NC among top 10 in economic growth

by John Hood, John Locke Foundation and NC SPIN panelist, December 2, 2013.

If you are even an occasional reader of this space, you know that I put very little stock in “best places for business” lists. There are too many of them, reflecting too many different and mutually incompatible methodologies. They produce conflicting information and often bear little relationship to what is really going on in state economies.

Rather than measure elite opinion about states and what they ought to be doing to promote economic growth, I prefer to measure economic growth itself. If you start by identifying economic pacesetters, you can then identify what factors make them pacesetters — and, in turn, which of those factors can be affected by public policy.

In an earlier column, I noted that the latest Bureau of Labor Statistics data on job creation show that North Carolina is now outperforming the national average. According to a broader set of economic data compiled by researchers at the Federal Reserve Bank of Philadelphia, North Carolina is in an even stronger position than I originally thought.

The Philly Fed produces a monthly “coincident index” for all 50 states. The index combines four indicators: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and inflation-adjusted employee pay. The Fed researchers then tie each state’s index to its GDP growth rate.

During the Great Recession, the coincident index for North Carolina dropped precipitously. But over the past two years, the state’s economic performance has improved markedly. In October 2013, North Carolina’s index value reached 164 — precisely the index value our state had reached on the eve of the recession in late 2007.

That represented an increase of 7.6 percent over two years. Only nine other states posted at least a 7 percent gain in economic performance on the Philly Fed index from October 2011 to October 2013. They are North Dakota (17.3 percent), Texas (8.8 percent), Indiana (8.3 percent), Oregon (8.3 percent), Utah (7.9 percent), Michigan (7.4 percent), South Carolina (7.4 percent), Colorado (7.1 percent), and Georgia (7.1 percent).

These are the states at the forefront of America’s economic recovery. North Carolina is among them.

They have some similarities but also many differences. The states are distributed across the West, Midwest, and Southeast. In eight of the 10 states, Republicans hold the governor’s office and both legislative chambers. Democrats have unified control in Oregon and Colorado. North Dakota, Texas, Colorado, and Oregon are benefitting from energy and resource booms. Under reform-minded governors, Indiana and Michigan are reshaping their traditional economies. Utah is becoming one of the west’s centers of innovation and entrepreneurship. Georgia and both Carolinas have spent the past three years reforming their fiscal and regulatory policies to become more competitive in the broadening international market.

To identify these 10 states as the nation’s current economic pacesetters is only to establish their relative success, however. As we know, America’s economic recovery remains subpar by historical standards. While North Dakota’s economy is sizzling and Texas is clearly booming, just about everyone else, including North Carolina, ought to be growing at an even faster rate. Millions of people remain unemployed or underemployed even in top-10 states.

In policy terms, the problem is primarily federal. Years of loose monetary policy have served primarily to bail out the deficit-crazed federal government and to goose asset prices, not to set the stage for broad, rapid growth. Uncertainty about federal fiscal policy and widespread concerns about the future costs of federal regulatory policies are inhibiting business investment and entrepreneurship.

Still, even if the race as a whole will never set any speed records, I’d rather be leading the pack than trailing far behind. To the extent state policymakers can influence economic events, North Carolina’s leaders have been making the Rightdecisions.

Pun very much intended.