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Sunday, November 27, 2022
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Round table: Economic forecast, better times are at hand

••• SPONSORED SECTION •••


Brooks Pierce, Campbell University, ElectriCities of North Carolina, First Bank, N.C. Biotech Center, N.C. Community College System, North Carolina Healthcare Association, and Small Business and Technology Development Center sponsored the discussion. It was moderated by Business North Carolina Publisher Ben Kinney and edited for brevity
and clarity.



Supply chains, labor, inflation, COVID-19 — there have been plenty of concerns over the past year when it comes to the economy. While all are being felt to some degree in North Carolina, they aren’t slowing the Old North State, which Site Selection magazine named 2021’s top business climate. People continue to flock here and businesses — big and small — are choosing it for relocations and expansions at record rates. But how is its economy being shaped by those concerns and what does its future hold? Business North Carolina magazine recently gathered business, economic development and education leaders to discuss how the state’s economy fared last year, what are the biggest issues shaping it and where it’s headed, each from their unique perspective.

 

Round table panelists

From your vantage point, how did North Carolina’s economy fare last year?

STECKBECK: Last year was good for North Carolina. Its gross domestic product increased 8.7% from the year prior; the average GDP in the U.S. increased 8%. Its population was the country’s 11th fastest growing at 0.9%, which was down from 1.3% the year prior. Many states, including California and New York, have decreasing populations. North Carolina’s unemployment rate was 3.9% in November. It was about the same in all its metros except Fayetteville, where it was 5.1%, and Rocky Mount, where it was 5.7%. The latter will feel the effects from the almost 2,000 people who were laid off after a fire-damaged QVC warehouse was permanently closed last month. Those rates reflect basic employment numbers. The U-6, which measures unemployment by including marginally attached workers and people working part time, was 9.5% in November, down from 12.3% the year prior. Airline travel increased. Before the pandemic, it was about 2.3 million passengers a day. That fell to 87,000 passengers in April 2020, but it was back to about 1.9 million passengers in December. Hotel vacancy rates are down. Restaurants are getting busier, but they still serve far fewer people than they were before the pandemic. Some people are going out to dinner, but more are choosing to bring home take out. Manufacturing orders nationwide were up 15.5% last year over 2020. The purchasing managers index, which was up to 69, slipped to 62 in November. Manufacturing is above its index of 50, so we’re in growth territory. That will increase with the easing of supply chain issues, which will remain a concern through this year and into next. Supply chains are complex with millions of products and people worldwide. It’s not something one person or entity can control. Companies can’t get the products they need. It has affected automobile manufacturing, which dropped in December after an increase, computers and technology. Companies are concerned about what pushed up the price index almost 19% year over year. It’s impacting production. The personal consumption expenditures price index saw a 4.7% increase in November from the year prior; that’s the biggest jump since 1989.

EDGETON: The life sciences sector was on fire again last year. There were 34 recruitment and expansion announcements by life sciences and related companies, representing almost $4 billion in investment and 4,800 jobs across the state. Biomanufacturing has been our bread and butter for the last 20 years. A number of announcements were in that sector last year, accounting for 3,000 new jobs. As a result, North Carolina has the country’s highest per capita employment in biomanufacturing. We also saw 800 new jobs announced by contract research and testing companies and nearly 800 by gene- and cell-based therapy companies, both sectors where North Carolina holds a global leadership position.

STITH: The community college system’s customized training efforts helped 22,000 people last year, providing $9 million worth of support to businesses. Its Small Business Center Network helped grow or retain more than 3,800 jobs and start more than 650 small businesses. State leaders invested more than $1.4 billion in the system. That’s the largest investment in more than a decade and will provide the resources needed to continue its economic development efforts. Through Gov. Cooper’s Longleaf Commitment, more than 10,000 high school students are able to move forward in their education, in many cases free of tuition or fees. We’ll start with that high school student who is interested in joining our more than 500,000 students pursuing short term workforce training or a two-year associate degree. Support from key stakeholders, such as the Belk Endowment, launched a pilot program that helps adult learners obtain education and training, making them immediately competitive in the job market. North Carolina was one of six states to receive a national grant that, in partnership with the Belk Endowment, funds a workforce development program for adult learners in diverse communities. More than 20 community colleges are participating in it. We’re partnering with health care providers. The community college system provides almost half of the nurses in the state. The GlaxoSmithKline Foundation is helping fund a $2 million pilot program that ensures that nursing pipeline remains full.

