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Babson Capital/UNC Charlotte Economic Forecast December 11, 2012

The data used in this report comes from the websites for the U.S. Department of Commerce's Bureau of Economic Analysis (www.bea.gov) and the North Carolina Employment Security Commission (www.ncesc.com) as of November 14, 2012. The opinions expressed in this Forecast by Professor Connaughton (the Babson Capital Professor of Financial Economics at the Belk College of Business) and UNC Charlotte do not necessarily represent the views of Babson Capital Management LLC or its affiliates.


FORECAST HIGHLIGHTS Annual Growth Rates In Real GSP 3

• Ten of the state’s 15 economic sectors are forecast to experience output increases during 2012. The sectors with the strongest expected growth are Business and Professional (B&P) Services with a projected real increase of 4.2 percent; Mining with a projected real increase of 3.4 percent; Hospitality and Leisure (H&L) Services with a projected real increase of 2.8 percent; Information with a projected real increase of 2.7 percent; and Construction with a projected real increase of 2.4 percent.

2 2.2

1

2.3 0.6

0 -1

1.8

-2.2

-2

2009

2010

2011

2012f

2013f

GSP/Gross State Product is a yardstick that measures the total output of a state’s economy for a given year. It is analogous to the U.S. Gross Domestic Product (GDP).

Year-End Seasonally Adjusted North Carolina Unemployment Rates 14 12 10 8 6 4 2

11.2

2009

10.6

2010

10.4

2011

9.3

2012f

• For 2012, North Carolina real GSP is expected to increase by 0.6 percent over the 2011 level.

9.0

2013f

• For 2012, North Carolina establishments are forecast to add 38,300 net additional jobs, an increase of 1.0 percent. • The North Carolina unemployment rate is expected to remain around 9.3 percent for the rest of 2012. • For 2013, North Carolina real GSP is forecast to increase by 1.8 percent over the 2012 level. • Fourteen of the state’s 15 economic sectors are forecast to experience output increases during 2013. The sectors with the strongest expected growth are Business and Professional Services with a projected real increase of 6.2 percent; Transportation, Warehousing and Utilities (TWU) with a projected real increase of 2.4 percent; Agriculture, Retail Trade, Information, and Other Services each with projected real increases of 2.3 percent; and Durable Goods Manufacturing with a projected real increase of 1.9 percent. • For 2013, North Carolina establishments are forecast to add 56,700 net additional jobs, an increase of 1.4 percent.


Quarterly Growth Rates in Real GSP

2012 GSP

4

Gross State Product (GSP) is expected to reach a level of $449,493.3 million in 2012. Real (inflation-adjusted) GSP is expected to increase by 0.6 percent over the 2011 level. This growth in 2012 would follow very modest growth in 2011 and result in three years of slow growth since the recovery began.

3 2 1

2.3

1.5

2.0

1.2

0 2012 I

For 2012, first quarter GSP increased at an annualized real rate of 1.5 percent. During the second quarter, GSP increased at an annualized real rate of only 1.2 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 2.3 percent. In the fourth quarter of 2012, GSP is expected to continue the slow pace of growth and increase at an annualized real rate of 2.0 percent.

2012 II 2012 IIIf 2012 IVf

2012 Highlights 2012 * Current Dollars Total Gross Product

449,493.3

Percent Change 2.2

Constant (2000 Dollars) Total Gross Product Agricultural Mining Construction Manufacturing Durable Goods Nondurable Goods TWU Wholesale Trade Retail Trade Information FIRE B&P E&H H&L Services Government

389,701.3 3,267.8 133.40 12,645.27 78,428.9 37,577.2 40,851.7 12,952.5 19,141.2 23,411.5 13,886.9 82,625.5 41,659.9 29,068.7 12,147.6 7,530.7 52,801.5

0.6 -8.0 3.4 2.4 -2.4 -1.7 -3.1 1.5 0.3 0.5 2.7 1.4 4.2 1.0 2.8 -0.4 0.0

* millions of dollars

While the state has been in recovery since July of 2009, it has been a weak recovery. For 2012, both the U.S. and state economies have recorded very slow growth and have been close to entering a double-dip recession. GSP growth in 2012 has been considerably weaker than the growth rates during 2011 and 2010. The modest growth during the first two years of the recovery, followed by the weak growth expected during 2012, will continue the pattern of weak job growth experienced during this recovery. By the end of 2012 the state is expected to have replaced only 120,100 of the 333,400 jobs lost during the recession. That means that 36.0 percent of the total jobs lost will have been replaced in the last three years. At this pace it will take another four or five years to gain back the jobs lost during 2008 and 2009. Despite the modest increase in GSP expected during 2012, the state’s economy is still at risk. Recession in the Eurozone and the possibility of an automatic tax increase in January of 2013, along with federal spending cuts, could slow the economy even more.


