YOU DECIDE: Is North Carolina an economic leader or laggard?

Date posted: August 3, 2012

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

The economic story of North Carolina in recent decades is astonishing. From a state that relied on farming and manufacturing to provide jobs, North Carolina remade its economy into one of the most transformative and dynamic in the country.

Much of this change had to be done for the state to survive economically. Although farming is still a major income producer, many jobs in the sector have been supplanted by modern machinery and technology. Manufacturing jobs, particularly in the historic mainstays of tobacco, textiles and furniture, were also replaced by technology or migrated to foreign countries, where labor was cheaper.

Yet, despite these headwinds, North Carolina forged ahead and attracted or developed new industries in health care, technology, machinery manufacturing, food processing and financial services. And what is perhaps even more amazing, the state did so while improving its economic ranking in the nation. Income per person in North Carolina as a percent of the same measure in the country rose from 80 percent in the 1970s to over 90 percent in the 1990s.

Yet there is worry today that the North Carolina economic miracle has waned. Income per person in the state, relative to income per person in the nation, began dropping in the late 1990s and is now in the upper 80 percent range. The state’s unemployment rate — perhaps the most watched economic indicator — surged during the recession to be one of the highest in the country and has been above 9 percent for more than 40 consecutive months.

These economic statistics don’t paint a positive picture for North Carolina. But let me muddy the waters by going inside the numbers for a closer look. Then I’ll let you decide if North Carolina’s economy is on or off the tracks!

The income per person numbers, generally referred to as “per capita income,” are derived by taking all income received by persons in the state and dividing by the population. Included in the income numbers will be money earned from working and income from pensions and Social Security as well as any funds received from public assistance. Also, the population includes everyone: working adults, retired persons and children.

Therefore, it is incorrect to interpret the per capita income calculation as the average amount a person earns from working. Fortunately, we do have those numbers, and they show a different trend for North Carolina. When we compare the average compensation (which includes earnings plus the value of any benefits like health insurance) per worker in North Carolina to the same measure for the nation, two results are seen.

First, this measure has continued to trend upward, meaning North Carolina has been getting closer to the national average, for the last four decades, with only a modest pause in the early 2000s. And second, the latest available comparison, for 2010, stands at its highest level ever, at 91 percent.

Now let me take you behind the unemployment rate numbers. There is no question North Carolina’s unemployment rate is high. But does this mean North Carolina has had a problem creating jobs?

Well, let’s see. In each of the last two job growth periods — spanning May 1991 to February 2001 and then from August 2003 to January 2008 — North Carolina created jobs at a faster rate than the nation. In the expansion of the 1990s, it was North Carolina 28 percent versus 22 percent for the nation, and in the growth phase of the mid-2000s, North Carolina led the country 11 percent to 6 percent in additional jobs.

Where our state has typically faltered is during recessions. In the recession of the early 2000s, North Carolina lost jobs at double the rate of the nation (4 percent versus 2 percent). And in the recent recession, our state lost 8 percent of its jobs compared to 6 percent for the country. Since the job market bottomed in early 2010, both North Carolina and the U.S. have added jobs at a rate near 3 percent.

So North Carolina has gone through more of a boom and bust cycle than the nation, and there are two reasons for this. One is the state’s relatively larger manufacturing base. In terms of production, manufacturing is more than 50 percent bigger as a share of the economy in North Carolina than in the nation. Manufacturing traditionally has been a very volatile economic sector, rising more during the good times but plunging deeper during recessions.

The second reason is in-migration. North Carolina is one of the leading states in the nation attracting people from other states. These new folks can help fuel growth during expansions but add to our unemployment in downturns.

Like the nation, North Carolina has certainly struggled during the recession and slow recovery. But our state’s economic track record is more complex than some headline numbers might suggest. So, you decide if we lead or lag!

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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 College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide/

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

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