CHUNG: The statistic that reveals the most about last year is 24,224 announced new jobs and more than $10 billion in new capital investment. While both are records for North Carolina, they only represent corporate recruitment and expansion projects that received state assistance such as incentives. Others, such as Google, which announced a Durham hub that will employ hundreds of engineers, and Fidelity Investments, which is adding 1,500 jobs at its Research Triangle Park campus, didn’t use state assistance, so they aren’t included in those amounts. It takes a team, including EDPNC, SBTDC, N.C. Biotech Center, community college system and utilities, to reach these results. A large portion of our recent economic development success has skewed toward industrial, such as manufacturing, fulfillment and food processing. Projects usually break down 70% industrial to 30% office. It has been about 95% to 5%, respectively. We’d love to see it return to what we saw pre-pandemic, which included more corporate headquarters relocations. That’s something North Carolina has long excelled at attracting. Charlotte and Raleigh have proved attractive to companies fleeing states such as New Jersey, New York, Illinois and California. But many companies are in limbo, wondering about the future workplace. Will people continue to work from home? How much time will they spend in an office? Until there are answers to those questions, it doesn’t make sense for them to uproot their current headquarters. That may be one reason demand is low for these projects. Consumption shifting to goods from services explains the increase in manufacturing projects.

COPELAND: Even with the pandemic and labor shortage, North Carolina is better off than many places. Financial services is one of the state’s leading industries. I recently met with executives from the world’s fifth largest bank, and they said businesses have to look at North Carolina if they’re planning an expansion because of its workforce. North Carolina has created a great education system, and it’s adding infrastructure to attract companies. We’re watching the state corporate income tax disappear. North Carolina’s GDP is larger than Sweden’s GDP and twice that of South Carolina. We’re the 21st largest economy in the world. The corporate world, whether it be Toyota, Fujifilm, Merck or Bank of Japan, takes note of that. North Carolina is well prepared for the future.

HICKS: SBTDC served more than 12,000 small businesses in North Carolina over the past two years. We saw their challenges and uncertainty, then we saw their hope and optimism toward the end of last year. The small businesses that we serve created and retained more than 16,000 jobs. Workforce is a huge challenge for small businesses. Take a 10-employee company. When two people don’t come back to work, that’s 20% of its workforce. Most small businesses depend on a specific supply chain. They don’t have numerous suppliers to reach out to or toggle between. One way they overcame recent economic challenges was by reaching out for assistance. North Carolina has many resources for small businesses, including SBTDC and the community college system’s Small Business Center Network. They have provided countless hours of service. We’ve seen a lot of growth with certain small businesses, especially those in manufacturing. Many are looking to expand.

FUSCO: Load growth is universal among our members, from municipal utilities near major metropolitan areas to those in standalone cities and rural communities. The departure of the state’s traditional manufacturing, such as textiles and tobacco, is more or less behind us. New customers, including transportation and logistics businesses and advanced manufacturers, are arriving. Many coastal communities, for example, are welcoming boat builders. High-tech companies, many bringing data centers, demand a lot of electricity. Cryptocurrency miners, which may or may not have a significant impact on economic activity, are locating here because of the state’s affordable electricity rates. We are seeing foreign direct investment by companies who want to onshore portions of their supply chain instead of relying on overseas options, whose reliability has been tested during the pandemic. Uncertainty is an issue for my industry, which is heavily regulated. Regulatory changes that happen quickly have significant impacts on it. Some of those contribute to the inflationary fears that we see, especially with the cost of clean energy. It’s important, and we want to drive toward it. But the bill that Gov. Cooper signed into law in October, which calls for carbon neutrality by 2050, will likely increase the cost of electricity. We’re positioning ourselves to help many of our new customers meet their sustainability targets. North Carolina is a relatively clean energy state. It has a lot of nuclear and a fair amount of natural gas generation. It will improve as more renewables come online. While that presents some challenges, the energy industry is positioned to handle them, opening the door to more opportunities down the road.

