Dr. Michael L. Walden, 919/515-4671 or email@example.com
Dec. 18, 1998
NC State Economist: Look for Economic Slowdown, But No RecessionFOR IMMEDIATE RELEASE
North Carolina's economic engine appears to be slowing down, but no recession is expected to stop it in its tracks, according to the October report of North Carolina Economic Outlook, which was released recently.
Outlook projections show North Carolina's Economic Activity Index rising only 1.4 percent from July 1998 to June 1999, compared to 6.1 percent growth rate for that same period during 1997-1998 and 10.4 percent from July 1996 to June 1997. In addition, the Economic Activity Index is expected to register slower growth in 13 of the state's 20 regions in the upcoming year. Outlook is supported by Centura Bank and North Carolina State University.
However, Dr. Michael L. Walden, NC State University economist and Outlook coordinator, says, "It's important to emphasize that the new forecasts do not suggest an impending recession. A recession is a contraction in economic growth, that is, the economy gets smaller. The new forecasts still indicate an expanding state economy, but the rate of expansion will be lower than in the past."
Walden notes that drops in the stock market, faltering foreign economies, and a stall in American manufacturing have foreshadowed this economic slowdown.
He says, "The forecasts in North Carolina Economic Outlook imply the slowdown is coming to North Carolina. The challenge for decision-makers is to be ready for it."
The Economic Activity Index is a composite measure of real (inflation-adjusted) retail sales, the real value of residential construction, employment, and the unemployment rate. The main factors behind the forecasted slowdown in the state's economy are reductions in the growth rates of employment and in residential construction. Employment growth is projected to fall from 1.6 percent in the July 1997 to June 1998 period to 0.8 percent in the July 1998 to June 1999 year. Growth in real residential construction value in the state is forecasted to decelerate from 14 percent to 5.4 percent.
Walden says that economic performance typically varies regionally in North Carolina. During July 1997 to June 1998, all regions except one (the Downeast region) grew. The top five performing regions were the Triangle, Far West, West, Greater Asheville, and Sandhills. In the upcoming year (July 1998 to June 1999), 13 regions are expected to experience slower growth and seven regions are predicted to enjoy faster economic activity.
The top five performing regions are projected to be the Mid-Coast, Greater Winston-Salem, Greater Wilkes, Roanoke, and Greater Gaston regions. The seven regions expected to experience faster growth in the next year are the Greater Mountain, Greater Wilkes, Greater Gaston, Greater Winston-Salem, Downeast, Mid-Coast, and Roanoke areas.
A major reason for the expected economic slowdown in North Carolina is slower employment growth. Employment is expected to increase by 1 percent or less in 15 of the state's 20 regions, as well as in the state as a whole. Two factors are likely behind this forecasted slower job market: a tight labor market with relatively low numbers of available unemployed persons, and weaker demand for new workers.
Outlook is available at the following Web site: http://www.ag_econ.ncsu.edu
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BACKGROUND ON THE ECONOMIC INDICES: North Carolina Economic Outlook represents an Economic Activity Index and year ahead forecasts for the entire State as well as 20 State regions. The Economic Activity Index is a combination of four key components of the economy: retail sales, residential construction activity, total employment, and the unemployment rate. The Index is calculated monthly from January 1982 to June 1998, and forecasts are presented monthly through June 1999.
ABOUT THE INDEX: The Economic Activity Index for a region is based on retail sales, the value of residential construction permits, total employment, and the unemployment rate in that region. These factors are used because they are readily available on a monthly basis at the county level. In constructing the Index, all data are first adjusted for regular seasonal variations, and dollar-valued factors are adjusted for general inflation. The adjusted data are then transformed so that they are unit free, are smoothed to eliminate unusual changes, and the Index is a weighted average of the transformed and smoothed data. Forecasts are made using a state space model. For ease of comparison, the Economic Activity Index is an index number with a base of 100 for July 1987.
ABOUT THE REGIONS: The regions are "commuting zones" as defined by the Economic Research Service of the U.S. Department of Agriculture. Commuting zones are groupings of counties in which enough commuting occurs between the counties that they can be considered as an interrelated economic area. Some commuting zones extend across state lines; however, only those counties in North Carolina are included in a region's Economic Activity Index. A map of the commuting zone regions follows.
USING THE INDEX: Three types of information are presented for the State and each region. First is a graph of the Economic Activity Index from January 1982 to June 1998 with forecasts through June 1999. This graph provides a quick way to see the performance of the regional economy in recent years as well as forecasts for the coming year. In most cases the graph shows growth in the regional economy in the early 1980s, a decline in the regional economy associated with the national recession in the early 1990s, and a rebound in growth since 1992. Second is a table that presents 12-month averages of the Index and the four components for the previous year, the current year, and the year-ahead forecast. All numbers are indices with a base of 100 for July 1987. Annual percentage changes are also presented (negative changes are in parentheses). Third is a commentary highlighting the major changes in the regional economy.
FOR MORE INFORMATION: The model which creates the Economic Activity Index and forecasts was developed by Dr. Jonathan Long, who has a specialty in econometrics and time series analysis. Mr. Mohammad Alenezi, a graduate research assistant in the Economics Program at North Carolina State University, compiled the current forecasts. The overall work of the project is directed and supervised by Dr. Michael L. Walden, a professor and extension economist in the Department of Agricultural and Resource Economics at North Carolina State University. Support for the project is provided by Centura Bank and North Carolina State University. Thanks is extended to them, as well as to the N.C. Employment Security Commission, the N.C. Department of Revenue, the N.C. Department of Labor, and the U.S. Department of Commerce, all of whom provided the raw data.
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NOTE TO EDITORS: Attached is the October 1998 economic outlook forecast for the state and its 20 regions.
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