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YOU DECIDE: Why is North Carolina's unemployment rate so high?

April 17, 2009

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu


Dr. Mike Walden
Media representatives:For a black-and-white or color copy of this photo, call 919.513.3127 or e-mail dave_caldwell@ncsu.edu.

Many times, a high ranking is good, but not always. Unfortunately, one ranking North Carolina currently has falls into the "wish we didn't have it" category. This is our statewide unemployment rate, which as of February, stood at 10.7 percent. We have the fourth highest jobless rate behind Michigan, South Carolina and Oregon.

The bad news is this rate will likely go higher. Even if the economy begins to pull out of the recession by year's end - as many economists predict - the ranks of the unemployed will continue to swell, probably into 2010.

This will happen for two reasons. First, economists expect the recovery from this recession to be slow, as consumers - who account for 70 percent of all economic activity - continue to restrain their spending as they pay down on debt.

Second, the job market is always slow to recover from a recession. In the last recession (2001), jobs didn't pick up until over a year after the recession officially ended. This is because employers want to be absolutely sure the economy is back before they take the important step of hiring new workers.

Some economists see North Carolina's unemployment rate peaking at between 12 and 15 percent in early 2010. This would be 2 to 5 percentage points higher than the forecasted top national rate.

The big question is why? Why is North Carolina's unemployment rate higher than the rate in 46 other states? And why has the rate doubled in just a year?

To answer this question I did some economic sleuthing. I looked for clues using the statistical tools of economic problem solving. What I found made sense. North Carolina is a state that currently has one foot in its traditional economy of the past and one foot in the new economy of the future. Importantly, both feet have slipped during this recession.

North Carolina is still a manufacturing state. The proportion of our workforce engaged in manufacturing is 30 percent higher than the national average. Manufacturing always gets hit harder during recessions for one simple reason: consumers and businesses can postpone purchasing manufactured goods.

Indeed, my sleuthing for this recession found that states - including North Carolina - with relatively more workers in manufacturing have had bigger jumps in unemployment.

The particular kind of manufacturing we have in North Carolina has also pushed up our jobless rate. We still have much above average employment in textiles and apparel firms, and my research found that textile states - like North and South Carolina - have had faster gains in unemployment in the last year.

Many people don't think of North Carolina as an auto manufacturing state, but we are - mainly in the production of vehicle parts and components. It's an industry the state has nurtured and developed as part of the "new" North Carolina economy. In fact, only 10 other states employ more auto-manufacturing workers than North Carolina.

Yet this recession has severely harmed the auto industry as consumers have cut back on car and truck buying in the face of declining incomes and wealth. More than 15 percent of these jobs have been lost in North Carolina since the start of the recession. States with high concentrations of auto-manufacturing workers have had some of the largest increases in unemployment over the past year.

Last, real estate and tourism are two industries that have become more important to the state economy as North Carolina grew and developed during the past two decades. Yet they're also industries that have been adversely affected by the recession, real estate due to the slowdown in the housing market and tourism from cutbacks in consumer spending. Job reductions in both industries have added to increases in statewide unemployment.

But I have to end with good news, and there is some. It is that North Carolina has a tradition of bouncing back strongly from recessions. Indeed, the fact that people aren't buying manufactured products like cars, aren't buying homes, and have cut back on their trips means there is a large pent-up demand developing for these purchases.

So, once the recession ends, we could very well see an explosion in car buying, home purchases and travel, which would lower our jobless rate. Is this a false hope or a realistic expectation? You decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

Posted by Dave at April 17, 2009 08:29 AM