2012 Total Real GSP Growth 0.6% 0.8 0.0 3.3 3.2

Agriculture -8.0 Mining 3.4 TWU 1.5 Construction 2.4

9.6

Durables -1.7

Percent of Total Real GSP

10.5

Nondurables -3.1

4.9

Wholesale Trade 0.3

6.0

Retail Trade 0.5

3.6

Information 2.7

21.2

10.7

FIRE 1.4

B&P Services 4.2

7.5

E&H Services 1.0

3.1 1.9

H&L Services 2.8 Other Services -0.4

13.5

Government 0.0

Percent of Real Sector Growth

2012 GSP SECTOR ANALYSIS The chart to the left presents the projected contributions of each major economic sector to North Carolina’s Gross State Product (GSP). The real (inflation-adjusted) growth rate for 2012 is forecast to increase by 1.5 percent. Projected real growth rates for each sector (displayed in black type) are plotted on the horizontal axis. Projected percentages of GSP contributed by each sector (displayed in green type) are plotted on the vertical axis. The resulting rectangles show the expected weighted importance of each sector’s growth during 2012. All of the sector information presented in the table to the left is based on the new North American Industry Classification System (NAICS) definitions. Ten of the state’s 15 economic sectors are forecast to experience output increases during 2012. The sectors with the strongest expected growth are Business and Professional (B&P) Services with a projected real increase of 4.2 percent; Mining with a projected real increase of 3.4 percent; Hospitality and Leisure (H&L) Services with a projected real increase of 2.8 percent; Information with a projected real increase of 2.7 percent; Construction with a projected real increase of 2.4 percent; Transportation, Warehousing and Utilities (TWU) with a projected real increase of 1.5 percent; Finance, Insurance and Real Estate (FIRE) with a projected real increase of 1.4 percent; and Educational and Health (E&H) Services with a projected real increase of 1.0 percent. Two other sectors are also expected to experience output growth but at rates less than the overall state level. These sectors are Retail Trade with a projected real increase of 0.5 percent, and Wholesale Trade with a projected real increase of 0.3 percent. The Government sector is expected to be flat in 2012. Four sectors are expected to experience declines during 2012. These sectors are Agriculture with a projected decline of 8.0 percent, Nondurable Goods and Durable Good Manufacturing with projected declines of 3.1 and 1.7 percent, respectively; and Other Services with a projected decline of 0.4 percent.


Quarterly Growth Rates in Forecasted Real GSP

2013 GSP

4 3

Gross State Product (GSP) is expected to reach a level of $467,172.3 million in 2013. Real (inflation-adjusted) GSP is expected to increase by 1.8 percent over the 2012 level. This growth in 2013 would follow modest growth in 2012 and result in four years of slow but uninterrupted growth since the recovery began.

2 1

1.8

1.6

2013 I

2013 II

2.3

1.7

0 2013 III 2013 IV

2013 Highlights 2013 * Current Dollars Total Gross Product

467,172.3

Percent Change 3.9

Constant (2000 Dollars) Total Gross Product Agricultural Mining Construction Manufacturing Durable Goods Nondurable Goods TWU Wholesale Trade Retail Trade Information FIRE B&P E&H H&L Services Government

396,818.3 3,341.9 133.7 12,779.6 79,614.1 38,279.8 41,334.3 13,260.9 19,380.7 23,948.6 14,202.7 83,632.4 44,240.1 29,554.8 12,224.0 7,701.1 52,803.8

