the past five years. Real durable goods output has grown by less than one percent on average since 2001.
“This flat output growth in the manufacturing sector has led to a loss of 175,000 jobs since January of 2000,” Connaughton said.
The comprehensive Forecast report for December 2005 is available on the web at www.belkcollege.uncc.edu/forecast. The next Forecast report will be released in March 2006.