Following the Economic Leaders | Eastern North Carolina Now

    Publisher's note: This article appeared on John Hood's daily column in the Carolina Journal, which, because of Author / Publisher Hood, is linked to the John Locke Foundation.

    RALEIGH - Will North Carolina's unemployment rate, currently 8.8 percent, drop to 6.8 percent by the end of 2014?

    That's one way to interpret the current trend of the Index of North Carolina Leading Economic Indicators. Produced every month by N.C. State University economist Michael Walden, the index combines five indicators that tend to correlate with economic growth over time: initial unemployment-insurance claims, building permits, average weekly hours of manufacturing employment, average weekly earnings of manufacturing employees, and a set of national data provided by the Economic Cycle Research Institute (ECRI).

    Through June, the index is up 2.7 percent from the same period in 2012. When Triangle Business Journal asked Walden to comment on the implications of the state index, he said that since North Carolina added about 90,000 payroll jobs last year and the 2013 index is predicting somewhat-stronger growth this year, that suggests a job gain of about 100,000 positions in 2013 and 2014 might be in the offing. If that happened, the unemployment rate would likely fall below 7 percent by the end of the trend.

    But when I called Walden for additional analysis of the numbers, he was a bit more cautious. While leading indicators historically track with employment growth, the correlation isn't anywhere close to perfect. So far in 2013, North Carolina has actually experienced much lower job growth than during the same period in 2012, despite a similar track in the Index of North Carolina Leading Economic Indicators. It would take a sudden spurt of job creation from now until December to get to 100,000 new jobs for 2013. I speculated that a lower estimate this year, closer to the 50,000 job gain of 2011 than to the 90,000 job gain of 2012, seemed more likely. Walden agreed.

    This measurement, position counts from the Bureau of Labor Statistics' monthly payroll survey of establishments, is only one of many potential signals of economic growth. BLS also conducts a monthly household survey. It is used to compute the "standard" U-3 unemployment rate every month for North Carolina and other states, as well as a broader set of labor-market statistics every quarter. Another agency, the Bureau of Economic Analysis, uses surveys and other data to compute quarterly and annual changes in personal income and gross domestic product.

    Using these statistics, here's what we can say about North Carolina' recent economic performance:

• There were 135,300 more payroll jobs in June 2013 than there were in June 2011. However, North Carolina is still down 103,000 payroll jobs from the pre-recession level of June 2007.


• June's 8.8 percent U-3 employment rate was down substantially from the 10.4 percent rate of June 2011. Nevertheless, North Carolina's rate remains one of the highest in the country, and well above the pre-recession U-3 rate of 4.7 percent in June 2007.


• On the broadest measure of labor utilization, U-6 underemployment, North Carolina's rate was 15.6 percent for the fiscal year ending June 2013, down from 17.5 percent during the comparable period of 2011 but still well above the 2007 U-6 rate of 8.5 percent.


• The raw data from the household survey break down as follows. There were about 120,000 more North Carolinians employed in June 2013 than in June 2011, and 66,000 fewer jobless North Carolinians looking for work. The state's total labor force of 4.7 million has grown by about 54,000 over the past two years.


• North Carolina's per-capita GDP rose 1.7 percent after inflation from 2011 to 2012, roughly the same growth rate as the national average. From 2007 to 2011, North Carolina's real per-capita GDP dropped by an average of 1.2 percent a year, worse than the national average drop of .8 percent a year.

    In other words, North Carolina's economy is in better shape than it was two years ago. But it still has a long way to go to recover fully from the Great Recession. As for the immediate future, Walden's index of leading indicators points to continued improvement but the job trend since January isn't as promising.

    In short, I wouldn't bet on unemployment falling below 7 percent by the end of 2014. Below 8 percent? Sure.

    Hood is president of the John Locke Foundation, which has just published First In Freedom: Transforming Ideas into Consequences for North Carolina. It is available at JohnLockeStore.com.