Observers have become more upbeat on the economy over the past couple months,

based largely on a firmer tone to the labor market. Still, a number of other indicators

suggest that overall demand has yet to strengthen decisively. What’s going on?

Growth in real GDP has picked up a bit in the past two quarters, but from a very

weak pace over the first three quarters of 2011, as shown in the table below.

Mixed Signals

CAMERON SCHOOL OF

BUSINESS

H. DAVID AND DIANE

SWAIN CENTER FOR

BUSINESS AND ECONOMIC

SERVICES April 2012 Volume IV, Issue 2

Economic

Barometer

Learn about our benefactors, H. David

and Diane Swain at www.csb.uncw.edu/cbes

www.csb.uncw.edu/cbes

It is worth noting that the economy needs to grow nearly 2.5 percent at an annual

rate to avoid slack from growing in labor and other resource markets. In other

words, based

on standard

relationships,

growth over

the past two

quarters has

been about in

line with the

economy’s po-

tential to grow,

perpetuating a

recovery that

has been one

of the most

anemic on record. The chart above, showing four-quarter growth, illustrates the

weak recovery. Historically, recoveries from deep recessions have been brisk. How-

ever, growth in the current episode has been subdued even when compared to the

characteristically mild upturn that followed the mild recession of the early 2000s.

Inside this issue:

Labor Market Improvement

2

Household Demand

2

Household Demand Continued

3

Business Demand

4

The Outlook 5

Population Change

5

Unemployment Rates

5

Unemployment Rates Continued

6

Employment and Wages

6

Retail Sales 7

Occupancy Tax Collections

7

Single-Family Homes

8

Quarter Growth in Real GDP

2011 Q1 0.4

Q2 1.3

Q3 1.8

Q4 3.0

2012 Q1e 2.5

e--estimate Annual rate, in percent

Labor Market Improvement

Page 2 Economic Barometer

Despite tepid growth, the unemployment rate has fallen 0.8 percentage points since last September. At

the same time, initial claims for unemployment insurance—a closely watched weekly indicator of the

labor market—have dropped to their lowest level in four years. As shown in the chart below, initial

claims are approaching an area that characterized the strong jobs market of the mid-2000s. Are the labor

market data telling us that the economy is actually a good bit stronger than otherwise meets the eye?

There are a couple reasons to believe that the labor market readings over recent months have been over-

stating strength in the economy. Most obvious is the unusually mild winter of 2011-2012. This has not

only helped the construction industry, but other sectors as well. Less apparent is the likely catch up that

has taken place from the recession years of 2008 and 2009. During these years, employers slashed pay-

rolls by much more than implied by the plunging economy. Employers—facing massive uncertainty

about the extent of the economic collapse and losses of access to credit—went into survival mode, man-

aging their businesses with extremely lean workforces. Indeed, the unemployment rate rose a full per-

centage point above what would have been suggested by the economy, weak as it was. Since last fall, em-

ployers have been returning to a more normal alignment of their payrolls with their production sched-

ules. As a result, roughly 70 percent of the labor shortfall of 2008 and 2009 has been made up. These

factors suggest that prospectively the labor market will more closely track the vigor in aggregate demand.

Household Demand

Turning to aggregate demand, household consumption spending closed out last year on a sluggish note,

but has firmed a bit in the opening months of this year. Much of the recent expansion in consumption

owes to solid growth in outlays on durable goods, including motor vehicles. Indeed, spending on con-

sumer durables has risen above the pre-recession peak, shown in the chart on the next page. No doubt

the improved jobs market has enabled some households to step up their spending on these big-ticket

items. Also making a contribution has been improving access to consumer credit. Further, it is likely

that pent-up demand has played an important role, something that will likely run its course before long.

Household Demand Continued

Page 3 Volume IV, Issue 2

Limiting any improvement in household spending will be household net worth, shown in the chart be-

low, which is being held down by ongoing declines in home prices. The continuing overhang of residen-

tial properties—both listed and shadow inventories—is depressing prices and keeping new home con-

struction at levels not far from recession lows. Moreover, the run up in fuel prices recently is sapping the

purchasing power of household earnings and will be restraining consumer demand.

Page 4 Economic Barometer

Business Demand

In the business sector, corporate profits continue to reach new record levels, as shown in the chart be-

low. Moreover, firms are experiencing improving credit availability and are sitting on mountains of cash.

At the same time, returns on new investments appear attractive, whether financed with cash or credit.

Nonetheless, businesses have been cautious in ordering capital goods. This can be seen in the next

chart. Orders for investment goods have flattened out over recent months, after a run-up that was fu-

eled in part by replacements postponed by the recession. Reportedly, a high degree of concern about

the tax, mandate, and regulatory climate have imparted a reluctance by businesses to undertake projects

that otherwise would be deemed worthwhile and would get the green light.

Furthermore, business construction in the nonresidential property market will remain stagnant until the

excess capacity caused by previous overbuilding combined with slack in the economy is absorbed.

