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Aug 23, 2019

Forecasting the Future: Demystifying Two Common Assumptions in Our Economy

Sponsored Content provided by Robert Burrus - Dean , Cameron School of Business - UNC-Wilmington

This Insights article was contributed by Dr. Adam Jones, Cameron's Regional Economist.

Successful companies, communities, and individuals are intentional in their actions and make decisions based on an objective evaluation of opportunities and situations. Unfortunately, most of us struggle to think laterally without an outside stimulus. For example, have you ever lost your keys and looked in the same spot over and over only to find them after someone else suggests you check the pocket of your rain coat? It’s that nudge that helps us look at a problem from a different perspective.
Easily believing in our fears leads us to be pessimistic about the economy as well. As such, when we hear about common assumptions about our local economy, we are more inclined to believe them. So how do we combat our tendencies to believe our fears or desires? Listen and consider other’s perspectives with different views, different fears and desires. Here are two common assumptions and myths that require a different perspective.

Wilmington is a Retirement Community

Many in the Wilmington area believe the area is becoming a retirement community, and while there is some truth to this belief, it is not universally true. Since 2010, only seven percent of the population moving to Wilmington is aged 65 or over. “Well, it must be that people are moving here right before retirement…” Again, this group (aged 55-64) is only about seven percent of the population moving in. Most of the in migration are college aged students and families.  However, the story may well be different for other counties in the region. Nevertheless, we need to heed Jean de La Fontaine’s aphorism that “Everyone believes very easily whatever he fears or desires.”  

While “Wilmington is becoming a retirement community” is an acceptance of our fears over reality, there is definitely a shift taking place in other parts of the region. Nationwide, residents over the age of 65 is 16 percent of the population, that percentage is 17.7 percent, 18 percent and 31.5 percent for New Hanover County, Pender County, and Brunswick County. At the other end of the spectrum, Brunswick has the smallest percentage of residents under the age of 18 at only 15.3 percent while Pender is close to the national average at 22 percent and New Hanover is below the national average but above Brunswick at 18 percent. Furthermore, total population growth in Brunswick County is forecast to outpace that of New Hanover County. These dramatic differences in population characteristics suggest challenges in the future as families move into Pender, retirees move in Brunswick and all rely on New Hanover to be the economic core of Southeastern, NC.
 
A Recession is On the Horizon

It’s easy to give credence to our fears that the next recession is right around the corner. In fact, surveys of economists have predicted a recession in the near future for many years. In October of 2016, the Wall Street Journal ran an article stating that economists saw little chance of recession in 2016 but increasing chances in 2018 and 2019, but GDP growth has continued its march. “Everyone believes very easily whatever he fears or desires.”

A fear of recession leads one to latch onto the recent inversions of the yield curve as a sign of impending economic doom and while one should always worry when they hear “this time is different”, there are reasonable arguments that the yield curve may not be as strong a predictor as in the past. Following the recession, the Fed purchased trillions of dollars of securities (nearly quadrupling its balance sheet) and depressing long-term interest rates, thus narrowing the term spread and increasing the chances of a yield curve inversion. Further, the Fed is more focused on the limits of monetary policy, such as the effective lower bound on interest rates, and appears more prepared to step in earlier than in the past.  

In a time of such economic, political and global uncertainty, how do you do an objective analysis? Keep reading, keep asking, and keep testing your thinking and you’ll be able to sort out the facts from the myths.

For more on the economic outlook of our area, mark your calendars for Cameron’s Economic Outlook Conference, our region's premier forum for economic activity and forecasts, on October 10th. Visit uncw.edu/swain/outlook for details.

Robert T. Burrus, Jr., Ph.D., is the dean of the Cameron School of Business at the University of North Carolina Wilmington, named in June 2015. Burrus joined the UNCW faculty in 1998. Prior to his current position, Burrus was interim dean, associate dean of undergraduate studies and the chair of the department of economics and finance. Burrus earned a Ph.D. and a master’s degree in economics from the University of Virginia and a bachelor’s degree in mathematical economics from Wake Forest University. The Cameron School of Business has approximately 60 full-time faculty members and 20 administrative and staff members. The AACSB-accredited business school currently enrolls approximately 2,000 undergraduate students in three degree programs and 200 graduate students in four degree programs. The school also houses the prestigious Cameron Executive Network, a group of more than 200 retired and practicing executives that provide one-on-one mentoring for Cameron students. To learn more about the Cameron School of Business, please visit http://csb.uncw.edu/. Questions and comments can be sent to [email protected]. 
 

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