HomeMy WebLinkAboutAgenda- 06-19-2018 12-8 - Memorandum - Third Quarter FY2017-18 Financial Report- Period Ending March 31, 2018
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FINANCE and ADMINISTRATIVE SERVICES
Gary Donaldson, CTP, Chief Financial Officer | gdonaldson@orangecountync.gov | 200 S. Cameron Street, Hillsborough, NC 27278|919.245.2151
MEMORANDUM
To: Board of County Commissioners
From: Gary Donaldson, Chief Financial Officer
Date: June 19, 2018
Re: Third Quarter FY2017-18 Financial Report- Period Ending March 31, 2018
_____________________________________________________________________________________
The Third Quarter FY2017-18 report provides revenues and expenditures information for the period ending March 31,
2018. Based on nine months of financial data, the fiscal year end revenues versus expenditures remain to be break-even.
Our financial forecasting model has been a useful tool in confirming staff estimates.
The Major Orange County Operating funds are:
• General Fund
• Enterprise Funds (Solid Waste Fund and Sportsplex Fund)
The third quarter report is presented with a detailed comparison Budget versus Actuals for the current and prior fiscal year
indicating year to date revenues and expenditures performance. The primary goal of this quarterly report is to
communicate a concise high level financial status of the County’s major operating funds. A year-to-date investment
holdings balance is included as well.
The enclosed 2018 Economic Outlook Report by Dr. Michael Walden of NC State University indicates that North
Carolina’s economic growth rate has accelerated since 2013 and has beaten the national growth rate for three straight
years. The report states that the pace of job growth has slowed after peaking in 2015. However, the NCSU Index of North
Carolina Leading Indicators shows no indication of a recession in the immediate future. These economic indices are
consistent with our near term financial forecasting model.
General Fund Revenues
Third quarter FY2017-18 General Fund revenues total $186.6 million or 83.9% of budgeted revenues, which represents a
1.8% increase when compared with 3Q FY2016-17 total of $183.3 million or 82.1% of budgeted revenues. This increase
is primarily attributed Property Tax revenue performance resulting from lower projected tax appeals from the revaluation
than expected. Charges for Services are higher due to increased Emergency Service billings. Note: The
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Intergovernmental revenues in Social Services decrease of approximately $4.5 million and commensurate expenditure
decrease is attributed to the State now directly funding Child Day Care services.
Summary of Major General Fund Revenues
Property Tax Revenues
3Q FY2017-18 Property Tax revenues total $150.3 million or 99.2% of budgeted revenues as compared to $146.4 million
or 97.9% in the prior year. This increase is largely attributed to lower tax appeals. The Tax Office initially projected
appeals of 10% or 6,000 parcels. The revaluation resulted in 2,226 appeals or 4% of taxable parcels. The County expects
to meet both the budgeted and billable amounts by the close of the fiscal year. The revaluation increased the commercial
tax base composition from 16% to 19% of the total tax base. Real, personal and motor vehicles tax revenues accounts for
more than 70% of the total General Fund revenue budget. Motor vehicle taxes are payable on the vehicle renewal date and
the tax is based on market value of the vehicle with the State remitting this tax to the County on a monthly basis.
Local Option Sales Tax Revenues
3Q FY2017-18 revenues total $11 million or 47% of budgeted revenues, which are approximately $300,000 above the 3Q
FY2017-18 of $10.7 million or 48.6% and is consistent with the budgeted increase. This reflects six months of actual
collections due to the timing of receipts from the North Carolina Department of Revenue. The local government sales tax
distributions in any given month reflect actual sales made up to three months prior. For example, August collections
reflect July vendor sales, which are processed and allocated in September, with a local government distribution made on
or before October 20. The October payment was the first month’s sales tax distribution allocated to the July-June fiscal
year. The December distribution, as historically is the case, includes a large number of calendar year end refunds, which
results in significantly lower net Sales Tax revenues for that month.
The North Carolina Department of Revenue administers the following monthly disbursement of local option sales taxes
recorded in the County’s General Fund:
• Article 39 (one-cent) - authorized in 1971, and is currently allocated on a point of delivery basis and proceeds are
allocated with local government units within the County. Food purchases are taxable. There is no restricted use.
