Economy Isn't Stuck In Limbo | 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     Which picture of North Carolina's recent past is more accurate? I'll call the two alternatives Tar Heel Limbo and Tar Heel Heaven. (And, no, I'm not referring to the fake-class scandal at UNC-Chapel Hill. That's clearly Tar Heel Hell.)

    In Tar Heel Limbo, the state's economy is growing very slowly if at all. From September 2013 to September 2014, employment rose by just 18,000, a growth rate significantly below the national average. It's not nearly enough to keep pace with a growing population of job seekers and to put upward pressure on wages.

    In Tar Heel Heaven, North Carolina is outperforming most other states in the nation in most measures of economic growth. From September 2013 to September 2014, for example, employment surged by some 108,000 jobs. That's a growth rate of 2.7 percent, higher than the job-creation rate for the nation as a whole (1.9 percent), the Southeast region (1.9 percent), and those of our neighboring states.

    As a matter of fact, both pictures of the state's economy are based on official data from the U.S. Bureau of Labor Statistics. The pessimistic version reflects the findings of the government's monthly survey of households. The optimistic version reflects the findings of the government's monthly survey of business establishments.

    When tracking trends with monthly data, however, the two surveys are not equally reliable. The household survey samples some 1,200 North Carolinians in a given month. The establishment survey covers about 20,000 worksites around the state. As a result, the statistics from the smaller household survey are fuzzier. There is a significant margin of error. Although the two trends tend to converge over time, they can diverge wildly in the short run, as is evident here.

    Most economists studying North Carolina trust the establishment survey's estimate of 108,000 in employment growth over the past year rather than the household survey's estimate of 18,000. Not only does the former come from a larger, more reliable sample, but it also comports with other economic measures. The state's recent growth rates in gross domestic product* beat the regional and national averages, too. "The unemployment rate is really the odd man out here," Wells Fargo economist Mark Vitner told the Raleigh News & Observer. "Sometimes the statistics don't make sense, and you have to use your common sense."

    Actually, we don't have to make a stark choice between the two government surveys. While the monthly sample for the household survey is small, the Bureau of Labor Statistics computes alternative measures based on a full year of household surveys — that is, from a much larger sample size. These alternative measures are then updated every quarter. BLS just released them for the 12-month period ending in September 2014.

    They show that few states are experiencing stronger labor-market gains than North Carolina is. The best indicator is the U-5 rate, which counts as unemployed not just those who are actively seeking work but also those who aren't currently looking for jobs because they are discouraged, relocating, or retraining for a new career. For the period ending in September, North Carolina's U-5 unemployment rate was 7.9 percent. That was similar to the national average (7.8 percent) and down two full percentage points from a year earlier. By this measure, only three states (South Carolina, New Jersey, and Idaho) outperformed North Carolina in labor-market improvement.

    Admittedly, to call the current economy a "Tar Heel Heaven" requires poetic license. Compared to past economic recoveries, North Carolina's growth rate remains underwhelming. But this is a national phenomenon, not one limited to our state. Governors and legislatures can't fully offset the effects of the national and international forces that dominate economic trends. If Washington gets it wrong, Raleigh getting it right can't make up the difference.

    But compared to our regional peers and the national average, North Carolina's economy is doing well. Those who predicted a different economic outcome back in 2011 and 2012, when the General Assembly began adopting its conservative fiscal and regulatory policies, should be held accountable for their lack of foresight — although they probably won't be.

    * A reader pointed out that me that while North Carolina's growth in per-capita income exceeded the regional and national averages in 2012, it didn't in 2013. I was using the two-year average, which was 2.9 percent for NC, 2.3 percent for the Southeast average, and 2.8 percent for the national average. But I take his point: NC doesn't fare as well on this measure within the past year.