Economic Barometer CAMERON SCHOOL OF BUSINESS H. DAVID AND DIANE SWAIN CENTER FOR BUSINESS AND ECONOMIC SERVICES Volume V, Issue 4 January 2014 Inside this issue: The US Economy 1 Growth in GDP 1 Labor Market 1 Aggregate Demand 2 Stock Market 3 Recent Developments on the National Economy Recent readings on the U.S. economy have generally been on the upbeat side. As shown in the table below, growth in real GDP broke out of the sluggish 2-percent pace that had characterized much of this recovery through the first half of 2013. It climbed to a 3-½ percent pace over the second half of last year. It is noteworthy that final demands for U.S. produced goods (final sales) were not as robust in 2013 as was production of final output, implying that build-ups in inventories played an important role in supporting growth in output and employment last year adding about ¾ percentage points to output growth over the first three quarters of last year. Outlook 4 The Local Economy 5 Unemployment Rates 6 Wilmington Employers 7 Retail Sales Growth 8 Port Container Tonnage 8 Single-Family Home Sales Median Family Income 10 9 Growth in Real GDP (Percent change, annual rate) 2012 2013 H1 Q3 Q4 Real GDP 2.0 1.8 4.1 3.2 Real Final Sales 2.5 1.2 2.5 Labor Market. The December jobs report threw some cold water on the exuberance that had been building on the outlook, as employment grew only 74,000 during the month in contrast to the more than 210,000 monthly pace over the previous four months. However, this would appear to be an air pocket and not a sustained slowdown. The chart below illustrates that initial claims for unemployment insurance have fallen to levels that have, in the past, been associated with solid and sustained gains in payrolls. Learn about our benefactors, H. David and Diane Swain at www.csb.uncw.edu/ swaincenter
Page 2 Economic Barometer Turning to other indicators, the excess of the hiring rate over the layoff rate, shown in the next chart, has continued to move higher over recent months and has recovered much of the drop that occurred during the Great Recession. This chart suggests, though, that there is scope for some further improvement. Aggregate Demand. Recent indicators point to improving aggregate demand. The budget agreement reached in December 2013 reduces the amount of near-term restraint coming from the federal budget. It likely also relieved some angst about whether a polarized Congress can agree on much of anything, a factor that had been contributing to spending caution by businesses and households. The deal trades near-term relief for more spending restraint down the road, but still leaves an unsustainable longer-term budget and debt situation. Consumer spending (real personal consumption expenditures or PCE) picked up over the second half of last year, as shown in the chart below. Diminishing effects of the tax hikes that kicked in at the start of last year, improving job gains, and increases in stock prices and home prices all encouraged households to step up their spending.
Volume V, Issue 4 Page 3 Turning to the stock market, the tumble in share prices early in the year has raised concerns about whether the bull market has run its course. The chart below, which can be thought of as an aggregate priceearnings (P-E) ratio, indicates that share prices in relation to earnings have been in line with normal experience. So long as corporate earnings do not take an unexpected dip, stock prices, in the aggregate, should hold up fairly well. With home prices likely to continue their recovery, household wealth should support moderate growth in consumer spending in the coming quarters. The credit crunch, which was a major factor holding back business and household spending, continues to fade. The crunch manifested itself in the form of many borrowers being dropped by their lenders as underwriting standards tightened substantially, by credit lines being curtailed for those still able to borrow, and by higher loan spreads over benchmark interest rates. This latter effect can be seen in the chart above, which shows the spread of the average interest rate on business loans over the federal funds rate. This spread spiked during the Great Recession, but has fallen and retraced much of that rise over the past couple years. While many small businesses and households still face difficulties in getting favorably priced credit, the overall restraint from this headwind has diminished considerably.
Page 4 Economic Barometer A further plus going forward will be the external sector. Growth is picking up elsewhere in the industrialized world and the dollar has weakened a bit against major currencies over recent months, helping to improve the competitive posture of U.S. exporters. These developments will be boosting export growth. In contrast to these positive developments, business and consumer sentiment remain somewhat subdued for this stage of a business recovery, despite some recent gains. Concerns about regulatory, health care, and budget policies are still fostering spending caution. As such, this suggests that the pickup in growth in aggregate demand in coming quarters will be limited. Outlook. Growth in output is expected to register a brisker pace in 2014 and 2015 than has characterized recent years. However, it is unlikely to stay at the elevated rate of the second half of last year, because the contribution of inventories will diminish as the recent boost in inventory investment has moved inventory levels into alignment with sales. Both household spending on consumption and business spending on investment will contribute to faster demand growth, as will exports. In these circumstances, the Fed will likely continue with its tapering strategy, reducing monthly purchases of Treasury and mortgage-backed securities by $10 billion at each of the upcoming meetings of the Federal Open Market Committee. This strategy appears to be well anticipated by market participants and should not result in market disruptions nor impede the expansion. Nonetheless, markets will remain skittish about central bank asset purchases in the United States and abroad, as these programs are unprecedented in their nature and scope and there is no prior experience to guide understanding of how the unwinding will play out. Some Fed officials have been concerned that this below-target pace could persist, or that inflation could even slow further. Weak inflation readings, combined with a reduction in inflations expectations by the public, could result in new challenges for the Fed. Fortunately, inflation expectations have been fairly stable and centered around the 2 percent target. At this point, below-target inflation likely is not serious enough to cause the Fed to depart from its tapering strategy.
