There is currently a “vibecession” occurring — a state defined by a persistent sense of malaise about the economy due to factors like high grocery prices and housing costs. What is really going on?
In evaluating North Carolina’s economy or, really, any economy, you want to know if the engine is growing, that there are enough jobs for people, that people can borrow at reasonable rates, and that the dollar you hold today is worth about the same as it did a year ago. If those four metrics are solid, we are good. Using Pareto’s 80/20 principle — the idea that 20% of any set of numbers constitutes 80% of the value of the entire set — we know that real GDP, the unemployment rate, interest rates, and inflation drive the vast majority of what is important.
If those four numbers are excellent and all other economic metrics are falling apart, we still get a B. If all other numbers are great and those four numbers are bad, we get an F. These metrics are the best hard data to confirm whether there is any meat to the malaise.
When rhetoric gets loud, look at the basic math.
GROSS DOMESTIC PRODUCT
First, consider gross domestic product (GDP). GDP is simply the value of all goods and services produced in a nation within a timeframe. Think of it as a state or country’s “top line” revenue. Nationally, we just saw third-quarter GDP growth accelerating to 4.3% — the highest rate in two years. Historically, anything above 3% is outstanding.
In North Carolina, our state’s real GDP grew at an annual rate of 3.7% in the second quarter (the most recent data available), ranking us among the top states in the Southeast. That rate is expected to be 3.2% and 2.9%, respectively, in the final two quarters of 2025, according to estimates from UNC Charlotte’s North Carolina Economic Forecast. Based on everything we know about GDP today, our state and national economic engines are running smoothly. Real GDP — Check.
UNEMPLOYMENT
In contrast, nationally, unemployment sits at 4.6%, the highest since 2021. Here at home, North Carolina’s unemployment rate has consistently hovered around 3.7% to 3.8%, below the national average. But even a look at the national average benefits from context. Economists consider “full employment” — where there is a good balance of job openings to unattached workers — to be about 5%. Too far below that and it can be considered a labor shortage. Since 1950, the average US unemployment rate has been about 5.7%. In 2020, it spiked to 14.8%. The math is simple: If you want a job today, the odds are heavily in your favor. Employment — Check.
INTEREST RATES
Next, interest rates. The Federal Reserve recently set a target range of 3.5% to 3.75%. Historically, 30-year mortgages run 2 to 3 percentage points higher than that rate, and they currently sit around 6%. We are in a cooling-off period after mortgage rates peaked near 8% in late 2023. If you are anchored to the sub-3% rates of 2020 — a once-in-a-century anomaly — 6% doesn’t feel so good. But the historical average since 1971 is 7.4%. North Carolina’s housing inventory is increasing, and we are currently borrowing at low rates compared to the last five decades. Interest rates — Check.
INFLATION
Finally, the annual inflation rate in the US is currently around 2.7%. Here in the South, the inflation rate is lower than the national average, at 2.2%. Both rates are higher than the Federal Reserve’s 2% target but well below the 75-year average of 3.5%. Remember, the COVID-era high was 9.1% in June 2022. Things still “feel” bad because we are carrying the scars of the last few years. Prices aren’t dropping, but the speed of their increase has significantly slowed. We are still paying for the 24% total price hike endured since 2021, but the bleeding has stopped. With inflation at 2.7% nationally and 2.2% in North Carolina, the engine is cooling to a healthy temperature. Inflation — Check.
THE VERDICT
The answer: Despite the “vibecession” narrative, the economy is recovering. I think we get an A-minus, no matter who the teacher is — Democrat or Republican.
One last item. Who drives all these metrics? Certainly not the politicians. It is the small-business person. They create the jobs, growth and innovation. They build a healthy economy. Small businesses generated a net increase of almost 90% of all new jobs in North Carolina in the most recent annual period.
These businesses have been operating in a fog of mixed information and a quickly changing policy environment. Predictability is the oxygen needed for entrepreneurs because their lives are already upside down with risk. They need the certainty to plan, hire and invest. So, people, let’s not confuse the creators. It is time to move past the noise and get back to business. The math says we’re going to be just fine.
