Connaughton says, ‘Economy stable, but watch for wild cards this year’
The North Carolina economy continues to grow, but there are several areas to watch in 2016, UNC Charlotte economist John Connaughton reported today in the Babson Capital Management/UNC Charlotte Economic Forecast.
“The N.C. economy is growing slightly more than expected and continues the trend of growth in N.C. Gross State Product for the past four years. Unemployment is low. This year, the North Carolina economy is expected to increase by an inflation-adjusted rate of 3.0 percent over the 2015 level,” Connaughton said. “However, we need to be looking ahead at what could happen in the next six months and into 2017.”
During his quarterly economic forecast, Connaughton highlighted three major areas to watch this year:
- Federal interest rates: After raising the Federal Funds Rate target by 25 basis points in its December 2015 meeting, the Federal Reserve met again in January and did not announce another increase in rates. “Although the Federal Reserve indicated it would raise interest rates, the upcoming election year might have stalled the decision. Now it looks as though it might not raise rates anytime soon,” Connaughton said. The Federal Reserve meets again in mid-March.
- International trade: Connaughton indicated that global trade partners – particularly Canada, Mexico, the European Union, China and Japan – could be wild cards as they face economic slowdowns in their domestic economies. “If China goes into a protracted slowdown, what impact will that have on the United States and North Carolina?” Connaughton asked. “The answer is: negligible, but the question keeps arising.”
- The election: Connaughton emphasized that recessions are unlikely during an election year, so it can have a positive effect on the economy for now. However, “all bets are off for 2017,” he said. If a recession does occur during an election year, it will have dramatic effect on the outcome of the election, he said.
For 2016, Connaughton said that first quarter N.C. Gross State Product (GSP) is expected to increase at an annualized real rate of 3 percent. During the second quarter, GSP is expected to increase at an annualized real rate of 2.5 percent. In the third quarter, GSP is expected to record an annualized real growth rate of 2.9 percent. In the fourth quarter of 2016, GSP is expected to increase at an annualized real rate of 3 percent. Thirteen of the state’s 15 economic sectors are forecast to experience output increases during 2016. The sectors with the strongest expected growth are business and professional services with a projected real increase of 7 percent and information with a projected real increase of 7 percent.
Employment in North Carolina is expected to reach 4.37 million people in December 2016, an increase of 1.8 percent over the employment level of the previous year. The sector with the strongest employment increases in 2016 is construction at 8.1 percent. Both the U.S. and N.C. unemployment rates are expected to continue a downward trend throughout 2016.
Connaughton presented his quarterly forecast to members of the Charlotte business community and the media at a luncheon held at UNC Charlotte Center City. The Forecast is funded by Babson Capital Management LLC.