The Wilmington area should see stronger economic growth in 2017, a PNC economist told a gathering of area business people Wednesday morning.
Pittsburgh-based Mekael Teshome spoke at PNC’s third annual economic forecast event in Wilmington. His theme was “The Long Expansion,” a reference to the unusually slow pace of economic recovery since the Great Recession.
“This is the seventh anniversary of the economic expansion,” he said, adding that the recovery’s sluggish progress has caused considerable anxiety among observers, some of whom are predicting that the nation will soon experience another recession.
Teshome disputed those predictions, however, pointing to consistent – although modest – growth of American GDP in the face of stagnation elsewhere in the world.
“We’re set to see a rebound of about 2.5 percent in late 2016, leading into 2017, and growth of between 2 and 2.5 percent for the next 12 to 18 months,” he said. “It’s not a spectacular rate, but it’s not terrible.”
To support his forecast, Teshome cited national economic data as well as results from PNC’s most recent survey of small- to mid-size business owners, taken in late summer. Survey results showed that almost respondents, including 90 percent of respondents in North Carolina, were upbeat about their prospects for the following six months, Teshome said.
“Their sales expectations are a bit up; their expected increase in profits is even better,” he added. “That bodes well for hiring and investment. Very few [respondents] plan to lay off workers.”
He also predicted that 2017 will be a better year for Wilmington than 2016, with more people moving to the area to boost retail and hospitality sales, and with payroll numbers indicating a 1.5 percent growth in employment this year, increasing to more than 2.2 percent in 2017.
Teshome also forecast that unemployment would decrease to 4.6 percent in early 2017, which would be within the 4-5 percent unemployment rate that is officially considered full employment by the federal government.
To support his forecast, Teshome cited U.S. economic data as well as information obtained from PNC’s late summer survey of small- to mid-size business owners, 151 of them in North Carolina. Respondents across the U.S., he said, are “becoming increasingly optimistic.”
The four pillars he cited as supporting continued growth are: consumer spending, which accounts for 70 percent of the U.S. economy; a recovering housing market; a “relatively healthy” financial system; and signs that young adults are finally starting to get on their feet financially, which means they are moving out of their parents’ homes and into their own lodging.
“They may initially move into apartments rather than buying homes, but they need to buy stuff to fill that apartment,” he said.
Low inflation pressures and low borrowing costs are also supporting steady growth, the economist added.
Headwinds keeping growth modest, according to Teshome, include weak growth in investment and productivity, reduced U.S. exports resulting from a strong dollar and the drop in energy prices.
As European, East Asian, South American, Mexican and Canadian economies struggle, the U.S. “will be the major economic engine” in the world this year and next, Teshome said. He predicted the Federal Reserve will hike rates a quarter-percent in December, with similar small increases two or three times in 2017.
Asked if he saw any bubbles appearing on the economic horizon, Teshome answered in the negative.
Adam Jones, associate professor and regional economist at University of North Carolina Wilmington, said he generally agreed with Teshome’s assessments.
“It squares very much with the way we’re looking at [the economy],” he said following the PNC presentation. “The only thing we might disagree about is, we see a possible bubble forming in commercial real estate. Our macro economist, Tom Simpson, believes this is an area to keep an eye on.”
Simpson and Jones will speak about the regional economy Thursday morning at UNCW’s annual Outlook economic forecast breakfast at the university’s Burney Center.