Economic growth brings lifestyle change

In the second quarter of 2025, the most recent measurement available, North Carolina’s gross domestic product reached $883.6 billion — the highest number ever, even after adjusting for inflation.

Our growth rate for the second quarter, an annualized 3.7%, was solid but slower than in 17 other states. Over a longer term, however, North Carolina’s economic performance looks more impressive. Since early 2020 — and thus including both the COVID-era Great Suppression and subsequent recovery — our GDP has grown by 19% in real terms, surpassing the national (15%) and regional (18%) averages. Among our neighboring states, only Tennessee managed to match our growth rate.

For a deeper dive, let’s compare the structure of North Carolina’s current economy to that of 20 years ago. One striking difference is the relative size of the public and private sectors. In 2005, government accounted for 14.9% of the state’s GDP. Today, it’s 11.4%. The decline is mostly attributable to state and local spending, which dropped three points while federal military spending fell half a point.

Another notable change is that manufacturing made up 12% of North Carolina’s economy in 2025, down from 18% in 2005.

No, this doesn’t mean our industrial base is fading away. Indeed, actual manufacturing output, adjusted for inflation, is higher today than it was then. What really happened is that sectors such as health care, utilities, and real estate grew even faster. The sector labeled “professional, scientific, and technical services” nearly doubled as a share of GDP.

Many manufacturers employ fewer people, to be sure, but generate equivalent or higher output due to automation and other productivity gains. If the goal is to raise real wages and the standard of living, that is a positive development, not a negative one.

During the first few decades of the 20th century, for example, the share of North Carolinians working in agriculture plummeted. The result wasn’t a decline in output — far from it. We have no shortage of food or fiber. What really happened is that new seeds, fertilizers, equipment, and techniques allowed millions of people to redirect their labor to more productive uses. During the latter 20th and early 21st centuries, a similar process played out in manufacturing. Now, it seems, innovations such as artificial intelligence and quantum computing are going to transform our workplaces again.

I won’t minimize the short-term disruptions that come with economic change. When our grandparents and great-grandparents relocated from farms to cities and suburbs, it took a while for new communities, institutions, and folkways to form. As North Carolinians react to today’s changes, many will need to seek out new opportunities, learn new skills, and relocate to other places. There will, again, be many economic, social, and even political consequences, some expected, some unforeseen.

While governments can’t truly prevent such changes — and wrongheaded policies such as government subsidies and import taxes impose costs on households and businesses far greater than the mostly fleeting benefits — state and local policymakers can make it easier for people to adjust to new economic dynamics.

Policymakers can reduce or eliminate regulations that make it hard to launch new businesses or enter new occupations. They can raise academic standards and offer a broader array of education and training options so young people can prepare for the future labor market and displaced workers can reenter it. And they can make cost-effective investments in transportation, water, and sewer infrastructure capable of serving a wide variety of industrial and commercial enterprises, including sectors we might not yet be able to envision clearly.

One more change isn’t so evident in the GDP figures: a higher share of North Carolinians are working largely or fully from home. The arrangement won’t become universal, of course, and most employees will continue to commute to external workplaces. Nevertheless, telecommuting will alleviate some congestion on our highways, while home-based work will benefit would-be entrepreneurs, seniors, and parents with young children.

North Carolina’s economy is growing. More to the point, it’s changing — and always will.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy and American history.