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Friday, February 23, 2024

Round table: Economic forecast, the state is well positioned to weather any economic headwinds

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••• SPONSORED SECTION •••

The Business North Carolina economic forecast panel convened in early January at the Campbell University Law School in downtown Raleigh to discuss the state’s economy and where it’s headed. Unlike last year, when many predicted a recession for 2023, the panelists believe that the current year will see slower growth, but no recession. The state is well positioned to weather any economic headwinds.


The discussion was sponsored by:
• Brooks Pierce
• Campbell University
• First Bank (FBNC)
• Humphrey & Leonard, LLP
• McLendon
• UnitedHealthcare

Chris Roush, executive editor of Business North Carolina, moderated the discussion. It was edited for brevity and clarity.



WHAT DO YOU SEE HAPPENING WITH THE ECONOMY IN 2024?

STECKBECK: I’m Dr. Mark Steckbeck, associate professor of economics at Campbell University, and the Lundy Chair of Business Philosophy. A lot of people are saying the Fed is probably gonna lower rates this year, maybe a little. I still think they’re gonna hold steady this year at 5.3%. I really don’t see them making much of a change. And the reason for that is we do see inflation going down, but we still see wage inflation. We still see housing prices are up. They are coming down considerably, but they’re still up over some longer term trends.
    North Carolina has actually done pretty well. We have an unemployment rate of 3.4%, which is half a percentage point less than the U.S. as a whole. Wages are still higher or higher than the Feds average that they’re looking for but still doing pretty well. Manufacturing is one of the hardest–hit labor sectors in this state. But it’s also poised to really rebound a lot with getting the Toyota plant, things like that. The biggest change is going to be in education and healthcare, those areas are going to have a larger increase in labor employment.
    One of the things I really want to look at moving forward with these projections are a couple things that I would be a little concerned with. The first one is leading indexes. For North Carolina, it’s actually a big positive. Whether it’s manufacturing, the initial applications for unemployment, those have been up. North Carolina is actually doing really well with that.
    I put about a 20% chance of a resurgence in inflation. And if that happens, the Fed is going to further raise interest rates. I don’t think that’s going to be a significant indicator. I think moving forward, I don’t see a recession, especially with the economic development going on.

WILLIAMS: I’m Hope Williams, president of North Carolina Independent Colleges and Universities. We’re the statewide office for the 36 private nonprofit colleges and universities across our great state, and I’m also delighted to highlight the fact that we have 16 outstanding public universities and 58 incredible community colleges. One of our primary goals is to help provide an excellent workforce. We all want to see a three-peat of North Carolina as the best state in the country for business.
    Part of our goal is to be sure that we’re responding to the needs of business. And so there are exciting trends underway in growth and expansion of multiple types of programs. The number of engineering schools has grown in our sector. The demand for healthcare workers all across the board is so strong. We now in the independent sector award 90% of the physician assistant degrees in the state. So we want to make sure that we’re meeting those needs, and we certainly want those students and graduates to stay in North Carolina.
     I do want to mention a challenge that we need to be aware of. Since 2000, when we had about 63,000 high school graduates in our state, we got about 100,000 in 2015. And now we’re up to about 111,000. But the next couple of years will probably be lower. Along with many other states in the South, we actually are going to plateau in high school graduates. And we have a significant increase in the students who are graduating from North Carolina high schools who are going out of state to college. For years, 7% to 8% of our students would leave North Carolina to go to college.
Now it’s 17% and heading toward 20%. These other states are coming after our students because they know from research that students who graduate are likely to stay.
     So if we want our best workers to be able to help make this a great economy, we need to figure out how to help keep those students. So one of the things we’re looking at is helping our students have more internships and other experiential learning opportunities in our companies to be sure that they make that connection right here in North Carolina. We want to help keep those folks in North Carolina and help meet the needs of our North Carolina employers.

KING: I’m Ged King. CEO of Sales Factory, a marketing and advertising agency in Greensboro. I study consumer behaviors. I can tell you what I think the underlying concepts are that are driving some of these things we’re seeing. My company does a study of 1,000 Americans every two weeks. We started it the week COVID happened because we were scared and we thought maybe we can learn something in this crazy time.
     What we’ve learned is the driving force right now in  consumer behavior is trust. We’re hearing the economy was going to be bad. Now, the economy was good. Christmas shopping was going to be down. It turns out, it’s up. We don’t really know what to make of it as regular people. So what are we doing about that? We’re losing trust. This is from our data. Trust in the president and the candidates running for president is down 52% year over year. Trust in
the Senate is down 57%, the House down 61%, local governments down 44%, North Carolina government down 49%. News media down 52%. Drug companies and healthcare down 47%. So what’s happening is we don’t believe all the people we believed when we were growing up. So there’s a lot of uneasiness. And with that uneasiness comes one other thing that’s very shocking to me, trust in major retailers is up 29%. So the people that are designed to take money from us are actually getting trust that the other institutions are losing. We’re spending and we keep spending. And it’s surprising to everybody. And the consumer is just going, let’s go. But 
we don’t know when that will stop.