• Article 40 (half-cent) - authorized in 1983, and it is currently allocated on a per capita basis; based upon the
county’s population in relation state population total; proceeds are allocated with local government units within
the County. Food purchases are taxable. Thirty percent of this tax is for school capital outlay or debt retirement.
Category
FY2017-18
Original Budget
FY2017-18
Revised BudgetYTD Actual
YTD %
Collected Category
FY2016-17
Original Budget
FY2016-17
Revised BudgetYTD Actual
YTD %
Collected
Property Tax 151,557,768$ 151,557,768$ 150,322,225$ 99.2%Property Tax 149,498,811 149,498,811$ 146,403,061$ 97.9%
Local Option Sales Tax23,566,784 23,566,784 11,079,944 47.0%Local Option Sales Tax 22,066,641 22,066,641 10,729,246 48.6%
Licenses and Permits 328,000 328,000 146,215 44.6%Licenses and Permits 328,000 328,000 153,285 46.7%
Charges for Services 11,551,045 11,473,448 8,582,641 74.8%Charges for Services 11,681,503 11,900,677 7,563,068 63.6%
Intergovernmental 16,035,147 17,223,266 8,839,164 51.3%Intergovernmental 15,787,579 21,772,652 13,438,472 61.7%
Transfers from Other Funds3,765,600 3,775,600 - 0.0%Transfers from Other Funds2,712,600 2,712,600 - 0.0%
Investment Earnings 265,000 265,000 495,916 187.1%Investment Earnings 155,000 155,000 277,379 179.0%
Miscellaneous 2,817,629 2,972,011 7,143,033 240.3%Miscellaneous 886,734 1,048,083 4,828,618 460.7%
Fund Balance Appropriation 9,769,060 11,143,693 - 0.0%Fund Balance Appropriation 12,726,944 13,887,964 - 0.0%
General Fund Revenues219,656,033 222,305,570 186,609,138 83.9% General Fund Revenues215,843,812 223,370,428 183,393,129$ 82.1%
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• Article 42 (half-cent) - authorized in initially in 1986, the allocation changed from per capita to a point of delivery
basis; proceeds are allocated with local governments within the County. Food purchases are taxable. Sixty
percent of this tax is for school capital outlay or debt retirement.
• Article 43 (half-cent) - authorized in initially in 1997 for public transportation, and is currently allocated on a per
capita basis. Food purchases are exempt pursuant to G.S.105-164.13B. This tax is restricted to public transit and
is accounted for under inter-governmental revenue in the County General Fund.
Note: Article 46 (quarter-cent) - authorized in 2012 is accounted for in a Special Revenue Fund, and not the General
Fund. The allocation is on a point of delivery. Food purchases are exempt pursuant to G.S.105-164.13B.
Charges for Services
3Q FY2017-18 Charges for Services total $8.6 million or 74.8% of budgeted revenues, as compared with 3Q FY2016-17
total of $7.6 million or 63.6% of budgeted revenues, with actual collections in FY2017-18 higher than FY2016-17. This
revenue increase is due in part to higher collections in EMS fees, which is based on successful collection efforts in
reducing the backlog of billings. Additional collections at the Register of Deeds and Health Department are also
responsible for the increase in revenue. The remainder of Charges for Services is comprised of various departmental fees
for services including those for the Departments of Planning and Inspections; Environment, Agriculture, Parks &
Recreation; Aging; Animal Services; Health; Cooperative Extension; and Library Services.
Intergovernmental Revenues
3Q FY2017-18 Intergovernmental revenues total $8.8 million or 51.3% of budgeted revenues, as compared to 3Q
FY2016-17 total of revenues of $13.4 million or 61.7% of budgeted revenues. As noted in the revenue summary, this
variance is mostly attributed to a reduction in Child Day Care revenues due to the State paying Child Day Care benefits
directly to providers. Additionally, Department of Environment, Agriculture, Parks and Recreation and Social Services
are experiencing a later timing of receipts. This category of income includes revenue received from the Federal, State, and
other local governments. The Department of Social Services receives approximately 60% of the total budgeted revenues
within this category.
