It’s that time when economists are asked to polish off their crystal balls and peek into the economic future. Businesses can make better plans if they can forecast the strength of consumer spending. Knowing the outlook for employment and income will help consumers know if economic belt-tightening or belt-loosening is ahead. And how much government can spend — or borrow — is based on the availability of public revenues, and public revenues are largely tied to the strength of the economy.
I always open my talks on the subject with a well-worn joke — that economists are better at predicting the past than the future.
So, let me begin with economic trends for 2014. First, our economy will grow, meaning gains in economic production and income. That is, I don’t see a recession — where production and income decline — on the horizon. The better business climate will mean more jobs — not for everyone who wants a job, but there will be fewer unemployed workers.
The housing market will continue to improve in 2014. This is a big deal because the lack of robust home construction and sales activity has been the major factor behind the sluggish economy. People are buying homes again, developers are building homes again and the percentage of homeowners with troubled mortgages is down.
Inflation should remain mild in 2014 — averaging around 2 percent — and interest rates should continue to be affordable. Long-term interest rates, such as those on mortgages, did rise in 2013. The Federal Reserve is expected to reduce its monetary stimulus of the economy in 2014, which normally would mean even higher interest rates. But many experts think the Fed’s actions have been widely anticipated and already adjusted in current interest rate levels.
For the national economy, I see aggregate economic production (termed “gross domestic product”) expanding by 2.75 percent — better than in 2013. I see between 2.5 million and 2.8 million net payroll jobs created, thereby pushing the published unemployment rate to between 6 percent and 6.5 percent.
In North Carolina, I predict that nearly 100,000 net payroll jobs will be added in 2014 and a year-end published jobless rate of between 6.5 percent and 7 percent. Some regions of the state, such as the Triangle and Asheville, could see unemployment rates near 5 percent by year’s end. However, 70 percent of the jobs created in the state will continue to be in three regions: Charlotte, the Triangle and the Triad.
I certainly don’t want to minimize the continuing economic issues we face. Certainly not everyone has benefited from the economic recovery. Average household income — after adjusting for inflation — is still lower than it was prior to the recession.
We also face a problem of many unemployed workers not having the skills that businesses need for new hires. This is the skill mismatch problem, and economists think it accounts for a large number of the unemployed workers who have dropped out of the labor force. North Carolina may face this problem to a greater extent than other states because of the dramatic loss of manufacturing jobs. Factory jobs here are down 45 percent since 1990. I
Answers to the skill mismatch problem require thinking outside the box about worker training — including expansion of apprenticeship programs, vocational/technical options at high schools and quicker ways for workers to upgrade their skills using online and similar training methods.
The geographical “divide” in economic opportunities has been a long-term issue in North Carolina, and it will continue. Metropolitan areas like Charlotte and the Triangle are some of the most dynamic and fastest growing in the nation, and they will continue to rapidly expand. But many small towns and rural areas, which traditionally based their economies on tobacco, textiles and furniture, continue to lag as those industries have downsized, and nothing significant has replaced them. A challenge for 2014 and beyond will be reviving those economies.
Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences.