During a local economic forecast Tuesday, an expert compared the Wilmington area outlook to a car being driven with one foot on the gas and the other on the brake.

“There’s reason for optimism and concern,” said Adam Jones, regional economist at the University of North Carolina Wilmington.

Speaking at UNCW’s Outlook conference Tuesday morning, Jones predicted that this year would result in 3 percent growth in the local economy while next year he expects 2.5 percent growth, a level that he said is above average.

Jones was one of five speakers to discuss local economic topics during the Outlook event, which was presented by Swain Center for Business and Economic Services at the university's Cameron School of Business. Jones shared his regional forecast after Thomas Simpson, executive in residence at the Cameron School of Business, provided a national outlook before an audience of several hundred.

Leading up to his growth number predictions, Jones said gross regional product numbers, the regional counterpart to the national indicator of gross domestic product, have been “particularly volatile” in the Wilmington Metropolitan Statistical Area. He pointed to the 2012 to 2013 GRP growth rate, which was “fairly large” compared to little to no growth in the most recent numbers for 2013 to 2014.

But he said GRP and GDP rates are subject to substantial revisions.

“I believe there’s a high probability that the 2013-2014 growth rate will be revised upward. Why? An increasing number of jobs is one reason,” Jones said.

He said increased employment is one indicator, along with improvements in the areas of local retail sales and the housing market, “adding fuel to the economic engine.”

But other factors are leaving one foot on the brake, he said, including the value of the dollar.

“Manufacturing remains an important part of the regional economy, contributing 16 percent of the region’s gross regional product – that’s twice the national average and twice retail,” Jones said.

The fact that the value of the dollar has risen 20 percent over the past year, however, is making goods produced by manufacturing less competitive in foreign markets, restraining export growth, he said.

“In addition, global economic growth appears to be slowing,” Jones said. “North Carolina’s four largest export markets are struggling: Canada, Mexico and Japan’s growth forecasts have all been revised downwards, and China’s remains constant, having been previously reduced.”

While that doesn’t mean there will be a global recession, the trends suggest exports might not add as much to regional growth as previously forecast, he said.

The regional economist explained that a reduction in film incentives, debate surrounding the renewal of the Export-Import Bank, and a potential rise in interest rates are additional areas to watch.

Jones ended his outlook by saying, “It is likely that the regional economy will grow slightly faster than the national economy, further bringing down unemployment and moving back towards full employment once again.”

Sharing a national perspective on what is fueling and will fuel the U.S. economy, Simpson predicted 2.5 percent growth in the next couple of years, expected to be driven by the household sector in terms of residential construction -- single-family and multi-family -- and consumer spending. Business investment in physical aspects, though, "has really been the most discouraging aspect" of an economic expansion that began in mid-2009, Simpson said, pointing to a chart of net domestic investment's share of net domestic product.

"What you see is that even though it's picked up over the last few years, this share is depressingly low, and this has very adverse consequences for a variety of things -- for one thing the labor productivity is not improving as it could if we had more investment, more growth in the capital stock, and furthermore, this translates into ... lower potential growth for the the economy," he said.

In surveys, Simpson said, business leaders cite several reasons for being cautious about fixed investments, including concerns about public policy, particularly regulatory policy expected to create cost increases, and "an unsustainable fiscal situation at the federal level" that could lead to higher taxes. 

"I'm not anticipating that the investment sector is going to show any kind of normal behavior in the next couple of years," Simpson said.

That remaining slack in the economy, which is diminishing only slowly, Simpson said, "implies that inflation is going to continue to be low [currently at about 1.25 percent]." 

Meanwhile, the Federal Reserve Bank has set a target for inflation at 2 percent, pointed out Simpson, who retired from the Board of Governors of the Federal Reserve System before joining Cameron School of Business. "But I don't see inflation reaching the 2-percent area any time soon, which is posing a real dilemma for the Fed because the Fed's committed to this target of 2 percent, but on the other hand, they've been saying for some time now they're going to be raising the federal funds rate this year." 

A normal level for the federal funds rate is 3.75 percent, but it's now at 0, Simpson said, and the 10-year treasury note rate is currently at about 2 percent instead of a normal level of 4.75. 

"There's a lot of ground to cover here, with a lot of implications in terms of the performance of financial markets and the economy," Simpson said at the end of his presentation.
 

Looking Ahead: Economic Growth Forecasts

	2015	2016
Wilmington area	3%	2.5%
State (from UNC Charlotte)	3%	2.8%
National	2.2%	2.5%