RALEIGH N.C. State University economics professor Dr. Michael Walden released his economic forecast for the first quarter of 2017 Tuesday foreseeing that the Old North State could benefit from the policy changes under the incoming Trump administration. Expected federal tax cuts, increased military spending, and even expanded offshore energy exploration could lead North Carolina’s aggregate growth to top national averages in 2017.While the national economy registered positive growth in 2016, it fell under historical averages in continuation of a trend in place since the Great Recession, wrote Walden. Although North Carolina outpaced the nation in growth, it also continued its own concerning trend.”North Carolina’s rebound from recessions has become progressively less robust during the last three business cycles,” wrote Walden. “Compared to the nation, North Carolina has had significantly slower growth in several high productivity sectors including utilities, finance, nondurable manufacturing, and agriculture and faster growth in low productivity sectors like arts/leisure/hospitality, personal services, and administrative services.”In particular, the decline in the state’s non-durable manufacturing sector, once a mainstay of the North Carolina economy, has been more than four times greater than the sectors’ downsizing at the national level in the current economic expansion.”The continued transformation of the State’s economic drivers has resulted in “unevenness”, reported Walden, resulting in larger urban/rural economic divides and a “hallowing out” of middle-paying jobs, even as higher and lower paying jobs make advances. Despite this trend, Walden points to strong job advances across rural North Carolina as a truly bright spot of 2016.New hope in the New YearThe election of Republican Donald Trump as president in November, and his business-friendly tax and economic policies, seemed to allay capital markets of recent stagnation fears and, according to Walden, represented an “attitude shift” as the year drew to a close.”Specifically, the business world expects substantial tax reductions, major investments in public infrastructure, an overhaul of key financial, energy, and environmental regulations, and a strong pro-business attitude from the new president that will significantly increase domestic production, sales, and incomes from the trend set since the end of the Great Recession,” states Walden.Still, Walden notes that while the U.S. stock indices have risen to all-time highs anticipating Trump’s policies, capital markets are forward looking and the final form of policy proposals are still uncertain. Moreover, some Trump policy proposals could work against economic growth in 2017 and beyond.”Perhaps the biggest question mark for the Trump Administration will be their proposals on international trade,” wrote Walden, adding that protectionist trade policies could invite reciprocal action by other countries that result in slowing of U.S. export growth and higher costs for domestic consumers.The trade policies could affect some of the higher growth industries in North Carolina, predicted Walden.”In 2015, 16% of the North Carolina economy was directly related to international trade ($81 billion of export and import activity combined from a total economy of $495 billion),” reported Walden. “If a ‘trade war’ occurred that significantly reduced the state’s exports, then the state’s leading export sectors including advanced manufacturing, agriculture, auto parts, and technology- could be adversely affected.”A counterweight to those risks could come in the form of increased military spending and expanded energy exploration that benefits North Carolina’s economy.”North Carolina is the home to the largest military base in the world, at Ft. Bragg, as well as several other major installations,” wrote Walden. “If greater military spending results in significantly more military personnel, then North Carolina and especially the Fayetteville area could see a big boost in economic activity.”Additionally, Walden states that Trump’s expected easing of energy regulations could lead to substantial boosts in North Carolina economic activity.”It is estimated the largest quantity of undersea oil deposits on the eastern seaboard are off the coast of North Carolina,” states Walden. “If these deposits were accessed and produced, I calculate the annual economic activity could generate $1.9 billion of income and 17,000 permanent jobs.”Altogether, Walden expects North Carolina to add approximately 100,000 jobs over the course of 2017, with large and medium-sized metro areas seeing the lowest unemployment rates. North Carolina’s expected 2017 population growth will also outpace the nation by 30 percent, says Walden, representing a demographic tailwind that will add momentum for faster economic growth.However, Walden ends his forecast with a disclaimer regarding the uncertainty of implementing federal policy proposals, divided state government, and the myriad risks associated with a globally interdependent world of economics and finance.”Both national and state policymakers…will be faced with forces beyond their control, including an aging society, a workforce requiring more cognitive skills, technologically-induced unemployment, faster growth in metropolitan regions, a world where economic competition is now global rather than local or national, and as always unexpected events (both positive and negative) that force forecasts and expectations to be tossed aside,” cautions Walden.
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