Connaughton: Economy to cool slightly in 2014

by Steve Cranford, Charlotte Business Journal, June 3, 2014.

The North Carolina economy should grow at an inflation-adjusted rate of 1.9 percent in 2014, down from 2.3 percent last year, according to UNC Charlotte economistJohn Connaughton.

The slowing will stem from monetary policy at the federal level and the impact of baby boomers reaching retirement age.

The Federal Reserve is tapering its purchases of mortgage-backed securities and U.S. Treasury bonds, which has prompted interest rates to rise, “just as the residential real estate market was beginning to show signs of life,” Connaughton said Tuesday in his quarterly economic forecast. That has slowed home sales and prices in the last two months.

As boomers enter retirement age, they are spending less, reducing overall consumption. “Their retirement also reduces the absolute size of the labor force, thus reducing potential GDP and lowering economic growth,” marking the start of a long-term problem, Connaughton added.

The slowing won’t prevent the state’s main economic sectors from expanding. Growth prospects in 2014 are strongest for agriculture, with a projected real increase in output of 10.9 percent; mining, up 9.4 percent; hospitality and leisure services, 3.3 percent; transportation, warehousing and utilities, 3.3 percent; and other services, 3.2 percent.

By December, the state unemployment rate should be around 5.8 percent, Connaughton said, down from 6.2. percent in April. Nonagricultural employment in North Carolina is expected to reach 4,163,900 people in December, up 1.5 percent for the year. Connaughton expects the state to see a net gain of 59,700 jobs this year, down from 85,600 last year.

Connaughton is a professor of economics in the Belk College of Business at UNC Charlotte. He presents a forecast every quarter that’s sponsored by Babson Capital Management.