North Carolina Economic Forecast Third Quarter Report (Sept. 22, 2022)

HIGHLIGHTSFORECAST

• For 2022, annual NORTH CAROLINA real (inflation-adjusted) GDP is expected to

•increaseby2.1percentoverthe2021level.Tenofthestate’s15economicsectorsareexpectedtoexperienceoutput increases during 2022. The sectors with the strongest expected growth rates are hospitality and leisure services with a real increase of 10.3 percent, information with a real increase of 8.6 percent, agriculture with a real increase of 7.8 percent, business and professional services with a real increase of 6.2 percent, other services with a real increase of 3.7 percent, government with a real increase of 2.9 percent, and

•educationalandhealthserviceswitharealincreaseof2.7percent.For2022,NORTHCAROLINAestablishmentsareexpectedtoadd162,400 net jobs

•duringtheyear,anincreaseof3.4percent.For2023,NORTHCAROLINArealGDPisforecast

to increase by 1.8 percent over •the2022level.All15ofthestate’s economic sectors experienced output increases during 2023. The sectors with the strongest growth rates are hospitality and leisure services with a real increase of 4.2 percent; information with a real increase of 2.9 percent; other services with a real increase of 2.7 percent; educational and health services with a real increase of 2.6 percent; transportation, warehousing, and utilities (TWU) with a real increase of 2.5 percent; business and professional services with a real increase of 2.3 percent; construction with a real increase of 2.2 percent; and

•agriculturewitharealincreaserateof2.1percent.For2023,NORTHCAROLINAestablishmentsareforecast to add 74,000 net jobs,

•anincreaseof1.5percent.ByDecemberof2022,the

state’s unemployment rate is expected to rise slightly to 3.6percent.

2022 Highlights

Gross Domestic Product (GDP) is forecast to reach a level of $686,627.4 million in 2022. Annual real (inflation-adjusted) GDP is expected to increase by 2.1 percent over the 2021 level. This growth in 2022 will represent the second full ForyearofgrowthsinceCOVID-19.2022,firstquarterGDPdecreasedbyanannualizedrealrateof0.9 percent.

During the second quarter, GDP is expected to decrease by an annualized real rate of 0.5 percent. In the third quarter, GDP is expected to increase by an annualized real rate of 1.6 percent. In the fourth quarter of 2022, GDP is Forexpectedtoincreasebyanannualizedrealrateof1.3percent.2022,therearetwobigstoriesthatareplayingoutoverthe year. First is the decline in both U.S. and North Carolina GDP in the first and second quarters. In the first and second quarters of 2022, U.S. GDP declined by 1.6 and 0.6 percent, while North Carolina real GDP dropped by 0.9 and 0.5 percent. This decline began because of the emergence of the Omicron variant in the first quarter but continued on through the second quarter as supply chain problems persisted in many sectors of the economy. The second big issue is the impact that inflation is having on the economy, and the response that the Federal Reserveisimplementing.Inflationisbeginningtohaveaseriousimpacton real GDP growth. For example, in the first and second quarters of 2022 current dollar GDP increased by 6.6 and 8.4 percent. So while consumers and businesses spent 6.6 and 8.4 percent more on goods and services during the first and second quarters, because of inflation that increase in current dollar

Inspendingresultedinadeclineofactualgoodsandservicesdelivered.additiontoinflation,thefirstandsecondquartersexperienced an unprecedented decline in productivity. During the first quarter of 2022, labor productivity declined by 7.4 percent. This is the largest quarterly decline in productivity since 1947. In the second quarter, labor productivity decline by 4.1 percent. This decline is a serious issue as the U.S. economy has never experiencedatwoquarterproductivitydeclineofthismagnitude.

The chart to the left presents the projected contributions of each major economic sector to North Carolina’s Gross Domestic Product (GDP). The real (inflation-adjusted) growth rate for 2022 is forecast to increase by 2.1 percent. Projected real growth rates for each sector (displayed in black type) are plotted on the horizontal axis. Projected percentages of GDP 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 2022. All of the sector information presented in the table to the left is based on the new North

TenAmericanIndustryClassificationSystem(NAICS)definitions.ofthestate’s15economicsectorsareexpectedtoexperience output

increases during 2022. The sectors with the strongest expected growth rates are hospitality and leisure services with a real increase of 10.3 percent, information with a real increase of 8.6 percent, agriculture with a real increase of 7.8 percent, business and professional services with a real increase of 6.2 percent, other services with a real increase of 3.7 percent, government with a real increase of 2.9 percent, and educational and health Threeserviceswitharealincreaseof2.7percent.sectorsareexpectedtoexperience

growth rates at or below the overall state growth rate of 2.1 percent. These sectors are durable goods manufacturing with a real increase of 2.1 percent; finance, insurance, and Transportation,realestate(FIRE)witharealincreaseof1.0percent;andwarehousing,andutilities(TWU)withareal increase of 1.0

Fivepercent.sectors

are expected to decline is 2022 these sectors are wholesale trade with a decrease of 0.9 percent, nondurable goods manufacturing with a real increase of 2.0 percent construction with decrease by 2.7 percent, retail trade with decrease by 5.3 percent, and mining with a decrease of 9.1 percent.