General Fund Expenditures
3Q FY2017-18 General Fund expenditures total $160.7 million or 72.3% of budgeted expenditures, as compared with 3Q
FY2016-17 total expenditures of $157.2 million or 70.4% of budgeted expenditures, with actual expenditures in FY2017-
18 more than FY2016-17 expenditures by $3.5 million. The 1.9% spending rate increase is attributed to One-Time
Discretionary funds for both School Districts.
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Summary of Major General Fund Expenditures
Please note that the reporting of Budget versus Actual expenditures is reflected by the Functional Leadership
Teams.
Community Services - Animal Services, NC Cooperative Extension, DEAPR, Economic Development, Orange Public
Transportation, Planning and Inspections.
3Q FY2017-18 expenditures total $9.2 million or 63.1% of budgeted expenditures as compared with 3Q FY2016-17 total
of $9.5 million or 67.4% of budgeted expenditures. The 4.3% reduction in budgeted expenditures reflects a decrease of
approximately $300,000 in the FY2017-18 budget; last year General Fund transfers to the Solid Waste Fund were
completed on a monthly basis, and this year those transfers will be completed at the end of the fiscal year.
General Government - Board of Elections, Clerk to the Board, County Attorney, County Manager, Register of Deeds
and Tax Administration
3Q FY2017-18 General Government expenditures total $7.4 million or 73.9% of budgeted expenditures, as compared
with 3Q FY2016-17 total of $7.3 million or 74.3% of budgeted expenditures. The FY 2017-18 revised budget is attributed
in part to increases for workers compensation, unemployment compensation contract services and temporary personnel
expenditures.
Public Safety – Courts, Emergency Services, Criminal Justice Resource Department, and Sheriff’s Office
3Q FY2017-18 Public Safety expenditures total $17.9 million or 68.5% of budgeted expenditures, as compared with 3Q
FY2016-17 total of $16.8 million or 66.8% of budgeted expenditures. The increase is attributed to additional staff in the
Criminal Justice Resource Department, and to the timing of medical supply purchases, contract services, and recurring
capital payments in Emergency Services, and contracted services payments in the Sheriff’s Office.
Human Services – Department on Aging, Child Support, Housing, Human Rights, and Community Development,
Library, Public Health and Social Services
3Q FY2017-18 Human Services expenditures total $26.5 million or 68.8% of budgeted expenditures, as compared with
3Q FY2016-17 total of $28.5 million or 66.7% of budgeted expenditures. The Department of Social Services comprises
more than 50% of the human services budget, and is the primary driver of the first quarter expenditure reduction. The
reduction is attributed to less Child Day Care expenditures due to the State paying Child Day Care benefits directly to
providers during the 3Q of FY2016-17, and to the timing of payments to Outside Agencies and the OPC Area Program.
Category
FY2017-18
Original Budget
FY2017-18
Revised BudgetYTD Actual
YTD %
Expended Category
FY2016-17
Original Budget
FY2016-17
Revised BudgetYTD Actual
YTD %
Expended
Community Services 14,331,974$ 14,539,818$ 9,177,924$ 63.1%Community Services 13,654,700 14,039,283$ 9,468,481$ 67.4%
General Government 9,954,091 10,003,205 7,388,535 73.9%General Government 9,748,832 9,865,146 7,332,753 74.3%
Public Safety 25,583,899 26,141,181 17,896,472 68.5%Public Safety 24,942,554 25,153,983 16,810,250 66.8%
Human Services 37,508,468 38,565,278 26,528,247 68.8%Human Services 37,249,977 42,676,768 28,482,019 66.7%
Education 89,916,598 89,916,598 66,392,925 73.8%Education 84,259,340 84,259,340 62,108,244 73.7%
Support Services 14,101,197 14,360,805 8,945,477 62.3%Support Services 14,058,009 14,417,497 8,509,559 59.0%
Non-Departmental 28,259,806 28,778,711 24,341,544 84.6%Non-Departmental 31,930,400 32,858,410 24,473,421 74.5%
General Fund Expenditures219,656,033 222,305,596 160,671,124 72.3%General Fund Expenditures215,843,812 223,270,427 157,184,727 70.4%
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Support Services - Asset Management Services, Community Relations, Finance, Human Resources, and Information
Technology
3Q FY2017-18 Support Services expenditures total $8.9 million or 62.3% of budgeted expenditures, as compared with 3Q
FY2016-17 total of $8.5 million or 59.0% of budgeted expenditures. The 3Q FY2016-17 year to date spending rate is
slightly above the prior year. This increase is mostly attributed to Information Technology operating costs. Community
Relations reflects an increase in expenditures due to an additional staff position that was not in place in 3Q FY2016-17.