How is rising inflation affecting North Carolina?

STECKBECK: Inflation is a worry. It was up 6.8% from a year ago in November. Four factors are driving most of the jump. The first is supply chain issues. Demand is increasing without a comparable increase in supply. Government fiscal transfer packages and spending have increased significantly. And now with President Biden’s Build Back Better Plan, there’s concern about the inflationary effects of that spending. The Federal Reserve assets increased to $8.6 trillion from about $7 trillion over the last 18 months. Thirdly, liquidity has to be reined in. The Fed says it’s planning three interest rate increases this year, instead of two. We’ll see if that’s effective. The fourth factor is less labor-force participation. There were about 12 million job openings in the United States in December, and plenty are going unfilled. A big reason is stay-at-home parents, who are mostly women. Schools are closed, so they have to care for their children instead of working. Some people that had low-wage jobs are realizing that that work isn’t worth its pay. But the biggest is baby boomers deciding to retire early. Their number jumped 3.8% in 2020 from the year prior. The selling price of their house and their stock portfolio are both up, so they decide it’s time to cash in. Hopefully many of these issues will abate soon. The Fed is predicting a 2.5% inflation rate by the end of the year. I think that’s overly optimistic.

CURRIE: There’s an extraordinary amount of liquidity in the system. The Federal Reserve and federal government have pumped in a lot of it. It will take time to work its way through. The drumbeat of inflation will get louder, not quieter, this year. It has created a lot of growth in the financial services sector, but it has created imbalances, too. It has been a long time since our economy has faced inflation. Once that genie is out of the bottle, it’s difficult to get it back inside. The Fed is working to contain it sooner rather than later, and that tightening of economic policy will impact businesses.

How will COVID continue to shape the state’s economy?

LAWLER: We’re starting year three with an unprecedented pandemic that has made the past two incredibly challenging. The people working every day at hospitals and in health care systems are heroes. Their sacrifices and determination have kept North Carolina from the dire situations seen in New York, New Jersey, California and other places. The COVID mutations remain a question moving forward, but we’re optimistic. We’re convinced the pandemic situation will improve, because we’re better at our work. Our ability to care for COVID patients has significantly improved over the past two years. There are new therapeutics, and we’re confident that we can return patients home, even if they’ve been critically ill. Wearing a mask and getting vaccinated and boosted are the most important things that North Carolinians can do. The science doesn’t lie: 98% of ICU patients are unvaccinated, and 98% of patients on ventilators are unvaccinated.

STECKBECK: COVID is the great uncertainty that will continue to be a major issue this year. Employment in all sectors stayed the same or increased last year except for health services and education. I was a member of a charter school’s board up until last summer, and we are struggling now to find teachers and substitutes. Many are passing on jobs because they don’t want to risk catching COVID by going into a classroom. And the vaccine mandate may be keeping some health professionals from remaining on the job. COVID can change life quickly. Schools, for example, are open one day and closed the next. I’m not a COVID expert, but I have read that there’s optimism that future mutations will be less dangerous than recent ones. While vaccinations will help improve the situation, I believe COVID, in some form, is here to stay.

COPELAND: Gov. Cooper met the pandemic with stay-at-home orders on March 27, 2020. We’re in a different place today. Most of us will admit that we’ll survive COVID, learn to live with it and keep our economy. North Carolina didn’t halt construction during the pandemic. It also had few restrictions on manufacturing. Those responses differentiated us from other states. So, while we struggle with some supply chain issues, it’s nothing like states that shut down manufacturing. Truck-maker Freightliner, for example, which has operations in Stanly and Gaston counties, couldn’t source key parts because Michigan shut down its manufacturing.

EDGETON: The pandemic accelerated activity in the life sciences industry last year. We’re seeing an influx of demand because of the need for more facilities and treatments.

STITH: Every community college in the state remained open last year despite the challenges posed by the pandemic. Many pivoted to virtual learning in addition to on-campus classes. The pandemic caused our enrollment to decline, but numbers from our most recent fall semester showed a slight increase. We’ll build on that moving forward.

Where are North Carolina’s economic opportunities?