CURRIE: I’m Adam Currie. I’m the president of First Bank. We are the largest community bank headquartered in North Carolina. We have about 120 branches in North and South Carolina and about $12 billion in assets. I think North Carolina is one of if not the best state to do business in in the United States I think we often take for granted how wonderful our state is, and in a business sense. I think the biggest economic story of 2024 is starting in about three months, our lives will be dominated by the election news cycle, and it will drive everybody crazy. And we will all be sick of it. By the time November comes around, we’ll have an election cycle not only for the United States, but for North Carolina. We have done an excellent job staying in the middle and not creating an environment that’s going to irritate one side or the other. My hope is that we keep that as a state.
     We look at things constantly like credit card balances, home equity line balances, checking account balances, business account balances. And all of those things continue to tell us that the businesses and people of North Carolina are healthy from an economic standpoint. Inflation has certainly crept into people’s pocketbooks. But wage wages have continued to rise and seem to be for most people keeping up with inflation. Now, I’m sure there are examples where that’s not the case. But generally in our customer base that is what we’ve seen.
     It has been very difficult in this interest rate environment for banks to make money. There are fewer people out borrowing money and commercial real estate seems to be in a mild recession. I will say it is not the catastrophic event that everybody has predicted in commercial real estate, but people are accepting lower returns, and people are not trading very much real estate. Given that we have an election in November, it will probably stay that way throughout the course of the year. If so, I think it will be very late in the year. I will not put myself any further out on the ledge other than to say I think it will feel a lot like it did this past year. 

BURGIN: Jim Burgin, representing North Carolina Senate District 12, which is Lee County, Harnett County and part of Sampson County. I’m in the insurance business and car business and dabble in real estate. All of us hate uncertainty. And that’s what I think we’re going to be dealing with in 2024.
     I’m chair of the healthcare and healthcare appropriations committees, and I was just getting some updated numbers on how much money is coming in because of the Medicaid expansion on Dec. 1. And so billions of dollars are poured into the state. We’re going to be getting $7.2 billion coming in. And that recurring healthcare cost in North Carolina is really high. I get calls every week from people wanting to come to North Carolina and offer more services because we have this large pool of money.
    I think we’re going to see a 1.5% to 3% growth this next year. North Carolina is is so well positioned that if there is a recession, which I don’t think there will be, I think it will be a slight downturn. Like a lot of folks, I think we will be the last to go in and the first to come out simply because of our taxation and all the other things. When I talk to companies and most of the time, it’s finance officers, they tell me the first thing to look at is our tax rates. I would like to think that eventually we’ll have zero income tax in North Carolina
     I do want to talk about one thing. We have a childcare crisis coming up. That’s something that companies are going to have to be looking at. But what we’re trying to do is a combination between the employee, the employer and the state to try to get childcare started on campuses of large employers. So I think childcare is something we’re really going to have to monitor this year. 

BRUBAKER: I help run a small real estate development company located here in the Raleigh area. We do mostly residential and focus on new home construction. The current state of the housing market is a tale of two worlds. You have the new home sales, the new home housing, and you have the existing housing market. On the new home sales front, it’s just fantastic. New home sales in the Triangle are up about 10% year over year
growth. Falling mortgage rates over the last five or six months has really helped to spur some buyer traffic and sales. New home builders are really benefiting from a lack of existing inventory.
     Over the last 12 months, existing home sales have dropped over 35% in the Triangle. Look no further than the rising interest rates. About 65% to 70% of all mortgage holders have a sub 4% interest rate. There’s just zero interest in trading that out for 7%. Nobody’s really excited about doing that. Now you do have some people that have to move. But I tell you, it’s slim pickings to try and find a home in the new home market. So half the sector is doing great. And half the sector is really struggling.
    2024 is a presidential election year. I think that Washington’s going to do everything they can. If you’re in power, you do everything you can to juice the economy before the election. So I kind of have a wait–and–see attitude toward it. I expect the Fed to maybe lower rates some. I don’t think it’ll be drastic. I think the economy will be OK. I don’t think we’re gonna see off–the–chart growth.

