1

ECONOMIC OUTLOOK: SHIFTING TO A HIGHER GEAR?

Dr. Mike Walden

Reynolds Distinguished Professor

North Carolina State University

AGGREGATE PRODUCTION HAS TOTALLY RECOVERED

2007, IV 2009, II 2013, III13.5

14

14.5

15

15.5

16Real GDP, 2009 trillions $

2

THE JOB MARKET IS ALSO COMING BACK

Jan. 2008 Feb. 2010 Nov. 2013124126128130132134136138140

MILLIONS, NON-FARM, SEAS.-ADJ.

3

BUT JOB MARKET ISSUES LINGER

DROP IN LABOR FORCE

LONG TERM UNEMPLOYED

IMPACT OF TECHNOLOGY

4

MANUFACTURING HAS BEEN A BIG PLUS

2007 2008 2009 2010 2011 20137580859095

100105

INDEX OF INDUSTRIAL PRODUCTION

5

….. AS HAVE EXPORTS billions of real 2009 $

6

2005 2006 2007 2008 2009 2010 2011 2012 2013200

400

600

800

1000

1200

1400

1600

1800

2000

2200

ExportsTrd Deficit

CONSUMERS ARE SPENDING MORE (INFLATION-ADJUSTED PERCENTAGE CHANGES)

7

2008 2009 2010 2011 2012 2013-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

spendingincome%

HOUSEHOLD FINANCES CONTINUE TO IMPROVE

8

2007 II 2008 II 2009 II 2010 II 2011 II 2012 II 2013 II05

1015202530354045505560657075808590

Tot. AssetsFin. AssetsReal EstateLiabilities$

trilli

ons

HOME PRICES ARE NOW RISING

9

HOME INVENTORIES ARE LOW (MONTHS TO SELL EXISTING INVENTORY)

3,07

8,07

1,08

6,0811

,08 4,09

9,09

2,20

7,1012

,10 5,1110

,11 3,1210

,12 3,13

8,13

456789

10111213

10

TOTAL INFLATION HAS BEEN TAME (CPI, total, annual % chg.)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-1

0

1

2

3

4

5

%

11

LONG INTEREST RATES HAVE TAKEN A JUMP (YIELDS ON TREASURY SECURITIES)

2,087,0

812

,085,0910

,093,108,1

01,1

16,1

111

,116,121,1

312

,130

0.51

1.52

2.53

3.54

4.5

3 mon.10 yr.%

12

NATIONAL FORECASTS

225,000 – 250,000 JOBS CREATED PER MONTH

2.5% TO 2.75% GDP GROWTH RT

UNEMPLOYMENT RATE BETWEEN6.0% AND 6.5% BY YEAR’S END

13

GOVERNMENT POLICY

14

THE FED CONTINUES TO BE ACCOMMODATIVE

2007

, I

2007

, III

2008

, I

2008

, III

2009

, I

2009

, III

2010

, I

2010

,III

2011

, I

2011

, III

2012

, I

2012

, III

2013

, I

2013

, III

0500

10001500200025003000

0123456

M base fed fd rt

$ bils. %

15

THE NEW FED CHAIRWOMAN- DR. JANET YELLEN

16

FISCAL POLICY HAS “TIGHTENED” (% of GDP)

17

2005 2006 2007 2008 2009 2010 2011 2012 2013-10

-5

0

5

10

15

ReceiptsSpending%

THE CONTINUING FISCAL DEBATE

DEMOGRAPHIC PRESSURES ON

SPENDING

TRANSFERS TAKING THE PLACE OF INVESTMENTS

COMPLEX TAX CODE

LONG-RUN FISCAL PLAN NEEDED

18

NORTH CAROLINA ECONOMY

19

N.C. IS OUT-PERFORMING THE NATION

(% CHANGE IN SEAS. ADJ. NON-FARM EMPLOYMENT)

2001-03 2003-08 2008-10 2010-13-10

-5

0

5

10

15

NCUS%

20

TWO MONTHLY JOB SURVEYS HOUSEHOLD SURVEY ESTABLISHMENT SURVEY

FEDERAL GOV’T FEDERAL GOV’T CONTACTS HH’S CONTACTS FIRMS SMALL SAMPLE LARGER SAMPLE EMPLOYED OR NOT COUNTS JOBS

HOUSEHOLD IN STATE JOB IN STATE

INFO ABOUT JOB SEARCH WAGES, HRS, INDUSTRY

21

ESTIMATED NORTH CAROLINA EMPLOYMENT HOUSEHOLD AND ESTABLISHMENT SURVEYS, SEASONALLY-ADJUSTED

1,10

3,10

5,10

7,10

9,1011

,10 1,11

3,11

5,11

7,11

9,1111

,11 1,12

3,12

5,12

7,12

9,1211

,12 1,13

3,13

5,13

7,13

9,1311

,133500000

3600000

3700000

3800000

3900000

4000000

4100000

4200000

4300000

4400000

HH Estab.

22

TRENDS IN NATIONAL AND NORTH CAROLINA “HEADLINE” UNEMPLOYMENT RATE

23

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20133

4

5

6

7

8

9

10

11

12

NC US

%

ALTERNATIVE MEASURES OF THE NORTH CAROLINA UNEMPLOYMENT RATE 2007: HEADLINE, 4.5%; U5, 5.6%; U6, 8.5%

4,09-3,10

2,10-1,11

3,10-2,11

4,10-3,11

2,11-1,12

3,11-2,12

4,11-3,12

2,12-1,13

3,12-2,13

4,12-3,13

89

101112131415161718

headline U5 U6

%

24

JOB GROWTH HAS ACCELERATED (ANNUAL GAINS IN PAYROLL JOBS)

252010 2011 2012 2013

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

INFORMATION, GENERAL BUSINESS, AND ENTERTAINMENT LEAD IN GROWTH

26

Leisure/Hosp.