Education
3Q FY2017-18 Education expenditures total $66.3 million or 73.8% of budgeted expenditures, as compared with 3Q
FY2016-17 total of $62.1 million or 73.7% of budgeted expenditures. The FY2017-18 Education Current Expense budget
was increased by $3.5 million over the prior year’s budget. The Education expenditures are comprised of Current
Expenses to the Chapel Hill-Carrboro City School District and Orange County School District. Current Expenses of $20.1
million or 25% of budgeted expenditures remitted to the school districts in the first quarter; this was $886,359 more than
the same period in FY2016-17. The remaining Education budget pertains to Recurring Capital, Other Related County
Support, specifically support to Durham Technical College (Orange County campus), and One-time Discretionary funds
approved in FY2017-18.
Non-Departmental
3Q FY2017-18 Non-Departmental expenditures total $24.31 million or 84.6% of budgeted expenditures, as compared
with 3Q FY2016-17 total of $24.4 million or 24.5% of budgeted expenditures.
In summary, 3Q FY2017-18 General Fund Revenues and Expenditures are in line with the adopted FY2017-18 General
Fund Budget.
Enterprise Funds Performance
Solid Waste Fund
3Q FY2017-18 Solid Waste Fund performance is in line with the adopted FY2017-18 budget. Third quarter revenues of
$9.9 million or 61.1% of budgeted revenues and expenses of $10.8 million or 66.2% of budgeted expenses. This compares
with FY2016-17 third quarter revenues of $10.0 million or 61.6% of budgeted revenues and expenses of $11.4 million or
70.1% of budgeted expenses. The fund is projected to breakeven.
Sportsplex Fund
3Q FY2017-18 Sportsplex Fund performance is consistent with the adopted FY2017-18 budget. The revenue stream is
comprised of Ice Rink-35% of budgeted revenues, Membership and Fitness-31% of budgeted revenues, with the
remaining revenues comprised primarily of Aquatic and Kidsplex. Third quarter Charges for Services revenues are $2.6
million or 77% of budgeted revenues and expenses are $2.6 million or 77% of budgeted expenditures.
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The following chart indicates the County’s investment composition as of the end of the third quarter of the FY 2017-18.
The total cash and investments peak at January 2018 correlates with property tax collections.
For the past three fiscal years the County has implemented an active investment strategy to maximize investment earnings
while adhering to the North Carolina statutes of permitted investments and respectively prioritizing Safety, Liquidity, and
Yield in that order.
Portfolio Balances
Quarterly Investment Balances - 3/31/18
Investment Dec 2017Jan 2018 Feb 2018Mar 2018Fund Type
1North Carolina Capital Management Trust
2Governmental Portfolio 4,069,642$ 6,040,555$ 1,968,208$ 3,329,050$ Operating
3Term 51,397,600 91,500,079 81,600,296 71,706,574 Operating
4Total NCCMT 55,467,242$ 97,540,634$ 83,568,505$ 75,035,623$
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6SunTrust
7Sportsplex Fund 508,396$ 374,607$ 307,411$ 400,461$ Operating
8Balance Account 1,899,820 1,899,820 1,899,820 1,899,820 Operating
9General Account 55,136,409 17,780,425 11,019,625 7,270,451 Operating
10Money Market 4,302,727 4,302,869 4,302,996 4,303,137 Operating
11Total SunTrust 61,847,352$ 24,357,721$ 17,529,851$ 13,873,868$
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13BB&T
14Lockbox 4,369,446$ 4,239,255$ 4,239,255$ 4,237,475$ Operating
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17Total Cash 121,684,040$ 126,137,610$ 105,337,611$ 93,146,967$
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19Securities
24Total Commercial Paper 20,000,000$ 20,000,000$ 20,000,000$ 20,000,000$
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26Total Cash and Investments 141,684,040$ 146,137,610$ 125,337,611$ 113,146,967$
34,300 29,976 9,738 13,886
151,391
437,171
567,394
415,500
0
100,000
200,000
300,000
400,000
500,000
600,000
2011-122012-132013-142014-152015-162016-172017-18
Est.
