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Tuesday, February 11, 2025

Roundtable: Economic Forecast

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••• SPONSORED SECTION •••

North Carolina’s economy continues to accelerate and collect accolades. And while an increasing population, improving tax situation and welcoming regulatory environment help pave the road to success, it’s tough to see around some of the upcoming turns. Potential changes at the federal level, including immigration policy that could further empty a labor pool already running on “E” and tariffs intended to park the state’s largest trading partners, create uncertainty. Business North Carolina recently gathered a panel of experts, representing some of the state economy’s most-important facets, to help businesses and others map out the coming year. Their conversation was moderated by Publisher Ben Kinney. The transcript was edited for brevity and clarity.


The discussion was sponsored by:

• Lundy-Fetterman School of Business, Campbell University
• Robeson Community College
• Ward and Smith

 

FROM YOUR PERSPECTIVE, WHAT’S THE ECONOMY’S CURRENT STATE?

STECKBECK: We forecasted the economy would slow last year, but it did much better. Revised real GDP growth for the U.S. was 3.1% in the third quarter of last year. Most sectors did well except for leisure and hospitality. Construction was down but is bouncing back, and manufacturing is down some.

North Carolina’s unemployment increased a bit, but most of that was tied to Hurricane Helene’s impact. Asheville’s unemployment rate, for example, was 7.8% at October’s end. But that will fall. There was a large increase in initial claims for unemployment, which peaked at 300%, in early October.

Recovery efforts in the mountains are taking effect. FEMA has spent about $15 million, and the state has requested more federal money. So, things are starting to return to normal, and that will continue.

Growth will be about 2.5%, maybe slightly lower, this year. Unemployment will remain where it is, 3.7% or 3.8%. We don’t see a recession coming, though there are caveats. We still have higher than normal inflation. The Personal Consumption Expenditures Price Index is running about 2.5% to 2.8%, which is higher than the Fed’s mark of 2%. I’m guessing the Fed won’t change interest rates soon. There were indications that they would, but inflation hasn’t come down like they believed.

Slightly higher interest rates would slow inflation but impact housing. Housing starts in North Carolina have decreased about 0.4%, and that’s affected construction employment. The Fed is building some estimates of President Trump’s proposed tariffs into its models. That also plays into any decision to change interest rates.

I don’t expect a 35% tariff on imports from China and 25% on goods from Mexico and Canada. Republicans are going to have to stop any Trump tariff, though he has the unilateral ability to enact them. He’s a lame-duck president. Republicans must be looking at four years. Cooler heads will prevail. I’m optimistic that tariffs either won’t be enacted or less than proposed if they are. I think he’s using them as a threat.

Tariffs would have a big impact on North Carolina. It’s the 14th largest exporter of the 54 U.S. jurisdictions — states and territories. Its three largest export destinations are Mexico, Canada and China. Tariffs would raise prices on imports, too. So, there will be an inflationary effect if they transpire. I don’t think it will be negative, but we’ll see some economic slowing, more than anybody anticipated.

BURGIN: I’m optimistic, but there’s uncertainty. People are still dealing with Jan. 1: When you woke up, North Carolina taxes were less. Many people are concerned that there isn’t enough money to run the state. But it has done extremely well over the last few years under the Republicans, especially Sen. Phil Berger’s wise hand. We would have been first on CNBC’s America’s Top States for Business list again last year, but they changed the formula and we’re second. That would have been a three-peat. I’m tired of people saying the first this or the first that. I just want us to be the best.

Childcare is a big concern. North Carolina can’t continue to grow if it isn’t more widely available. I’m proposing we completely change education in North Carolina. I’m a proponent of starting school at age 3 and moving 11th and 12th grade to the community colleges. I want to turn education into statewide, year-round schools. We could save billions of dollars on school construction and invest more in our teachers and programs. We’re not competing just with Southern states or California and New York. We must compete with the world.

I attended a meeting at Google headquarters in Palo Alto, California, just before Christmas. Eleven legislators were invited. About 40 people, including from Google, American Medical Association, American Hospital Association and Stanford University, talked to us about artificial intelligence and its possibilities. It can do some scary things.

