NC economist sees better 2011 but slow recovery

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The state’s economy is likely to grow at a healthier pace next year, though a full-fledged recovery is still several years away, a UNC Charlotte economist said yesterday.

John Connaughton expects the NC economy to climb 3.2 percent in 2011 over this year’s level, he said during his quarterly economic forecast luncheon, the Charlotte Observer reported. That growth will follow a more anemic 2010: Connaughton expects the state’s economy to grow 1.4 percent this year over last, with a fourth-quarter increase of 3.5 percent.

“It’s still a very risky year,” he said. “We are not out of the woods yet. It could still go either way.” The projections mark a downgrade from earlier reports: In March, for instance, Connaughton said the state’s economy was likely to grow 3.5 percent in 2010.

The economist acknowledged that it’s been a rough three years – and that aside from strong growth in the fourth quarter of 2009, the recovery has inched forward slowly. North Carolina has gained back just a fraction of the jobs it lost during the recession, and job growth remains one of the most pressing challenges, Connaughton said. “The question everybody asks every single day is, where are the jobs?” he said.

Many of the losses during the recession came from the construction and manufacturing sectors, which depend heavily on credit, Connaughton said. And while some sectors have begun to experience gains, particularly education and health care and professional and business services, many of the workers laid off during the recession don’t have the appropriate skills to fill those jobs. That means that many will remain out of work, even as companies across the state and U.S. add jobs, Connaughton said.

He also attributes the slow job growth, which lags other economic recoveries, to slow overall economic growth and the “new normal” consumer mindset of paying down debt and curbing spending. Connaughton said the economy won’t begin to make significant gains – and the unemployment rate won’t fall back to pre-recession levels – until consumer confidence and consumer spending return.

There are some positive signs, such as low inflation, but negative factors such as that weak confidence, a struggling housing market and excess reserves in the banking system are still stifling the economy, Connaughton said.

He expects the state to create as many as 30,000 new jobs in 2010, a downgrade from his earlier prediction of more than 37,000. Connaughton said that’s still an optimistic estimate, though, because NC. employers have only created 15,000 jobs through October. That growth makes just a small dent in the 283,000 jobs the state lost during the recession, he said.

Next year, NC employers will probably add 38,000 jobs, Connaughton said. The biggest gains will come from the business and professional services and education sectors, with weak job growth expected in manufacturing, retail and government, particularly as government stimulus money runs out at the state and local levels, he said.

By the end of next year, Connaughton expects the unemployment rate to fall to around 9.5 percent. And he said it could take three or four years after consumer confidence returns before the jobless rate falls into the 5 percent range.

Going forward, it’s important to watch factors such as consumer spending, bank reserves and first-quarter GDP, which will be a good indicator of how the rest of the year will play out, he said. Connaughton’s economic forecast is funded by Babson Capital Management LLC and published quarterly by UNC Charlotte.  Read More.

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