BACHMANN: I’m Anita Bachmann, CEO of UnitedHealthCare; our headquarters is in Greensboro. We have the privilege of serving about 1.5 million individuals in North Carolina. And that includes businesses, small–, medium– and large–size employers, as well as serving the Medicare and Medicaid population in the state. I don’t think there’s a better day to be living in North Carolina. We look at the growth, particularly employer growth, in our state over the last 18 to 24 months. I don’t think we’ve seen any state grow like North Carolina. I think a lot of that has to do with the leadership of our state.
     I think the state made a very bold move with the long awaited passage of Medicaid expansion that happened in December. We actually implemented it with over 300,000 individuals. So we think about the economic impact of that, and it’s probably one of the largest economic levers ever. It’s close to $8 billion in federal funds that are coming in on an annual basis. That’s incredible. Think about the impact from a workforce standpoint – there’ll be an additional 37,000 new jobs that will be needed in the healthcare space to help meet the needs.
     I also think about productivity. So we’ve got more people that are now going to have benefits and preventive care services and they’ve never had before. All those things are going to help them lead a healthier life. So productivity in the workforce is going to be much better. Absenteeism is going to be going down because you have healthier people. So that means more productivity with our employers.
     The more that we can do to simplify healthcare, simplify the language, help consumers navigate the healthcare system, provide the data in the information for them to help make the best decisions, both from a cost standpoint and a quality standpoint, are going to be critically important.
    When we look at the cost of health care, about 20% of that is related to truly health care services. The other 80% is really related to social determinants, like having access to healthy foods, the way in which a person lives. I think that will continue to be an area of focus in North Carolina. I think for the first time probably that I can ever remember, we are OK talking about behavioral health and mental health. And I think it’s something we’ve got to continue to focus on.
    So I think growth is going to continue to be a real positive. We will see an increase in workforce as a result of those employers coming in. I see that as an opportunity, but also see it as a challenge. We’re going to need more and more workers and appreciate all the great work that Hope is doing. 

COPELAND: I’m gonna say something about Medicaid first. It was an incredible amount of money that we were leaving on the table, not to mention the needs of people that were not going to have health care access What do I think about North Carolina right now? I think we’re in a very strong position. We have a gross domestic product larger than Sweden. We have over 100,000 people moving into North Carolina every year. So we’re sitting in a very positive position. We have done some things that make us very secure. We have over 700,000 people every day enrolled in community colleges, ane public and private universities, in the state. Very few states have an employee base that it’s growing every day. That’s probably the No.1 thing that we have going for us.
    The other thing is infrastructure. We have been spending billions of dollars in infrastructure. And in fact, thanks to the legislature, the legislature has been paying hundreds of millions of dollars and put it in projects.
    One of the other opportunities we have in the state is what we do with energy. We’re starting to address some of the energy needs. We’ve got to have a cocktail of different types of energy sources. First of all, we’ve got to ensure that the electric grid is
second–to–none in the world. We’re looking at users that are coming in and using
hundreds of megawatts of electricity. We have to look at natural gas, and we have to look at wind. If we want to remain a world class state, we’re going to have to develop different energy sources.

WHAT PERCENTAGE OF THOSE NEW HOME SALES ARE TO EXISTING
NORTH CAROLINA RESIDENTS VERSUS THOSE WHO ARE MOVING IN
FROM OUT OF STATE?

BRUBAKER: In short, I don’t know the exact number. A lot of folks that are in the state are just moving. Some of them want to get out of the city, and they want to have kind of a rural life, but they want to be close to the amenities.  You also have got people that are moving from the North and the West over to be closer to the grandkids. We’ve got growth coming from the Northeast, from California. If I had to put a number on it, I’d probably put it out of 40% would be local moves. And some people are just trying to move up, some of them are moving down, and they just want to downsize. I think it’s pretty much all over the place.   

OF THOSE THAT ARE COMING IN FROM OUT OF STATE, WHAT PERCENTAGE ACTUALLY HAVE A MORTGAGE? OR ARE THEY COMING IN WITH CASH, WHICH DRIVES HOME PRICES UP?

BRUBAKER: I was actually surprised when I was looking at some data about what percentage of home sales are cash. And it’s not all the big REITs and big companies that are buying homes for rent. A lot of people that have capital that are moving from out of state and they sold from New York at a really high price and their buying power is just better down here. So if you actually can find a house in  the existing resale market, you’re in a very strong position because if you’re selling a house, you don’t want that contingency where somebody has to get a mortgage. 

WHAT IS THE STATE DOING IN WORKING WITH THE FEDERAL GOVERNMENT TO TRY TO HELP LEGAL IMMIGRATION AND GETTING WORKERS WHO ARE CRAFTS PEOPLE, NOT JUST SCIENTISTS AND ENGINEERS?

BURGIN: I’ve talked to all kinds of folks in Washington about how we need to do something. I also think we ought to have a sponsorship program that if an employer sponsors somebody to be here, and they’re responsible for them, then I think we ought to figure out a way to do it and do it legally. But we can’t have an open border. But that is a federal thing that we have to deal with. And we passed legislation, telling our sheriffs they need to cooperate with people as far as getting illegal
people out. But it’s going to be a tough thing. Because I guarantee every one of you all know somebody that’s been here and works every day, has bought a house.
    There was a guy that I’m helping right now. He’s been here 17 years. He spent $30,000 with attorneys. And he has the right documentation, on the path to citizenship, and he’s still on the surface. That’s wrong.

STECKBECK: A lot of that is really geographic and sector specific. When you look at the restaurant sector, some of them are closing because they can’t find workers. I was speaking to a pilot trainer yesterday. And I was kind of shocked to hear this, but  the number of hours needed to now sit in the cockpit of a 737 has declined from 5,000 hours to 1,500 hours. But they can’t find enough pilots right now. So it depends really on where you are and what you’re doing. ■ 

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