COPELAND: President Biden recently signed an executive order that calls for electric vehicles to make up at least half of new-car sales by 2030. What happens when we no longer have internal combustion engines? North Carolina has thousands of people making auto parts. We need to prepare by rigorously training and deploying people to work on EVs.

STITH: North Carolina’s competitive advantage is its skilled workforce, which attracts companies and supports expansion of existing ones. Incentives are important, but when it comes down to that final decision, corporate leaders want to know there will be a continuous supply of properly and sufficiently trained workers.

LAWLER: Our opportunities lie in workforce. There are about 700,000 health care jobs in North Carolina. And for every job in a hospital or health system, there are two-and-a-half jobs supporting it. Replenishing our talent supply is important. But we need to add talent, too, so we can continue to grow a health care presence that’s attractive to business and industry. We’ve been sending North Carolina tax dollars to other states to help expand their Medicaid coverage for too long. There are half a million North Carolinians without coverage. Expanding coverage in North Carolina is a wise investment and wise strategy. It will be good for business and create more coverage opportunities. It will reduce charity care and bad debt, which hospitals have been carrying for years.

CHUNG: We’re excited about what the new energy legislation means to companies. It was a difficult thing for the governor and General Assembly to thread the needle on; how do we meet climate objectives without compromising reliability or competitive rate structure for utilities. The legislation has done a good job of that? When companies, especially those in advanced manufacturing, evaluate potential locations, more of them want to be assured that their energy is generated from reliable, sustainable and clean sources. The fact that North Carolina has been proactive is one more advantage over states that haven’t taken that step yet.

EDGETON: We are rich in many ways, including talent and ideas. Universities and research labs statewide have ideas and items that could be sped to market. We’re looking for ways to do that efficiently and effectively. Local, venture or early stage investments are needed to bring that science to market. It fuels industry growth. Infrastructure is currently being addressed. We also are working to ensure more people and companies see North Carolina as competitive with other major life-science markets such as San Francisco and Austin, Texas.

FUSCO: Growth isn’t expected to slow this year, based on the leads and projects in the works. Toyota’s $1.3 billion battery factory project at the Greensboro-Randolph Megasite is interesting. It’s the type of load that we see growing on our members’ systems. Amazon and other logistics providers are converting their fleets to EVs. That will create future load. Most people recognize the effort to electrify vehicles, but many don’t realize manufacturers are electrifying their processes, too. North Carolina is an energy hub, home to utilities, industry-specific workforce training, research and development, and manufacturing. That’s a great resource for those companies.

HICKS: We’re well-poised for small-business growth. Almost 190,000 businesses started in North Carolina last year. They make the state as a whole better. They offer the supply chain support, for example, that larger companies need.

CURRIE: North Carolina does an outstanding job attracting investment and talent, but it also must focus on what’s here. Most of its economic growth will be driven by businesses already here. We need to continue growing small and large businesses.

What will this year bring?

STECKBECK: North Carolina has a $660 billion economy. It’s expected to grow 4.5% to 5% this year. The prime age workforce has shrunk as baby boomers leave, but it’s growing again. Expect to see many more people coming to North Carolina. Businesses, such as Apple, are coming, too, and they’ll bring even more people. That influx will improve the economy. GDP follows population growth.

LAWLER: We’re optimistic. There have been positive discoveries throughout the pandemic in regards to better connecting with our communities and intervening with patients outside of a hospital setting. Those will continue as we think about health care from a consumer’s perspective rather than as a funnel, which catches patients and their family at a time of their greatest need. There are leading institutions in the state that have been doing that for years. We’re learning about the value of telehealth, for example, and its ability to reach rural communities and provide state-of-the-art care and a subspecialty physician presence. We’ll continue to look for ways to connect with patients. The industry will see growth this year. Strong health care is key to attracting businesses. Schools, hospitals and physicians matter. Hospitals and health systems will continue investing, creating clinical presences in growing communities. They will focus on securing and stabilizing health care in rural regions of the state, which in many cases have been impacted and challenged the most during the pandemic. A health care workforce shortage is predicted, so we’re working with community colleges and universities to produce more health care professionals. Addressing that shortage requires creativity and attracting teachers and preceptors. It also requires the General Assembly to step up and write a check.