I asked Google’s head of government affairs about AI’s direction, especially in regards to social media and young people. Australia has initiated a social-media ban for children younger than 16 years old. The algorithms used need to be made public. We need to know if they’re being used to change our behavior or encourage addiction. I’ve worked a lot on mental health and addiction issues. N.C. Department of Health and Human Services Sec. Kody Kinsley and I have traveled the state, discussing addiction with residents. I think the biggest addiction that we’re dealing with is anything AI related, including gambling.

I’m excited about AI, but people need to know when it’s used, especially to make healthcare decisions. If someone is denied a potentially life-saving MRI, they need to know if a human being or an AI algorithm made that decision. I plan to introduce legislation that requires AI use be disclosed.

Everybody presenting at the meeting said AI doesn’t bring savings. It’s expensive and requires a lot of energy. We met with Duke Energy not long ago, and the amount of energy required to run the two big data centers eyeing North Carolina is massive. We need to be looking at more nuclear generation, including small modular reactors. Two nuclear plants were recently built in Georgia.

HODGE: We have a diverse base of clients. Despite soft spots here and there, most had a good 2024. We’re dealing with comparing 2023 and 2024 to 2020 and 2021, when there were artificial stimulants in the economy.

North Carolina remains a great place to do business. We have great education systems that produce a steady stream of university, college and community college graduates. N.C. Community College System is a great resource, adding workforce development to economic development projects. That’s a gamechanger when a company is considering a location.

I spend most of my time in the mergers and acquisitions world. It was a little slower last year than in 2023, but we weren’t twiddling our thumbs. The Fed lowered interest rates last year, so most transactions are leveraged transactions. The cost of capital matters. We see a lot of appetite there. We’re in an environment where private equity groups’ asset hold timeline is six, seven or eight years. There’s momentum for them to sell, returning capital to their investors who can then invest in a different fund that they’re raising.

The state’s regulatory climate is very good, but it could be better. The tax climate continues to improve, thanks to the General Assembly’s tax cuts. The future of the 2017 Trump tax cuts remains in question. The consensus says they are extended. But with tight margins in Washington, it’ll be interesting to watch what happens.

I spent time raising money for several groups, primarily in the industrial and warehouse space in central North Carolina. There’s plenty of demand. The real estate sector will continue to perform well. The single family home builders continue to do well. Many people rent.

There’s a new phenomenon — developers undertaking build-to-rent projects instead of build-to-sell ones. It’ll be interesting to see how that shakes out. People are still coming to North Carolina. They need a place to live and somewhere to work.

HICKS: Our members have a cautiously optimistic outlook. Many issues have a 10-fold effect on small businesses. There are workforce issues, including rising healthcare costs. Interest-rate increases decrease capital access. Many small businesses have more debt than they’re comfortable carrying, making growth challenging. That’s playing out in the mountains, where small businesses have access to hurricane relief capital but are sitting on capital from the pandemic. Do they want to incur more debt to survive? It’s still a great time to start a business despite those issues.

We’ll probably see many issues that impact small businesses reversed or changed this year. Tariffs, if enacted, will create opportunities, particularly filling supply chain gaps. Beneficial ownership information reporting requirements have been going back and forth. Small business owners were supposed to disclose the other owners of their LLCs among other responsibilities by Jan. 1. Then there was a stay, pushing it to Jan. 13. Think about the average small business owner, trying to decipher the requirement. Is it important? Will it be kicked out altogether?

MINTZ: We spend a lot of time talking to manufacturers about three things: workforce, supply chain and technology. Orders are being placed, and bidding opportunities continue. So, manufacturers are doing businesses. But they’re struggling to do that work, because workers are scarce. The best-performing companies have a workforce plan. They assemble effective training programs and work with community colleges.
The supply chain side is more difficult. While there are efforts to make more domestically, manufacturers continue to purchase many products internationally. Some of those items have never been made stateside. That’s not easy to turn around. Efforts that pressure other countries to lower prices, including tariffs, won’t work here, because we need those items.

Productivity challenges our state’s and country’s competitiveness. We must be more productive. That requires workforce and technology. There’s sticker shock associated with some technology pieces. Manufacturers don’t want to borrow to buy them, so many ask the government for help with these investments.

KNIGHT: Insurance is like many other industries. Its success mirrors the overall economy. Take inflation. Most everyone has watched their home and auto insurance costs increase, sometimes significantly. I don’t expect that to stop.