Other Serv.

Trd/Tranp/Util

Educ/Hlth Care

Construction

Gov't

Manufacturing

Prof/Bus Serv

Information

Financial Serv

-10 -5 0 5 10 15 20 25

USNC

%

MEDIAN ANNUAL EARNINGS PER WORKER (2012 $)

27

2007 2008 2009 2010 2011 201225000

26000

27000

28000

29000

30000

31000

32000

US NC

NORTH CAROLINA AND THE NATION ARE LOSING MIDDLE-PAYING JOBS

28

$0-35,000 $35-75,000 $75,000 +20

22

24

26

28

30

32

34

36

38

40

NC 2007 NC 2012

% o

f tot

al

THE HOUSING MARKET HAS REBOUNDED IN THE STATE

29

2004

,I

2004

, III

2005

, I

2005

, III

2006

, I

2006

, III

2007

, I

2007

, III

2008

, I

2008

, III

2009

, I

2009

, III

2010

, I

2010

, III

2011

, I

2011

, III

2012

, I

2012

, III

2013

, I

2013

, III

-8

-6

-4

-2

0

2

4

6

8

10%

30

STATE TAX REVENUES HAVE BEEN TRENDING HIGHER

31

2008

, 120

08, 3

2008

, 520

08, 7

2008

, 920

08, 1

120

09, 1

2009

, 320

09, 5

2009

, 720

09, 9

2009

, 11

2010

, 120

10, 3

2010

, 520

10,7

2010

,920

10,1

120

11,1

2011

,320

11,5

2011

,720

11,9

2011

,11

2012

,120

12,3

2012

,520

12,7

2012

,920

12,1

120

13,1

2013

,320

13,5

2013

,720

13,9

60

70

80

90

100

110

120

130%

Area NC Job Gains Since Bottom of Recession

Charlotte 11.7% Raleigh/Cary 9.7%

Durham/CH 7.5% North Carolina 6.7% Asheville 6.6% Greenville 6.3% Burlington 6.1% Wilmington 5.3% Greensboro/HP 4.2% Winston-Salem 3.6% Jacksonville 3.6% Hickory 2.2% Fayetteville 1.9% Goldsboro 1.9%

Rocky Mount -2.6%

32

33

2007

feb

2007

may

2007

aug

2007

nov

2008

feb

2008

may

2008

aug

2008

nov

2009

feb

2009

may

2009

aug

2009

nov

2010

feb

2010

may

2010

aug

2010

nov

2011

feb

2011

may

2011

aug

2011

nov

2012

feb

2012

may

2012

aug

2012

nov

2013

feb

2013

may

2013

aug

2013

nov

70

75

80

85

90

95

100

NCSU INDEX OF NORTH CAROLINA LEADING ECONOMIC INDICATORS

Source: calculations by Dr. Michael Walden

NORTH CAROLINA GROWTH PROSPECTS

100,000 NET NEW PAYROLL JOBS

JOBLESS RATE AT END OF 2014 BETWEEN 6.5% & 7.0%

70% OF JOB CREATION IN CHARLOTTE, TRIANGLE, & TRIAD

COMPETITIVE COSTS, AMENITIES, DYNAMICS OF URBAN AREAS

34

NORTH CAROLINA CHALLENGES

EDUCATION ATTAINMENT

$ FOR ROADS – WHERE?

MANFACTURING SHIFT FROM LABOR TO CAPITAL

URBAN – RURAL DIVIDE

35

RALEIGH-CARY METRO ECONOMY

36

RALEIGH/CARY JOBS HAVE RETURNED (thousands of payroll jobs)

Jan. 2008 Feb. 2010 Oct. 2013460

470

480

490

500

510

520

530

540

Metro-area jobs are now at an all-time high

37

ANNUAL RALEIGH/CARY JOB GROWTH

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-30000

-20000

-10000

0

10000

20000

30000

STILL BELOW HIGHS OF 2000’s

38

AREA HOUSEHOLD INCOME IS COMING BACK (2012 REAL $)

2007 2008 2009 2010 2011 201235000

35500

36000

36500

37000

37500

38000$

RALEIGH/CARY MEDIAN HOUSEHOLD INCOME HAS RISEN FOR THE PAST TWO YEARS

39

RALEIGH/CARY AVERAGE HOUSE PRICE (ANNUALIZED PRICE CHANGE, FEDERAL HOUSING FINANCE AGENCY)

2006

,120

06,3

2007

,120

07,3

2008

,120

08,3

2009

,120

09,3

2010

,120

10,3

2011

,120

11,3

2012

,120

12,3

2013

,120

13,3

-6

-4

-2

0

2

4

6

8%

40

TRIANGLE HOME SALES (EXISTING AND NEW, 2013 THROUGH OCTOBER)

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

5000

10000

15000

20000

25000

30000

35000

41

RALEIGH/CARY BUILDING PERMITS (2013 THROUGH OCTOBER

42

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

RALEIGH/CARY OUTLOOK

FASTER GROWTH IN 2014

* 15,000 TO 20,000 NEW PAYROLL JOBS * 5.2% JOBLESS RATE

* IMPROVED SALES AND CONSTRUCTION

43