Economic Outlook - March 2008

Despite some winter rain, North Carolina is still mighty dry. In mid-January, more than half the population was subject to mandatory water restrictions. An additional 25% was under voluntary restrictions. How has the drought affected the state economy? We asked Stephanie McGarrah, assistant secretary for policy, research and strategic planning at the North Carolina Department of Commerce, and Gene Byrd, the department’s director of business retention and development.

BNC: What sectors of the economy have been hurt so far?

McGarrah: Farmers have already seen some of the impacts. The Green Industry Council, which represents landscapers, Christmas-tree growers, sod growers, those kinds of folks, put out an estimate of $1.5 billion.

What about construction?

McGarrah: We’ve heard the drought is not as bad for some parts of the construction sector because fewer workdays are rained out.

Byrd: It may have a negative effect on residential construction because some cities and towns are not going to make the water and sewer connections to these developments. There is a certain amount of backflushing and cleaning out of lines that has to occur, and there are cities and towns around the state that are saying, ‘We’re not going to do that until we get some more rain.’

How has it affected manufacturing and other heavy water users?

Byrd: We are hearing from large water users, such as poultry processors, large pharmaceutical companies and electronics manufacturers that use lots of processed water. They are very interested in doing everything they can to curtail their water use. They’ve got to have a certain amount of very high-quality processed water to stay open so they don’t have to lay off people. They are very receptive to the idea of saving water. They are very open to the idea of recycling water within their own operations. They are interested in using gray water — treated water that isn’t drinkable — in their processes.

In December and again in January, Gov. Easley called for conservation pricing — rates that penalize excessive water use.

Byrd: There’s been a lot of discussion about that, but I’m not aware of any water systems that have actually done it. Most of them are run by local municipalities, and it would involve their public staffs coming up with recommendations, taking it to council and going through the process.

McGarrah: This is our worst drought on record. This is the first time some of these water systems have faced these kinds of conditions.

Are businesses planning for the possibility of higher water costs?

Byrd: I think they are. The governor has challenged everybody to take this opportunity to take a hard look at how we use a precious resource and to make sure we are using it as carefully as possible. In many cases, we are not because it has been readily available. We are coming into a time, it appears, when that resource is not so readily available. Companies are profit-driven. If they can invest in a machine that has a reasonable payback, they’re going to be all for it. It’s enlightened self-interest.

Has the drought affected recruiting?

Byrd: No.

Do you anticipate any adverse impact if the drought continues?

Byrd: That’s impossible to know. Some of our competitors may be attempting to use some of this stuff against us. But we are seeing no lessened activity nor any loss of projects due to lack of water.

Will the state have to fight a perception that it is water-poor or that water supplies are unreliable?

McGarrah: I think the entire southeastern United States is in this situation. I don’t think it’s just a North Carolina thing.

Aside from construction workers having more sunny days to work, what sectors have been helped by the drought?

Byrd: Maybe manufacturers of water-recycling equipment.

How do you expect the drought to affect the state economy in 2008?

McGarrah: I can’t model that. Our climatologists expect us to have less-than-average rainfall between now and the summer. But that model is 50% accurate. I can’t do much with data that could go either way. And that’s 50% accurate for the state as a whole, not for each of the counties or public water systems. Each of those water systems has to determine, if they get into an emergency situation, to whom are they going to cut water off first?

Byrd: One of the things we want heavy water users to do is take a serious look at how they use water. Are there alternatives? Can they use a lower grade of water somewhere in their process? Do they have pipes that are leaking? Do they have low-flush toilets in their bathrooms? But more than 60% of water users around the state are residential. So even if businesses save significant amounts of water, we’ve still got to continue to push to make sure that the general public is aware of the severity of what we’re facing.

 

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