Economic Outlook - September 2009
Recession has hit North Carolinaís job market harder than most. The gap between the stateís unemployment rate and the nationís widened late last year, and Matthew Martin says the U.S. economy will recover quicker than North Carolinaís. Earlier this year, Martin became Charlotte regional executive for the Federal Reserve Bank of Richmond. Before that, he was a Fed regional economist.
BNC: Fed Chairman Ben Bernanke told Congress he expects economic activity nationwide to start rising again by the end of the year. What about North Carolina?
Martin: I agree with the chairman, and North Carolina is going to need the national recovery to buttress the manufacturing sector, in particular. So the state will lag the national economy some. No matter what the exact timing, even by early next year, itís probably still not going to feel like a recovery has taken hold by the measure people most care about ó jobs.
Whatís troubling the state economy?
A confluence of things. One is long-standing structural change. Itís moving away from manufacturing jobs, and the job base is more service-oriented. In the meantime, we had this very sharp business cycle downturn. The downturn in the housing market arrived here late, but then it hit with full force, so we caught up quickly. And one of the two main pillars of growth in this state ó Charlotte ó hasnít held up well, in part because of whatís going on with banking.
How would you fix those problems?
You canít fix the structural change thatís necessary. Particularly in the larger urban areas, growth in service sectors has driven growth in the state. What you can do, maybe, is get a work force that has more of the skills needed for those areas in which job growth has occurred. The state has a great community-college system, and making full use of that ó getting those who are unemployed retrained and viable in the job market ó is a key element to getting us out of this recession.
What else has driven up the stateís unemployment rate?
The areas that have seen the largest job losses in percentage terms nationwide have been manufacturing and construction. This is still a manufacturing-heavy state. Thatís one reason the unemployment rate is higher than it is nationally. Another is that labor-force growth is stronger here. During periods of recession when you have people moving in, itís harder to absorb those extra people.
In 2007, you said North Carolinaís housing market was one of the strongest east of the Mississippi. Whatís it like now?
There are some early signs of stability. The housing market is groping for bottom. I donít think weíre quite there yet, but weíll only know after itís happened. Things arenít getting worse at a rapid pace anymore.
Is it still one of the strongest in the East?
On house prices, this state has held up better than a lot. But by other measures, such as home construction, activity has pulled back at least to match the pullback nationally. Based on home construction, I wouldnít say itís one of the strongest in the East anymore.
Has this been North Carolinaís worst downturn since the Depression?
It may be the worst since the Great Depression, but itís not of the same magnitude as the Great Depression. Itís certainly worse than previous downturns in recent history, and for most people this will have been the sharpest economic downturn in the state in their working lives.
State and federal leaders are pushing environmentally friendly goods and services as a way to get the economy back on track. Will it work?
Targeted policies can buttress marketplace incentives to develop alternative energy sources, but some of these policy mandates might simply divert resources from one economic activity to another and theyíre not, on net, stimulative. Itís not clear that helps us recover faster, though it might provide some very real long-term economic benefits.
What does that mean for North Carolina?
Iím not sure. Not long ago, the governor talked about Charlotte as an energy-industry hub. I was skeptical. Green energy and energy-type issues are at the forefront. A lot of places are going to have those initiatives, and not all of them are going to be successful. But since then, there have been three or four major additions to the energy industry in Charlotte. So maybe North Carolina will become a net gainer. Iím surprised at the early success.
Whatís the state economyís biggest strength?
People want to live and work here. So long as you have people, particularly skilled workers, who want to move to where you are, that in turn makes companies sit up and take notice.
What about banking in North Carolina?
The industry as a whole is healthy, and as the economy begins to bottom out and as the housing market begins to bottom out, there will be lots of opportunities for banks to make loans, be profitable and work their way out of any lingering troubles they may have.
How will the North Carolina economy look a year from now?
Unemployment will still be high in comparison with early 2008, but the recovery will have started and opportunities will be growing. Economic conditions wonít be back to normal, with full employment and a full-blown mature expansion, but there will be much more optimism. Consumers will be less guarded than they are today.