Volume V, Issue 4 Page 5 The Local Economy Effective February 2013, the Wilmington, NC Metropolitan Statistical Area (MSA) was reconfigured to include New Hanover and Pender Counties. Previously, Brunswick County was included in the Wilmington MSA. Brunswick County is now part of the Myrtle Beach-Georgetown, SC MSA. The chart below shows growth rates in real (inflation-adjusted) gross domestic product (GDP) for five area MSA s over the period 2008-12. As can be seen the Wilmington MSA weathered the 2008-09 national recession better than the Myrtle Beach-Georgetown, SC MSA. The Fayetteville, NC and Jacksonville, NC MSA s experienced rather strong growth during 2008 and 2009, most likely due to the importance that the military plays and continues to play in their respective economies. The Wilmington MSA economy is forecast to grow 2.6 percent over 2013 and 2.5 percent over 2014. Source: Bureau of Economic Analysis, U. S. Department of Commerce.
Page 6 Economic Barometer Unemployment Rates Unemployment rates in the Wilmington MSA have been trending downward since the third quarter of 2011. Despite these declines, recent area county unemployment rates are more than twice their levels in 2007, the year preceding the start of the 2008-09 national recession. Source: Division of Employment Security, NC Department of Commerce. Average monthly Wilmington area employment gains continue to be relatively small. Four years and one quarter (17 quarters) following the end of the July 1990/March 1991 and the January 2008/June 2009 recessions, these gains were dramatically below those for the same period following the April 2001/December 2001 recession. Source: Division of Employment Security, NC Department of Commerce.
Volume V, Issue 2 Economic Barometer More than one-half of total employment in the Wilmington MSA during the second quarter of 2013 was in the four sectors of accommodations and food services, retail trade, local government, and heath care and social assistance. The highest average weekly wages were paid by the utilities, public administration, manufacturing, and federal government sectors. Source: Division of Employment Security, NC Department of Commerce. Although the statewide increase was larger, tourism expenditures rose noticeably between 2011 and 2012 throughout southeastern North Carolina. New Hanover County led with an 8 percent rise, followed by Brunswick County with 6.7 percent and Pender County with 5.5 percent. Mecklenburg, Wake, Guilford, Dare, and Buncombe Counties led the state in tourism expenditures. Source: Division of Tourism, Film and Sports Development, NC Department of Commerce.
Volume V, Issue 4 Page 8 The retail sector has regained virtually all that it lost during the 2008-09 national recession. Retail sales growth was quite volatile over 2010-2012. For the year ending October 2013 (November 2012-October 2013), retails sales were up 8.7 percent in Brunswick County, 2.4 percent in New Hanover County, 3.5 percent in Pender County, and 3.2 percent in North Carolina. Source: NC Department of Revenue. After rising over 2010 and 2011 and falling over 2012, container tonnage at the state port facilities in Wilmington rose by 4.4% over 2013. Source: NC State Ports Authority.
Page 9 Economic Barometer The residential real estate market has stabilized and has resumed moderate growth. Since year-end 2008, sales of existing single-family homes (five-month centered moving average) have risen throughout Southeastern North Carolina, with the most recent data showing that they have rebounded to their late- 2007 levels. From their low reached in late 2007, current sales in the area served by the Brunswick County Association of Realtors (BCAR) were up 138 percent as of the third quarter of 2013. The comparable rise in the area served by the Wilmington Area Association of Realtors (WRAR) from the low reached in late 2007 was 133 percent. Despite this growth, current sales in the area served by the BCAR are less than their high in mid-2005, while the same in the area served by the WRAR are slightly more than 50 percent above their high in mid-2005. Source: NC Association of Realtors.
H. DAVID AND DIANE SWAIN CENTER FOR BUSINESS AND ECONOMIC SERVICES Recently released median family income figures show that two area counties, Brunswick and New Hanover, had median family incomes at or above the comparable state figure in 2012. However, growth rates were most likely reduced by the 2008-09 national recession. Source: US Bureau of the Census. Computer Information Systems Building, Suite 1004 University of North Carolina Wilmington Phone: 910-962-2237 Fax: 910-962-3579 E-mail: mackethanj@uncw.edu www.uncw.edu/swaincenter Dr. Gary Miller Chancellor, UNCW Larry Clark Dean, Cameron School of Business Dr. Rebecca Porterfield Director of SCBES Dr. William (Woody) Hall Senior Economist Dr. Thomas Simpson Executive in Residence Allison Rankin Program Director Jennifer Mackethan Administrative Assistant The H. David and Diane Swain Center for Business and Economic Services at UNC Wilmington is the business research and outreach division for the Cameron School of Business. Center staff collect and analyze local, state, and national economic data that impact our region and its growth. The H. David and Diane Swain Center for Business and Economic Services also provides professional and executive educational opportunities for organizations and professionals with major emphasis on business training, entrepreneurship and real estate. For more information about The H. David and Diane Swain Center for Business and Economic Services, visit our Web site, www.uncw.edu/swaincenter or contact Jennifer Mackethan at mackethanj@uncw.edu.