2018-19
Bud.
General Fund Investment Earnings
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The County will continue to seek attractive opportunities to invest idle cash in highly rated securities with maturities
ranging from 90-270 days and utilizing a laddered approach which matches those maturities with major disbursement
requirements.
Enclosures
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THE NORTH CAROLINA ECONOMIC OUTLOOK, 1st QUARTER 2018
Prepared by Dr. Michael L. Walden, William Neal Reynolds Distinguished Professor,
Department of Agricultural and Resource Economics, North Carolina State University
Contact Methods: phone: 919-219-8923; e-mail: michael_walden@ncsu.edu
TEN NORTH CAROLINA ECONOMIC HEADLINES FOR 2017 AND 2018
1. North Carolina’s economic growth rate has accelerated since 2013 and has beaten the
broadest national growth rate for three straight years, although falling short of the
Southeast region growth rate in 2017.
2. The Information, Professional and Business Services, and Leisure and Food Services sectors
have been the fastest growing since 2010.
3. Non-durable Manufacturing – including tobacco products, textiles, and apparel – continues
to contract and is a major factor in the on-going urban/rural divide in the state.
4. Residential construction expanded in 2017 and has grown on trend since 2011; however,
economic activity levels in the sector are well below pre-recessionary levels.
5. North Carolina’s payroll job growth rates have exceeded national payroll job growth rates
in seven of the past eight years; however job growth decelerated in 2017.
6. Each of the major measures of unemployment in North Carolina have been halved since
2010.
7. The “hollowing-out” of North Carolina’s labor market continued in 2017, although at a
slightly less pronounced rate than in the previous seven years.
8. The five largest metropolitan regions in the state accounted for 83% of the growth
in payroll jobs in 2017.
9. The state will experience another year of economic growth in 2018, with real GDP
expanding by 2.8%, the headline jobless rate falling to 3.6%, and over 70,000
payroll jobs being created.
10. The Asheville, Durham, and Raleigh metropolitan regions will have the lowest
unemployment rates at the end of 2018, at or near 3%.
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Statewide and Total Sector Trends
Estimates for 2017 of the broadest measure of economic growth – real (inflation-
adjusted) Gross Domestic Product (GDP) - suggests North Carolina’s aggregate growth rate
again surpassed the national growth rate for the third straight year. However, the state’s growth
rate fell short of the real GDP growth rate for the Southeast (Figure 1). Also, since the state’s
population grew faster than the nation’s population, North Carolina’s growth rate per person (per
capita) was less robust. One estimate for 2017 shows the state’s real GDP growth rate per capita
the same as the national rate.
An avidly debated issue is the impact of the significant tax rate reductions that began
implementation in 2014. For the five years from 2010 to 2014, North Carolina’s real GDP
growth rate fell short of the national rate in four of the years. But in the three years from 2015 to
2017, North Carolina’s growth rate consistently exceeded the national rate. There is some
research suggesting that reductions in a state’s income tax rate – especially the corporate tax rate
– can stimulate economic growth.1 However, an alternative explanation is that consumers’ slow
recovery from the Great Recession – especially in their spending on manufactured durable
goods- delayed the rebound in North Carolina’s manufacturing-heavy economy.
Figure 1. Real GDP Annual Growth Rate (%) in the North Carolina, US, and Southeast
States’ Economies, 2010-2017.
Source: U.S. Bureau of Economic Analysis. Data for 2017 are for Q2, 2016 to Q2, 2017.