1.8 2.3 0.2 1.1 1.5 1.9 1.2 2.4 1.3 2.3 2.3 1.2 6.2 1.7 0.6 2.3 0.0

* millions of dollars

For 2013 first quarter GSP is expected to increase at an annualized real rate of 1.8 percent. During the second quarter, GSP is expected to increase at an annualized real rate of 1.6 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 1.7 percent. In the fourth quarter of 2013, GSP is expected to grow at an annualized real rate of 2.3 percent. While the state has been in recovery since July of 2009, it has been a weak recovery. For 2013, the economy is expected to continue the 2012 pattern of modest GSP growth. Continued uncertainty in Europe and uncertainty about tax increases and spending cuts in 2013 are the main concerns and the principal reason that growth in 2013 will again be sluggish. There are no quick fixes in Europe. The Eurozone problems will be with us for several years and, because Europe represents the largest US export market, their double dip in 2012 will be influential in determining US growth rates for several years. The possibility of going over the “fiscal cliff� on January 1, 2013 is an even greater concern. Should the Congress and President not agree on a tax plan and the Bush tax cuts phase out and the sequestration spending cuts begin, the modest growth currently forecast for 2013 becomes a recession. Both the tax increases and spending cuts will impact GDP by over $500 billion for 2013. That is almost 3 percent of GDP. The take home income impact will be felt by almost all Americans and produce spending cuts by consumers and investment cuts by businesses.


2013 Total Real GSP Growth 1.8% 0.8 0.0 3.3 3.2

Agriculture 2.3 Mining 0.2 TWU 2.4 Construction 1.1

9.6

Durables 1.9

Percent of Total Real GSP

10.4

Nondurables 1.2

4.9

Wholesale Trade 1.3

6.0

Retail Trade 2.3

3.6

Information 2.3

FIRE 1.2

21.1

11.1

B&P Services 6.2

7.4

E&H Services 1.7

3.1 1.9

H&L Services 0.6 Other Services 2.3

13.3

Government 0.0

2013 GSP SECTOR ANALYSIS The chart to the left presents the projected contributions of each major economic sector to North Carolina’s Gross State Product (GSP). The real (inflation-adjusted) growth rate for 2013 is forecast to increase by 1.8 percent. Projected real growth rates for each sector (displayed in black type) are plotted on the horizontal axis. Projected percentages of GSP contributed by each sector (displayed in green type) are plotted on the vertical axis. The resulting rectangles show the expected weighted importance of each sector’s growth during 2013. All of the sector information presented in the table to the left is based on the new North American Industry Classification System (NAICS) definitions. Fourteen of the state’s 15 economic sectors are forecast to experience output increases during 2013. The sectors with the strongest expected growth are Business and Professional (B&P) Services with a projected real increase of 6.2 percent; Transportation, Warehousing and Utilities (TWU) with a projected real increase of 2.4 percent; Agriculture, Retail Trade, Information, and Other Services, each with projected real increases of 2.3 percent; and Durable Goods Manufacturing with a projected real increase of 1.9 percent. Seven other sectors are also expected to experience output growth, but at rates less than the overall state level. These sectors are Educational and Health (E&H) Services with a projected real increase of 1.7 percent; Wholesale Trade with a projected real increase of 1.3 percent; Nondurable Goods Manufacturing with a projected real increase of 1.2 percent; Finance, Insurance and Real Estate (FIRE) with a projected real increase of 1.2 percent; Construction with a projected real increase of 1.1 percent; Hospitality and Leisure (H&L) Services with a projected real increase of 0.6 percent; and Mining with a projected increase of 0.2 percent. Only the government sector is expected not to record economic growth during 2013.

Percent of Real Sector Growth


2012 Year-End Employment Trends 0.1 4.3 5.8 5.2

Percent of Total Employment

4.3

Mining -3.0 Construction -4.6 Durables 0.0 Nondurables

2.2

Wholesale Trade 3.0

11.2

Retail Trade 0.5

3.0 1.7

TWU 0.6 Information 2.4

5.1

FIRE 1.0

2012 EMPLOYMENT SECTOR ANALYSIS The sector employment analysis presented on this page is based on the new North American Industrial Classification System (NAICS). Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 3,970,400 persons in December 2012, an increase of 1.0 percent over the employment level in December 2011. The state is expected to gain 38,300 net jobs during the year. Ten of the state's 14 nonagricultural sectors of the economy are expected to experience employment increases during 2012. The sectors with the strongest employment increases in 2012 are Wholesale Trade at 3.0 percent, Business and Professional (B&P) Services at 2.6 percent, and Hospitality and Leisure (H&L) Services at 2.4 percent.