EDGETON: A federal Build Back Better challenge was offered at the end of last year, and 530 submissions were made nationwide. The program wanted projects that spread the wealth of employment across demographic sectors. Projects chosen in Phase I received $500,000. Then they apply for Phase II, which awards between $25 million and $75 million. We coordinated with 28 partners and applied, becoming one of two projects in North Carolina that were approved out of 60 overall. We’ll apply for Phase II in March and hope to hear if we’re chosen by September. It solidifies North Carolina’s ability to work together across geography. Before the pandemic, we noticed demand for skilled workers within the biomanufacturing, cell and gene therapy, and ag-tech spaces. We’re seeing demand for workforce go up faster than we predicted. In just two years, we’ve eclipsed what we thought would happen in five years. We think this year will bring continued growth based on the leads that we’re working on with EDPNC. We have programs that help people into these careers. Our community colleges train people. About 3,500 people graduate from North Carolina universities with a master’s degree or Ph.D. in the hard sciences every year. We need to show them the pathways into life sciences jobs, because they’re really good careers. The salaries are more than double the state’s average annual wage.

STITH: The community college system will apply last year’s investments and expand relationships with key partners such as the Golden LEAF Foundation. It helped expand community college scholarships to students from historically tobacco-dependent communities. Toyota’s factory is a gamechanger for all of North Carolina. It’ll have a statewide impact. We’ll have a regional response, providing a well-trained workforce for the automaker, which will be building batteries for electric vehicles, and the businesses in its supply chain. When I speak with business leaders across our state, they want to know how we’ll produce a highly trained and educated workforce for the opportunities that are coming to North Carolina. We’re competing in a global arena, and the community college system is well positioned to meet the workforce needs of businesses here and those that will be part of our future economic growth. We are very optimistic about our role in North Carolina’s economy and ability to be the leading educational and training entity in the state.

CURRIE: Issues around the tight labor market will continue this year. It’s difficult for any business to attract talent right now. As a state and as a country, we’re becoming more understanding in today’s strange pandemic affected environment. We’re shrugging our shoulders, surrendering to slower service or an understaffed business that’s forced to close for the day. North Carolina continues to be a great place to live and work. People continue to move here, and its economy will continue to flourish as a result. That’s happening statewide — Charlotte, Raleigh, Pratt & Whitney in western North Carolina and Toyota in the Carolina Core. We’re having a revival of small-town North Carolina, too.

CHUNG: EDPNC is carrying about 200 active projects — potentially $70 billion in investments and 70,000 jobs — into this year. They include manufacturers of EVs, batteries and semiconductors; food and beverage; life sciences and biopharmaceuticals. Tourism continues to suffer in the state’s major cities because of a lack of business-related travel. COVID variants, which continue to cause meetings, conferences and conventions to be delayed or go virtual, only compound the stress felt by those who depend on this business. It’s neither a healthy nor sustainable situation. Leisure travel bounced back quickly starting in mid-2020. That favors the coast, mountains and rural regions, where people who want to escape the pandemic can recreate or work remotely within the relative safety of wide-open spaces and a sparse population. We’re optimistic about returning to a life that more closely resembles the pre-pandemic normal this year. But we’re conscious of the crosswinds that need to be dealt with, too.

COPELAND: We’re watching North Carolina’s economy evolve, from tobacco and textiles to advanced manufacturing. That requires fewer employees and more capital investment. We saw a k-curve with employment during the pandemic, when as many as 54,000 unemployment claims were being made each day on a system designed to handle 3,000 in a week. Most were from residents who earned $30,000 or less annually. At the same time, we set a record for capital investment and job growth. Some people say we’re awash in cash, and we are. The Trump and Biden administrations provided stimulus packages. The bottom end of the wage differential has changed dramatically. When Amazon advertises for 125,000 jobs today, they pay more than what workers earn in typical industries. What’s
keeping North Carolina afloat is its workforce development infrastructure. It has about 600,000 people employed in private and public universities and community colleges. Businesses are going where they can find a workforce.

HICKS: Small businesses are nimble and resilient. I’m optimistic about this year. There’ll be a few hiccups and challenges such as debt. Most small businesses work with their own money, so they’re leveraged. The SBA’s economic injury disaster loans, for example, were wonderful. But a lot of it will come back as heavy debt for small businesses.■

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