Commentary, NC Budget and Tax Center

Temporary economic slowdown or signs of worse to come?

The state and national economies continued to grow in May, but there are signs that economic momentum may be waning. Job growth through the first five months of 2017 was slower than in same period for either of the last two years, North Carolina has largely stopped making progress in bringing people back into the labor market, and our unemployment rate remains higher than the national average.

It’s too early to tell whether we are looking at a temporary blip or a major inflection point, but these signs are not encouraging. Given where the labor market is and where it could be headed, it is crucial that we bolster the systems such as Unemployment Insurance that protect people when the economy takes a downturn.

Here are a few of the indicators that point to a dip in economic growth:

Job growth has slowed in recent months: Year-over-year job growth in North Carolina averaged 2.5 percent for the first five months of 2017, below the 2.9 and 2.7 percent rates for 2016 and 2015, respectively. This slowdown underscores the need to ensure that our Unemployment Insurance system is prepared if the economy takes a turn for the worse. The U.S. has seen an unprecedented run of consecutive months of job growth, yet as we see weakening in the labor market, we must ensure we are not caught unprepared when the next economic downturn takes hold.

North Carolina’s unemployment rate is still above the national average: North Carolina’s headline unemployment rate remains below 5 percent, which still translates into over 220,000 individuals looking for a job and a higher rate of unemployment than the national average. In fact, North Carolina’s unemployment rate has been higher than the national average for the last six months, and has only been at or below the national rate for four months out of the last two years.

We have stopped making progress in bringing people back into the labor market: One of the most concerning indicators in recent months has been the lack of growth in labor force participation rate, or the share of North Carolinians who are either employed or actively looking for work. A lack of job opportunities drove many North Carolinians out of the job market during the Great Recession and although the state and nation had been making progress in bringing people back, that momentum has stalled over the last year. In May, 61.8 percent of North Carolinians were working or looking for a job, exactly where we stood in May of 2016. Given that we have never returned to pre-recession levels of labor force participation, this is a clear sign that recovery in North Carolina remains incomplete.

 

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