Page 5 Volume IV, Issue 2

The Outlook

With this background in mind, economic growth will continue to run faster than the sub-2 percent pace

of 2011. However, neither the household nor the business sector can be counted on to provide the lift

needed to sustain the progress in the labor market that has been enjoyed since last fall. Budget pressures

at all levels of government and accompanying fiscal restraint will pose headwinds to growth, as they have

for a while. On the monetary side, the Fed’s unprecedented degree of monetary stimulus will likely re-

main in place for another two years or longer. However, drawing to an end by mid-year will be the Fed’s

maturity extension (“Operation Twist”) program, which will place a little upward pressure on intermedi-

ate- and long-term benchmark interest rates. In these circumstances, returning to normal is still some dis-

tance away. The persistence of economic slack will continue to keep inflation in check.

Population Change

Data from the 2010 U.S. Census show population growth rates over the last decade in the counties of

Southeastern North Carolina in excess of 25 percent. Brunswick County was the second fastest growing

county in the state over the past decade. New Hanover County was the ninth largest county, and Wil-

mington was the eighth largest city. The rankings for New Hanover County and Wilmington are un-

changed from 2000. Population growth in the state was almost double that of the nation.

Source: Bureau of the Census, U.S. Department of Commerce.

Unemployment Rates

The national unemployment rate has been consistently lower than that for the state and the Wilmington

MSA (Brunswick, New Hanover, and Pender Counties) since the third quarter of 2008. Rates in both

the state and the MSA have been falling since late 2011. The national rate was relatively stable over the

same period. Given projected growth rates in national, state, and local economic activity, it is highly

unlikely that unemployment rates will change much over the next 12-18 months.

Source: Division of Employment Security, North Carolina Department of Commerce.

Page 6 Economic Barometer

Unemployment Rates Continued

Employment and Wages

Of the ten largest employers in the Wilmington MSA in the third quarter of 2011, only three sectors

(health care and social assistance, professional and technical services, and public administration) show

employment gains over the third quarter of 2007. The three sectors losing the most jobs over the same

period were construction, manufacturing, and administrative and waste services. Employment changes

in the MSA reflect the impacts that the national recession had on the MSA economy.

Source: Division of Employment Security, North Carolina Department of Commerce.

Page 7 Economic Barometer

Retail Sales

Following steep declines in 2009, retail sales in area counties and in the state have risen over the past two

years. For the year ending January 2012 (February 2011-January 2012), sales are up from their compara-

ble year-earlier levels. Sales have grown more rapidly in area counties than statewide. Growth has been

especially strong in Pender County. Retail sales had recouped much of the losses that they experienced

during the most recent recession.

Source: North Carolina Department of Revenue.

Occupancy Tax Collections

Following two consecu-

tive years of rather large

decreases, room occu-

pancy tax collections in

New Hanover County

rebounded dramatically

in 2010 and 2011. For the

year ending January 2012

(February 2011 - January

2011), they are up 7 per-

cent. Tourism activity is

recovering from the hits

it suffered during the

most recent recession.

Source: New Hanover County Manager’s Office.

Computer Information Systems

Building, Suite 1004

University of North Carolina

Wilmington

601 South College Road

Wilmington, N.C. 28403

Phone: 910-962-2237

Fax: 910-962-3579

E-mail: mackethanj@uncw.edu

H. DAVID AND DIANE

SWAIN CENTER FOR BUSINESS

AND ECONOMIC SERVICES

H. David and Diane Swain Center for Business and Economic Services

WWW.UNCW.EDU/CBES

Dr. Gary Miller

Chancellor, UNCW

Larry Clark Dean, Cameron School of

Business

Dr. William Sackley

Director of SCBES

Dr. William (Woody) Hall

Senior Economist

Dr. Thomas Simpson

Executive in Residence

Barb Biehner

Program Director

Jennifer Mackethan

Administrative Assistant

Jennifer Murphy

Graduate Research Assistant

The H. David and Diane Swain Center for Business and Economic Services at

UNC Wilmington is the business research and outreach division for the Cam-

eron School of Business. Center staff collect and analyze local, state, and na-

tional economic data that impact our region and its growth. The H. David and

Diane Swain Center for Business and Economic Services also provides profes-

sional and executive educational opportunities for organizations and profession-

als with major emphasis on business training, entrepreneurship and real estate.

For more information about The H. David and Diane Swain Center for Busi-

ness and Economic Services, visit our Web site, www.uncw.edu/cbes or contact

Jennifer Mackethan at mackethanj@uncw.edu.

The market for existing single-family homes in the area served by the Bruns-

wick County Association of Realtors (BCAR) has been relatively stable since

the end of 2006. Since year-end 2008, the same can be said for the area served

by the Wilmington Regional Association of Realtors (WRAR). Since stabiliz-

ing, both areas show an annual cycle with virtually no growth.

In general, average prices in the BCAR area have exceeded those in the WRAR

area, and both have been above those for the state. Even though sales have

probably stabilized, home prices will likely continue to fall, although they are

falling less rapidly than they were 9-12 months ago.

Source: North Carolina Association of Realtors.

Single-Family Homes