Editor’s note: , William Neal Reynolds Distinguished Professor, Department of Agricultural and Resource Economics, North Carolina State University. Walden’s commentary was written before Friday’s release of the latest unemployment numbers for North Carolina, which showed the jobless rate had dipped to 10 percent from 10.4 percent.

RALEIGH, N.C. – We’re now mid-way through 2010, and the questions continue about the economy. Unemployment remains high, consumers are still concerned and there’s a heated battle about what exactly the government should do. On top of these issues are worries about Europe, the Gulf oil spill and military operations in the Middle East and central Asia. It’s no wonder most people feel unsure about their financial future.

But before looking ahead, let’s see where we’ve been here in North Carolina.

The good news is that since last fall, most of the state’s economic indicators have turned up. The broadest job survey in the state shows 66,000 more people employed in May than last October, when the state job market hit a bottom. Big gains have occurred in professional and business service jobs, jobs in communications and teaching positions. However, the state continued to lose jobs in construction and manufacturing.

Other trends are also encouraging. Retail sales have improved, although they’re still far below pre-recessionary levels. Home prices took an upward bounce over the last six months, but prices still remain soft. Wage and salary income improved to almost 94 percent of their pre-recessionary level, up from 93 percent late last year. And there’s even been a slight upward path in monthly state tax collections, but again, not enough to put them back to 2007 totals.

Of course, when we’re talking about the North Carolina economy, we have to recognize major regional differences. As is common in our state, the recession has had different impacts in different areas. Measured by the relative decline in employment, the recession hit the metropolitan regions of Burlington, Rocky Mount, Hickory and Greensboro the hardest, while the Triangle and Fayetteville had the softest blows. In fact, due to the strength of the military presence, Fayetteville lost no jobs during the recession.

The good news is that all the major metropolitan regions in the state – except for Fayetteville, which has held steady – have gained jobs since last winter. Yet the gains have not been equal. The Triangle, Charlotte and Hickory have had the fastest job increases, while Greensboro, Rocky Mount and Wilmington have had the slowest.
That’s the past, now what about the future? As the summer sky has brightened, the economic mood has darkened. Most of the economic indicators in May and June showed modest improvement at best or outright declines at worst. There is now widespread talk of a double-dip recession or an outright depression.

So has the economy stalled?

Will unemployment remain at double-digit rates?

Does the economy have any more growth to give?

Actually, what we’re seeing now is what many economists predicted, an initially strong economic rebound followed by growth, but at an agonizingly slow pace. The strong growth of the past six months has been fueled by businesses restocking their inventories and consumers opening up their wallets after two years of pinching pennies.

Now, however, the inventory replenishment is almost complete, and consumers have returned to facing the reality of the high debts they continue to carry. Until consumers bring their debt loads in line with their shrunken wealth (which plunged 25 percent at the height of the recession), consumer spending will proceed at a snail’s pace.

And since consumer spending accounts for 70 percent of all economic activity, as the consumer goes, so goes the economy.

So what I’m looking for is not a return to recessionary conditions – which implies negative growth – but continued growth at a very slow rate. To use a driving analogy, in 2008 and most of 2009, the economic car was in reverse. During the last six months the car has been moving ahead at 50 miles per hour. Now the speed will slow to between 25 and 30 miles per hour. It’s going to take us longer to get to where we’re going.

And where will our economy be going? I think we’ll make progress in North Carolina, with the unemployment rate falling to around 9.5 percent by the end of the year. We’ll also add between 70,000 and 80,000 jobs. Yet, this is a long way from the 4.5 percent unemployment rate we had before the recession, and it will take several years to recover the 250,000 jobs lost since late 2007.

While slow growth is better than negative growth, it doesn’t give the economy much margin for error. That is, with the economy growing between 1.5 percent and 2.5 percent rather than 3 percent to 4 percent, it doesn’t take much of an ill wind to knock us back into a recession.

This is why most economists don’t talk about recessions as a yes or no option but rather as a probability of occurring. And the probability of a recession occurring in the next year has crept higher, although still – in my view – not yet over 50 percent.

You decide if this is good enough for optimism.

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