The cost of building or rebuilding a home is outpacing inflation. The cumulative impact of inflation from January 2020 through June 2024 was 21%. The cost of construction materials increased 41% during that period, and trade-labor costs increased 35%.

Automobile parts have a similar story. More than 60% of auto parts are imported from Mexico, Canada and China, which are the targets of recent tariff discussions. If a 20% or 30% tariff is added to those parts, then repairs after auto accidents will be more expensive, which will drive up insurance costs.

Supply chain issues continue, making car repairs take longer. The average rental car period after an auto accident has increased to 17 days from 13 days, so insurance companies are paying more for that. And the average claim for auto repairs has increased significantly.

BEYOND TARIFFS, WHAT CONCERNS YOU AS WE MOVE INTO 2025?

BURGIN: Big retail concerns me. Amazon, for example, was delivering to most everyone’s home over the holidays. Its drivers seemed to stop at my house several times each day. The thrill of receiving a delivery sets off a chemical reaction in your brain, making it addictive. I want to get it. I want to open it. We’re all addicted to getting stuff. Big retail has that figured out, but it needs to be watching what it’s doing. I’m concerned about that and other big businesses.

Immigration concerns many people. If you visit a construction site in North Carolina, most of the workers are Hispanic. I believe many of them lack a tax ID or a driver’s license. Some businesses hire many of these folks, and they’re concerned what will happen if Trump’s proposed immigration policy changes are enacted. Are they going to have to leave? Will there be a fast-track program for those who have been here?

Some of my business clients have been here decades, raised their kids here, sent them to NC State, UNC and Wake Forest. They’re concerned. We must figure that out. I hope the administration gets rid of the bad guys but spares the families that have established roots and invested in the community.

STECKBECK: Foreign-born people in this country commit far fewer crimes than native-born citizens. It’s a myth that they are here to commit crime. There are people here to work, and they’re going to be tough to replace if proposed immigration policy changes are enacted.

The rising cost of healthcare is my biggest concern. It’s a big issue and will remain one. It’s driving up insurance rates. We subsidize healthcare demand, but we don’t increase supply.

MINTZ: There has been a lot of investment — federal and private — in the sustainability market such as electric vehicles and battery technology, but there’s a lot of noise about challenges within it. We’ve worked with many small manufacturers within it. They’re preparing for it to grow, but a policy change could stifle it. That could take a big chunk out of the state’s economy.

KNIGHT: The insurance industry spends a lot of time thinking about climate. Twenty-two of the 25 most expensive insurance events have happened since 2004. Hurricane Andrew, for example, was the biggest in history when in hit Florida and Louisiana in 1992; it would be a top-10 event today. Population is concentrating along our coasts, and storm frequency and severity is increasing. That’s causing problems for the insurance industry.

WHAT OPPORTUNITIES ARE YOU EXPECTING?

HICKS: About 50% of our clients now use nontraditional funding instead of traditional bank loans to start their business. Whether it’s the State Small Business Credit Initiative offering money through more Community Development Financial Institutions or a different avenue, small business owners have many options today. That’s positive, and we’ll see more of that.

North Carolina is blessed to have many resources that support small businesses. Owners can reach out to N.C. Community College System’s Small Business Center Network, NC IDEA, and Small Business and Technology Development Center.

HODGE: The labor market isn’t as tight as it was the past several years, so there’s talent available. North Carolina continues to see significant population inflow. That includes talented people with good ideas who work hard.

MINTZ: Concerns about importing supplies have created opportunities for business diversification, making items that you or others buy. We routinely receive calls about finding local suppliers who can make these things. So, any manufacturer with a diversified structure has an opportunity to grow.

We all rallied to make more items domestically during the recent pandemic. But once it passed, we began buying imports again. So, that business disappeared for companies willing to make them. Manufacturers remember that, and it’s a concern for future diversification. What’s their guarantee that people will continue to buy domestic products?

BURGIN: We’re seeing more small businesses and entrepreneurs, especially in many of our smaller communities. Many people who worked at big companies want to slow down and do something they always thought about doing.

North Carolina has recently made some significant economic development announcements connected to its megasites. But the economic development people I talk to say about 80% of businesses that have come to North Carolina needed 100 or fewer acres. It’s great to land big deals, but to eat you just need to catch fish. I encourage people to look at sites 100 acres and smaller. I think that’s where they’ll find many opportunities.