2012 Employment Highlights 13.2

B&P Services 2.6

14.0

E&H Services 1.2

10.4

H&L Services 2.4

4.0

Other Services -0.2

17.6

Government 0.2

Percent of Sector Employment Growth

Year-End* Total Establishment Employment 3,970.4 Mining 5.3 Construction 169.6 Manufacturing 438.6 Durable Goods 230.2 Nondurable Goods 208.4 Wholesale Trade 169.7 Retail Trade 445.2 TWU 120.3 Information 69.3 FIRE 203.1 B&P Services 524.2 E&H Services 556.7 H&L Services 412.3 Other Services 156.9 Government 699.2 *thousands of persons

Percent Change 1.0 -3.0 -4.6 1.0 0.0 2.2 3.0 0.5 0.6 2.4 1.0 2.6 1.2 2.4 -0.2 0.2


2013 Year-End Employment Trends 0.1 4.3 5.6

Percent of Total Employment

5.3

Mining -7.5 Construction 1.9 Durables -1.2 Nondurables

3.2

4.3

Wholesale Trade 1.2

11.3

Retail Trade 2.0

3.0 1.7

TWU -0.9 Information -0.7

5.1

FIRE 0.4

2013 EMPLOYMENT SECTOR ANALYSIS The sector employment analysis presented on this page is based on the new North American Industrial Classification System (NAICS). Seasonally adjusted nonagricultural employment in North Carolina is expected to reach 4,027,200 persons in December 2013, an increase of 1.4 percent over the employment level in December 2012. The state is expected to gain 56,700 net jobs during the year. Ten of the state's 14 nonagricultural sectors of the economy are expected to experience employment increases during 2013. The sectors with the strongest employment increases in 2013 are Nondurable Goods Manufacturing at 3.2 percent, Government at 2.1 percent, and Retail Trade at 2.0 percent.

2013 Employment Highlights 13.2

B&P Services 1.4

14.1

E&H Services 1.7

10.4

H&L Services 1.8

3.9

Other Services 0.8

17.7

Government 2.1

Percent of Sector Employment Growth

Year-End* Total Establishment Employment 4,027.2 Mining 4.9 Construction 172.7 Manufacturing 442.5 Durable Goods 227.5 Nondurable Goods 215.0 Wholesale Trade 171.8 Retail Trade 454.1 TWU 119.2 Information 68.8 FIRE 203.9 B&P Services 531.6 E&H Services 566.2 H&L Services 419.5 Other Services 158.1 Government 713.9 *thousands of persons

Percent Change 1.4 -7.5 1.9 0.8 -1.2 3.2 1.2 2.0 -0.9 -0.7 0.4 1.4 1.7 1.8 0.8 2.1


2012 NORTH CAROLINA UNEMPLOYMENT RATES 11 10.5 10 9.5 9 NC Seasonally Adjusted

8.5 NC Seasonally Adjusted Forecast

8 US Seasonally Adjusted

7.5 7 JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

FORECAST reports historical seasonally adjusted monthly unemployment rates for North Carolina and the United States and forecasts the seasonally adjusted monthly unemployment rate for North Carolina. The seasonal adjustment accounts for variations in labor market conditions that cause regular fluctuations in the unemployment level each month. The graph at the top of this page provides a summary of the monthly unemployment rates for 2012. The solid green line represents the North Carolina seasonally adjusted historic unemployment rate. The seasonally adjusted unemployment rate for the United States is represented by the solid blue line. The North Carolina seasonally adjusted unemployment rate forecast is represented by the solid yellow line. The seasonally adjusted rates for the United States and North Carolina can be compared directly and provide more reliable estimates than the unadjusted rates. The North Carolina seasonally adjusted unemployment rate began the year at 10.2 percent, while the United States rate was 8.3 percent. By October the North Carolina rate had fallen to 9.3 percent, while the United States rate had fallen to 7.9 percent. Both the U.S. and North Carolina unemployment rates are expected to remain constant throughout the rest of the year, and by December the North Carolina unemployment rate is expected to be 9.3 percent.

Babson Capital - UNC Charlotte Economic Forecast - Dec 2012  
Babson Capital - UNC Charlotte Economic Forecast - Dec 2012  

North Carolina Economic Forecast

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