The State of North Carolinas Economy Presented to Leadership North Carolina Hickory, North Carolina

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The State of North Carolinas Economy
Presented to Leadership North Carolina
Hickory, North Carolina

• Presented by
• Harry M. Davis, Ph.D
• davishm_at_appstate.edu
• NCBA Professor of Banking and Economist
• Appalachian State University
• April 6, 2006

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U.S. Economy

• GDP is growing nearly 4 a year in this recovery,
  exceeding post WWII and 90s average
• GDP has grown in excess of 3 for 13 straight
  quarters, first time since the mid- 80s, till the
  4th quarter when growth measured 1.6
• Corporate profits at record high as a percentage
  of GDP and have grown at double digit rates for
  13 consecutive quarters
• Pre-tax corporate profits grew 14.4 in 4th
  Quarter of 2005, best since 1992

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U.S. Economy

• Internally generated funds from profits and
  depreciation have grown over 24 in the last year
  biggest increase in 25 years
• Dividend payments and stock repurchases for the
  SP 500 companies were about 500 billion in
  2005, a record
• Dow Jones up over 40 since start of bull market
  in Oct 2002, and at a 5-6 year high
• Other stock indexes doing well including foreign

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Employment Picture

• Job growth is on par with the average employment
  gains of the 90s
• Economy added 2.1 million jobs over the 12 months
  ending in February - Added 243,000 in February
  alone
• Todays unemployment rate (4.8) is nearly 1
  lower than at this time in the last recovery
• Unemployment rate is as low as anytime in the
  last 30 years except for about 40 months in late
  90s
• FED says jobless rate accurate participation
  rate reached 67.3 in 2000, fell to 65.8, now
  66.1

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North Carolina Employment

• Unemployment rate 5.1 NSA
• Added 111,800 nonfarm workers through 12 months
  ending in February
• Added 40,000 nonfarm workers in January and
  13,000 in February well above the 2005 numbers
• Manufacturing sector lost 14,300 workers in last
  12 months
• Construction, Trade, Utilities, Professional
  services, Educational and Health Services, and
  Leisure and Hospitality Services gained the most

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NC Economy

• State economy is growing at about the average
• State revenues growing faster than expected, by
  over 71 billion for July-Oct. Budget issues
  have improved
• Strongest sectors of state economy are
  construction, financial services, educational and
  health services, military spending, and tourism
• We are the 9th fastest growing state in
  population
• Tourism was a 13.2 billion industry in the state
  in 2004

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N.C. Facts

• 8.5 million population, 2004, ranked 11th
• Labor force 4.3 million
• In 2004 per capita income was 29,322 which
  ranked 38th and was 89 of national average. We
  ranked 31st in 1994
• Total personal income grew at an annual rate of
  5.5 over the period 1994-2004 and 5.2 for the
  nation. State rate of increase was greater than
  national rate in 2004.
• State rate of increase in earnings of employed
  persons in 2004 was 6.6 and 6.3 for nation

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Housing Bubble?

• Existing home sales set new record last year (6.9
  million units) for the fourth record year in a
  row
• No National Housing Bubble inventory of unsold
  existing homes is at record high
• Rates still low
• Wealth Transfer

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U.S. Economy

• ISM Manufacturing index above 50 since July 2003
  or 32 months
• Since the recession ended at the end of 2001,
  productivity growth has averaged 3.4 annually,
  best since the 60s
• Consumer Confidence has recovered all of the loss
  after Katrina presently at 4-year high
• Household net worth rose 2.3 in the 4th Quarter
  of 2005 to 52.11 trillion all time record
• Consumer spending growing about 4 a year
• Real wages and salaries growing slower than in
  previous recovery

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Are Rising Oil Prices Creating Inflation?

• The CPI has risen 3.6 over the last 12 months
  while the core rate has risen at 2.1 annual rate
  over the last 3 months.
• For the CPI that is slightly above the rate
  during the 1990s
• For the core rate that is less than the average
  (3.3) during the 1990s.
• Oil prices tripled in 1974 and 1980
• Last year rose 25
• Only now is the 10-year bond rate rising

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Energy Prices and Policy

• Barrel price fell to 12 by the end of 1990s
• Little increase to infrastructure here or by OPEC
  during the 90s
• Have not built refinery in 30 years fewer now
  than twenty years ago with less capacity
• Increase in demand doubled in 2004, largely due
  to India and China no slack
• Energy spending by households accounts for 6 of
  budget today, up from 4 in 2002, and 9 in the
  early 1980s
• How to become more energy independent?

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U.S. Economy

• Outsourcing good or bad?
• Toyota built its 4th auto assembly plant in the
  U.S. in 2004 and Hyundai its 1st. . Kia will
  build its first assembly plant in the U.S. this
  year and Toyota has announced plans for a major
  expansion of facilities in the U.S. that is
  outsourcing to this country
• U.S. economy growing much faster than any of the
  major economies except China
• Our unemployment rate is lower than the rates in
  Europe
• Manufacturing jobs are being lost worldwide
  including China
• Chinese complaining about American dominance
  Coke, Cat

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Low Savings Rate

• Capital gains and stock buybacks are not counted
  in personal income the more of both the lower
  the savings rate only dividends count
• Is education spending consumption or investment?
• The more money we spend on education the lower
  the savings rate
• Gains on a house are not counted in saving, but
  if you borrow against equity, the savings rate
  goes down the same is true for 401k

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Budget and Trade Deficits

• Last years deficit 2.6 of GDP, about average
• In 2005, receipts grew 14.5, best in 25 years
• Trade deficit a record last year, over 700
  billion
• Trade deficit goes up in recovery and down in
  recession

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NC Outlook

• N.C. economy grew about 3.25 last year
• N.C. economy will grow about 2.75 this year
• N.C. unemployment will remain in the 5 range
• N.C. will add 80-100,000 net jobs this year
• States employment will grow moderately
• North Carolina will see increase in revenue with
  lottery

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The U.S. Outlook

• GDP growth of 3.4 for the year even with Katrina
  and Rita - but no respect
• Energy shocks are greatest potential problem
• Fed will continue to raise rates as in 89,94,and
  99
• Interest rates stable, but Fed will raise rates
  50 basis points this year
• 10-year bond will move to 5.0 by year-end
• Inflation will increase modestly

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The U.S. Outlook

• Employment growth will continue leading to
  continuing income growth
• The U.S. and Chinese economies are pulling the
  rest of the world
• Housing sales and price increases will slow
  drop about 15 from last year
• Trade and budget will continue to be large but
  decrease