STECKBECK: North Carolina’s population has grown about 11% during the past decade. Real personal income in North Carolina increased 4.3% last year compared to 2.9% for the rest of the country. The positive side of this population growth is there’s many opportunities, especially in small business and macro economy.

WHAT PREPARATIONS SHOULD BUSINESSES BE MAKING?

HICKS: Invest in technology and explore AI. Both increase efficiency and productivity, manage costs and optimize pricing to protect against inflation.

BURGIN: With Medicaid expansion, hospitals will receive $6.3 billion from the Healthcare Access and Stabilization Program. I challenge them to use it to promote healthcare and better health. Many things have driven up costs, and many things can drive them down.

Everybody seems to be on a pill for something. Many U.S. children are prescribed Adderall and Ritalin, but those drugs aren’t allowed in Japan, South Korea or Saudi Arabia. I talked to principals at two Harnett County elementary schools. They said the same thing: More than half of their 9-, 10- and 11-year-old students take medication at school. I’m an older guy, and the only kids I remember receiving medication at school were those needing insulin. We need to reduce waste and waist. If I reduce my waistline, I’ll be healthier. Many of us need to look at that.

MINTZ: Many times when manufacturers ask for technology support, they’re given big solutions that ultimately quell their initiative. A robot isn’t a solution for everything. If you’re small, there’s small things you can do. Data collection and management can help. Learning more about your processes helps, too. They’re not expensive, but you receive many benefits from them. They need more promotion. You must get in the game. You can’t not do technology.

HICKS: Focus more on retaining employees. They’re expensive to replace. When we teamed with Business North Carolina for the Small Business of the Year awards, the winners had great stories of investing in their teams, adding training and creating culture. You used to be able to hang a help-wanted sign, and the line of applicants would be out the door. Now you need ways to keep the employees you have. Small businesess are doing things they’ve never done before.

HODGE: We have large clients who lament the fact that it’s difficult to get somebody to pass a drug test and show up five days in a row. But we’re spending a lot of time working on incentive compensation plans for their management team. You must have a good culture. But you’re not unique in that way, so companies need the financial piece, too. Key leaders’ incentives must align with owner’s incentives, so the company’s profitability increases. We spent a lot of time during the past few years searching for creative solutions to that and continue to do so.

KNIGHT: We must be mindful of the litigious environment in North Carolina. The dangers are apparent nearby. Georgia not only has the No. 1 college football team many years, but American Tort Reform Association recently put it first on its Judicial Hellhole list. And South Carolina has insurance crises, including with premises liability and liquor liability.

Nuclear verdicts — $15 million or more — are becoming too common. They’re up 65% among automobile claims. Think about someone being awarded $15 million or more in damages after an automobile accident. It takes many $2,000 annual premiums to make up for that.


Growth & Impact

Robeson Community College

WHAT DIRECTION DO YOU SEE THE STATE’S ECONOMY MOVING IN 2025?                      

SINGLER: I believe our economy will continue to thrive. North Carolina remains an attractive destination for businesses and industries, offering both a high quality of life and a strong labor force. Our robust community colleges play a key role in quickly upskilling workers to meet the needs of employers. These factors, along with many others, position us well for sustained economic growth in 2025 and beyond.

WHAT CONCERNS DOES YOUR ORGANIZATION HAVE FOR 2025?

SINGLER: We are always concerned about operational costs. With the rate of inflation that has increased significantly over the last 4 years, our costs have risen as well. We are here to serve students, and we will continue to do that, no matter the costs, and we will continue to provide a quality education at an affordable price, we just have to continue our fundraising efforts to make sure that our students have everything they need when they attend classes at Robeson Community College.

WHAT OPPORTUNITIES DOES IT SEE?

SINGLER: At Robeson Community College, we are always identifying new opportunities for growth and impact. In 2025, we will be launching our athletics program, a major milestone that will transform our institution. We remain committed to enhancing our support for business and industry through tailored training and innovative programs. We have recently added electrical lineman to our list of programs thanks to a partnership with local industry. We anticipate adding additional certificate and degree programs in the near future. As mentioned earlier, we are also focused on expanding our fundraising efforts to provide students with the financial support they need to succeed in their education.

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