Four North Carolina economists agree that the state and the nation are headed for continued growth of 2.7 to 3 percent GDP this year. North Carolina will do well even without landing a “whale” such as Amazon’s proposed second headquarters site, they said.
Speaking at the 16th annual Economic Forecast Forum sponsored by the North Carolina Chamber and the North Carolina Bankers Association, Bankers Association economist Harry Davis, John Connaughton, director of the University of North Carolina at Charlotte Economic Forecast, Mark Vitner, senior economist at Wells Fargo Securities, and North Carolina State University economist Mike Walden were all bullish on the 2018 economic outlook.
North Carolina is adding jobs more quickly than the national average, and the Triangle is expected to add 25,000 jobs this year.
Vitner said wages jumped 4.7 percent last year in Wake County after years of slow growth. But he said job growth in 2018 may be a bit slower due to the rising cost of living in urban areas.
“North Carolina is on a roll,” NC Chamber President Lew Ebert said. “We’ve seen job growth top 70,000 for each of the last four years. North Carolina hasn’t seen that kind of growth in decades.”
Such figures prompted Walden to note that the state doesn’t need “the big whales,” such as Amazon’s HQ2 or a rumored Toyota-Mazda auto plant
“North Carolina will continue to do just fine without them,” he said.
Davis agreed. “North Carolina’s economy is not driven by whales,” he said. “We have a very diverse economy.”
Vitner noted, however, that, “A big whale, if it’s the right kind of whale, can be transformative to a region,” citing the way landing a BMW plant changed South Carolina’s Upstate area.
Chris Chung, chief executive of the Economic Development Partnership of North Carolina, said in a separate forum that he pitches companies on North Carolina’s population growth.
“It essentially results in a talent pool that grows deeper by the day,” Chung said.
Even with that growth, however, he said the state has challenges in attracting large employers, such as limited broadband access in rural areas, constrainted infrastructure in urban areas and lack of direct air service to Asian markets.
Tax changes to have positive effects
The four economists expect positive economic effects from national and state business tax cuts.
“The tax cuts will have a larger impact than the general consensus,” Vitner said.
Unlike recent overhauls to the U.S. tax code, Connaughton said, the corporate tax cuts signed into law last month will boost the economy.
“U.S. companies have been essentially non-competitive, he said, noting almost every major trading partner of the U.S. had cut its business tax rates during the past decade. “Ours was simply out of line.”
The economists said the tax cuts will free up capital for investment.
“Business investing has been anemic,” Davis said, noting some companies are already passing along some of the benefits of lower taxes in the form of employee bonuses.
He warned, though, that some companies may take more risks, which could lead to problems in a few years.
Vitner said companies need to pay attention to risk because the U.S. is late in a business cycle, and a recession could occur within 18 months.
“Recovery takes about twice as long as the recession lasts,” he said.
At a Wednesday morning economic forum hosted by the Greater Raleigh Chamber of Commerce, Mark Yusko, founder and chief executive of Morgan Creek Capital Management and former chief investment officer for UNC-Chapel Hill, was more pessimistic about an impending recession. He said financial, business, and political leaders have been manipulating economic data to make the global economy look better than it is.
“You realize that, last year, global central banks put more money in global economies than during the bottom of the [recession]? If things are so awesome, why do we need $3 trillion of stimulus?” Yusko said. “Things aren’t awesome.”
Urban-rural divide growing
The economists were concerned about the urban-rural divide in the state and the nation.
Connaughton pointed out that 90 percent of employment and GDP growth in North Carolina comes from nine counties around Charlotte and the Triangle urban centers.
“That shows the scale of that divide,” he said.
Vitner noted that the unemployment rate in the Triangle is only 4 percent, less than the national figure. The same is not true for many rural counties.
“If a smartphone allows you to do more things, you want to be in a place where there are more things to do,” he said.
“People want to be in big urban areas,” Walden agreed, predicting that one-third of North Carolina’s 100 counties will “de-populate” over the next decade.
“It’s both ends of the age spectrum,” Davis said, noting retirees, not just millennials, want to be where the action is.
The economists also acknowledged a major divide in wages, with most new jobs either paying extremely well or slightly above minimum wage, with very little in between.
Yusko sounded the alarm on that point as well.
“Wages have been stagnant. Real wages have been declining for a long time for the average American,” he said. “Income inequality is the highest it’s ever been. Think about that. Wealth inequality is by far the highest it’s ever been. It got close in 1929 – a very similar time period.”
One of North Carolina’s almost “unfair” advantages is its education system, but even that will need to change to meet 21st century needs, said Walden.
“Millions of people will lose jobs to technology and need retraining. We need to do more about that on a higher education level to meet the needs of those folks.”
The economists also expressed some concern about the effects extremely low unemployment may have down the road a few years, such as rising wages that drive up inflation.
The only thing the economists see that could damage what looks to be an outstanding year for the economy would be some shocking external event.
“That could bring everything tumbling down,” said Connaughton.