Gross Domestic Product (GDP) is forecast to reach a level of $740,118.5 million in 2023. Real (inflation-adjusted) GDP is expected to increase by 1.8 percent over the 2022 level. This growth in 2023 will represent the third full year of

ForgrowthsinceCOVID-19.2023,firstquarterGDPisexpectedtoincreasebyanannualizedrealrate of 2.1 percent. During the second quarter, GDP is expected to increase by an annualized real rate of 2.4 percent. In the third quarter, GDP is expected to increase by an annualized real rate of 2.1 percent. In the fourth quarter of economyyearpointRateSept.months.almostSodifficultthatadatingNationalnettherecession.ruleeconomy2022answerThe2022,GDPisexpectedtoincreasebyanannualizedrealrateof1.8percent.bigquestionin2023is,“willtheU.S.economyslipintoarecession?”Theisclearlyuncertainatthistime.DuringthefirstandsecondquartersofU.S.GDPdeclinedandmaysuggestthatisanindicationthattheU.S.isinrecession.However,thetwoquarterdeclineinrealGDPisonlyaofthumb.ItisneithernecessaryorsufficientinindicatingthatweareinWhileGDPisdecliningwearealsoseeingtremendousstrengthinlabormarkets.ThroughAugustof2022,theU.S.economyadded3,504,000jobsandNorthCarolinaadded132,600jobsthroughJulyof2022.TheBureauofEconomicResearchistheacceptedexpertonbusinesscycle(recessions).TheNBER'straditionaldefinitionofarecessionisthatitissignificantdeclineineconomicactivitythatisspreadacrosstheeconomyandlastsmorethanafewmonths.Thecurrentlabormarketstrengthmakesittobelieveweareinarecessionatthistime.arecessionin2022seemsunlikely,butwhatabout2023?ThatdependsentirelyonwhattheFederalReservedoesinthenextthreeorfourTheFedannouncedanother75basispointincreaseonWednesday,21,andtheFedmeetsagaininNovemberandDecember.TheFedFundstargetiscurrentlybetween2.25and2.50percent.Ifwegettwo50basisincreasesinNovemberandDecember,thetargetratebytheendofthewillbe4.00to4.25percent,whichwillhaveasignificantimpactonthein2023.

The chart to the left presents the projected contributions of each major economic sector to North Carolina’s Gross Domestic Product (GDP). The real (inflation-adjusted) growth rate for 2023 increased by 1.8 percent. Real growth rates for each sector (displayed in black type) are plotted on the horizontal axis. Percentages of GDP contributed by each sector (displayed in green type) are plotted on the vertical axis. The resulting rectangles show the weighted importance of each sector’s growth during 2023. All of the sector information presented in the table to the left is based on the new North American Industry Classification System (NAICS)

Alldefinitions.15ofthe

state’s economic sectors are expected to experience output increases during 2023. The sectors with the strongest growth rates are hospitality and leisure services with a real increase of 4.2 percent; information with a real increase of 2.9 percent; other services with a real increase of 2.7 percent; educational and health services with a real increase of 2.6 percent; transportation, warehousing, and utilities (TWU) with a real increase of 2.5 percent; business and professional services with a real increase of 2.3 percent; construction with a real increase of 2.2 percent; and Sevenagriculturewitharealincreaserateof2.1percent.othersectorsareexperiencedgrowthrates, at levels below the overall 1.8 percent GDP real growth rate. These sectors are government with a real increase of 1.7percent; durable goods manufacturing with a real increase of 1.5 percent; mining with a real increase of 1.5 percent; finance, insurance, and real estate (FIRE) with a real increase of 1.1 percent; wholesale trade with a real increase of 0.9 percent; nondurable goods manufacturing with a real increase of 0.6 percent; and retail trade with a realincreaseof0.6percent.

FORECAST reports historical seasonally adjusted monthly unemployment rates for North Carolina and the United States and forecasts theseasonallyadjustedmonthlyunemploymentrateforNorthCarolina.Theseasonaladjustmentaccountsforvariationsinlabor market

Theconditionsthatcauseregularfluctuationsintheunemploymentleveleachmonth.graphatthetopofthispageprovidesasummaryofthemonthlyunemployment

rates for 2022 and 2023. The solid blue line represents the United States seasonally adjusted historic unemployment rate. The seasonally adjusted unemployment rate for North Carolinaisrepresentedbythesolidgreenline.TheNorthCarolinaseasonallyadjustedunemploymentrateforecastisrepresentedby the solid red line. The seasonally adjusted rates for the United States and North Carolina can be compared directly and provide more reliable

Theestimatesthantheunadjustedrates.UnitedStatesandNorthCarolina

started 2022 with unemployment rates of 4.0 percent and 3.9 percent respectively. Both the U.S. and North Carolina unemployment rates have fallen consistently to 3.5 percent and 3.4 percent by July. The North Carolina rate should riseslightlythroughtherestof2022andclosetheyearat3.6percentbyDecemberof2022.