Peaks loom higher from the hollows

Just when the western part of the state had nearly recovered from the recession of 2001, along came the second downturn of the decade. This time, though, the jobs losses weren’t concentrated in manufacturing and are more likely to come back when the economy rebounds, says Todd Cherry, director of the Center for Economic Research & Policy Analysis at Appalachian State University. Meanwhile, he says, the region needs to build on its strengths — tourism, arts and crafts, health care — and nurture opportunities in less traditional fields such as computer and mathematical sciences.

BNC: Economic activity in the region has continued to slip, even though economists say the nation hit bottom last summer.

Cherry: Western North Carolina lags the state and nation in a lot of these economic swings. In the last recession, I think it took us four years to recover our lost jobs. The rest of North Carolina and the country recovered jobs much more quickly.

The region lost more than 40,000 jobs the last two years.

It’s following the national trends. That this is a rural region hits us particularly hard and makes it tougher to recover. Another reason might be tourism. Our occupancy rates didn’t fall as much as some parts of the state, but it’s such a big component of our economy that we feel it a lot more. We had a big hit on retail sales. We’re starting to see some of that come back over this last year, but we’re still down quite a bit from before the recession.

How did the decade’s two recessions differ up here?

I don’t think it’s going to take as long to recover this time. That one in 2001 was more targeted in manufacturing. We didn’t really expect to get those jobs back. This time around, it’s broader-based, and there’s a bit more in the service sectors. I think it’s more likely to come back to what it was before. In the last recession, we lost a little over 3% of the workforce, and this time we’ve lost almost 10% — three times the negative impact on jobs — so I hope it doesn’t take as long as it did before.

Economic activity in the west actually grew during the first part of the recession, not falling off until late ’08. Has the region seen the worst yet?

I think so. It’s hard to say. And especially with the data the way it is now. When you’re at the bottom of the business cycle, the data is kind of mixed. But I think the worst is behind us.

What course do you expect the region’s unemployment rate to take this year?

I would like to be an optimist, but I think it’s going to remain high: above 10%. We’re near the peak, but it will take some time to come off that peak.

Will tourism continue to be key to the regional economy?

It will continue to play a big role, and there’s good and bad with that. It’s seasonal, but it’s a clean business and offers a lot of amenities for the locals like nice restaurants and shopping. So it’s a good thing, but we need to try to use that as a base and diversify our economy.

How can you diversify without hurting tourism and those quality-of-life factors?

You have to have good planning and good infrastructure and look for long-term goals. Set some long-term goals, and develop a plan to get there.

What kind of long-term goals are you talking about?

Workforce development is a big issue up here, and we do a great job with the secondary-school system. Our kids do well. We’re better than average in terms of the end-of-grade tests. Our graduation rates are high. Where we lose our edge is at the college level. Our workforces don’t have the college attainment that the rest of the state and the nation have. We have had some good growth in computer and mathematical sciences. Health care is big up here. So we have strengths to build on, but I think workforce development is something that we have to pay attention to.

Anything else?

The arts industry up here is big. There are a good number of schools that serve the region. Even people from outside the region come to some of those schools. So that “creative class” environment is something that is already here. It’s big in Asheville, and it’s big in the north. Even West Jefferson has an art area in its small downtown.

How would you describe the region’s housing market?

It’s spotty. In Asheville, they recently reported a huge jump in sales, and that was kind of surprising. But I think that was more of an outlier. In the high country in the same period, it was down 11%. So you see some differences within the region, but if you combine all the reports, you’re seeing it improving. I know that in Blowing Rock, which is a huge second-home area, it’s been picking up lately. When you start seeing second-home purchases pick up, people are feeling a little bit more confident about the real-estate market in general.

Isn’t some of that dependent on recovery in Florida and elsewhere?

Right. A lot of the second homes here are owned by people in Florida. That market was hit pretty hard during this recession, so seeing some activity in that second-home market is a good sign for the overall health of the region.

When do you expect the local construction market to improve?

Middle to late 2010, we’ll start seeing it getting back to normal. So it’s going to lag the rest of the recovery.

How would restrictions on building on steep slopes affect development?

That gets back to your question about how do you grow without undermining your base industry, which is tourism. The steep slopes attract people here, but buildable land is very scarce in some parts. To grow, you almost have to go up sides of hills. So there are trade-offs facing those people making those decisions. How the rules are written and implemented can help or hurt development in the future. If they’re too restrictive, of course, they could make land prices more expensive, and that prohibits some development. But you have to protect the viewsheds and the things that make this place special.

What’s the outlook for manufacturing? Can it coexist with tourism?

I’m less optimistic about manufacturing than most. It’s a tough place to have manufacturing. It’s not very accessible, and until we have better rail service or something that might make transportation a little bit easier, it will be tough to develop manufacturing or bring that back like it was in the past. That’s not to say it can’t be done. There might be some special clusters that would benefit from locating in this region. And if you’re next to an interstate, that’s a different story. But for the most part, this region is rural and pretty isolated.

What else might outlying counties do to catch up?

It’s a case-by-case development. Amenity-led development is something that the region’s done well with. Of course, you have the Cherokee casino, and that’s affecting Jackson and Swain counties really well. And they just started selling alcohol on the casino floor. You have to make decisions that build some of the assets that are in place. There is no one magic bullet that’s going to work at every place, but everywhere has something that they’re good at and that they can develop.

Employment in the region is down more than 28,000 since 2000. Has it really done that well with amenity-led development?

Well, that industry has done well. But obviously, there have been some big shifts in the overall economy. We have to figure out how to fill in the gaps with some other industries and some other strengths. And that’s going to take some time. The 2001 recession hit us really hard, and a lot of the area never recovered. Just a couple of years before this recession, we were just getting back to where we were in 2000. So it’s been a tough, tough decade.

Has the Google data center in Lenoir moved the meter much in the region?

No. It’s nice that they are there. It was a big investment, and it did provide a boost temporarily in construction and other activity. But I don’t think it’s going to have a significant impact over time.

Do you think an inland port is a viable economic project for the west?

No. I would think there are better alternatives. With the region’s topography, it seems like that would be a huge undertaking.

What part will the green economy play?

There’s a lot of talk about that. There’s talk of developing our wind resources and using some of our manufacturing capacity to move toward advanced materials that would be used for wind turbines or solar panels. There are some resources here. Appalachian has strong programs in green energy. Biofuel is an area that’s being pushed and has a lot of potential for the region.

What about the role of higher education?

During this slowdown, we’re seeing what we see during most slowdowns: people returning to school and staying in school longer. A lot of college graduates aren’t getting jobs, so they go to graduate school. That’s one area where the state is lagging — the region, too, in terms of professional and graduate degrees. So that could be one of the positive things that comes out of this slowdown. When the economy comes back, we will have a better workforce to support it.

Is there an economic sector that has bigger impact up here than most people suspect?

Maybe the arts-and-crafts industry. People would be surprised at the strength and breadth of that here and how important it is to the region. Something like two-thirds of our visitors are from outside the state. So you’re talking about people coming in and providing external injections into our regional economy. And, of course, they come to the places like the Penland School of Crafts. And a lot of the community colleges have associated craft centers and craft programs.

Which sectors will grow — and which will contract — this year?

Manufacturing is showing signs of stabilizing. I’m not sure I would call it a growth sector. Then again, when you’ve lost so much, there is a point where there’s not much more damage that can be done. Health care is going to be a strong sector, and the technical sectors like computer and math sciences are going to be strong. Tourism is going to come back, and that’s going to be one of our big drivers.

What about high-tech?

A big part of that is Asheville and the National Oceanic and Atmospheric Administration. There’s a new center they just opened up, collaborating with the UNC system. They’re bringing in a lot of highly skilled technical jobs that should have a good impact on Asheville and the surrounding area. That’s one of those things we need to start building on.