1 Michael L. Walden, “Recovery from the Great Recession: Explaining the Differences among States,” Journal of
Regional Analysis and Policy, 44(2): 166-174, 2014.
-1
-0.5
0
0.5
1
1.5
2
2.5
3
2010 2011 2012 2013 2014 2015 2016 2017
%
NC US SE
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Figure 2. Economic Sector Growth Rate (%) in North Carolina, 2009-2017.
Source: U.S. Bureau of Economic Analysis.
Since the end of the Great Recession in mid-2009, economic growth has been uneven
among North Carolina’s major sectors (Figure 2). Fastest growth has been in the Information,
Professional and Business Services, and Leisure and Food Service sectors, while the slowest
growth has been in the Education and Health Care, Construction, and Non-durable
Manufacturing sectors. Indeed, output in Non-durable Manufacturing, which importantly
includes tobacco manufacturing (primarily cigarettes), textiles, and apparel, has dropped almost
20% since the conclusion of the Great Recession. These results suggest the long-running
restructuring of the North Carolina economy is continuing. Unfortunately, the decline in Non-
durable Manufacturing has a disproportionate negative impact on small town and rural areas.
As a result of its severe contraction during the Great Recession, the health of the
residential housing market has been closely watched. Figure 3 shows a measure of residential
housing market activity in years prior to the Great Recession (2004-2006), during the Great
Recession (2007-2009), and in the recovery following the Great Recession (2010-2017).
Residential construction activity in the state made a tepid rebound in the early years of the
recovery, but since 2015 the pace of recovery has accelerated. Residential building permits in
North Carolina in 2017 were the highest in a decade, although they were still well below the
“boom” years of 2004-2006.
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Non-durable manuf
Construction
Educ & health care
Financial services
Transp & warehousing
Durable manuf
Trade
Farming & forestry
Leisure & food service
Prof & businsess serv
Information
%
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Figure 3. Annual Residential Building Permits, North Carolina, 2004-2017.
Source: U.S. Census Bureau.
Statewide Labor Market Trends
Figure 4 shows annual payroll job growth rates for North Carolina and the U.S. from
2010 through 2017. In all but one year (2011), North Carolina’s growth has exceeded national
growth, and this pattern continued in 2017.
However, the pace of job growth slackened in 2017, after hitting a peak in 2015. The
slowing pace of job growth is a typical pattern as economic recoveries age. More easily
employable individuals with marketable skills are initially hired as the economy expands. As
recoveries mature, more of the unemployed are less qualified for available work, thereby slowing
the pace of hiring.
Each of the three major unemployment rates continued to drop in 2017 in both North
Carolina and the nation (Figure 5). The “headline” rate only counts an individual as unemployed
if she or he has no job, desires a job, and has actively looked for a job in the past month. The
“U5” measure only requires an individual to not have a job and to want a job in order to be
categorized as unemployed. The “U6” rate is the broadest measure of unemployment, including
those counted as unemployed by the “U5” rate as well as those individuals working part-time
only because full-time work cannot be found.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2004 2005 2006 2007 2008 2009 2020 2011 2012 2013 2014 2015 2016 2017
#
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Figure 4. Annual Job Growth Rates (%) in North Carolina and the U.S., 2010-2017.
Source: Nonfarm employment numbers from the U.S. Bureau of Labor Statistics based on July to July values.
Figure 5. Alternative Unemployment Rate (%) Measures for NC and the US, 2010 and
2017.
Source: U.S. Bureau of Labor Statistics; annual averages.
0
0.5
1
1.5
2
2.5
2010 2011 2012 2013 2014 2015 2016 2017
%
NC US
0
2
4
6
8
10
12
14
16
18
Headline U5 U6
%
NC 2010 NC 2017 US 2010 US 2017
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Each of the rates in 2017 was less than half their level in 2010, both for North Carolina
and the nation. However, in 2017 North Carolina’s average annual “headline” and “U5” rates
were slightly higher than their national counterparts, while the state’s “U6” unemployment rate
was slightly lower than the comparable national “U6” rate.
North Carolina’s labor force participation rate also improved in 2017, rising to 61.6% in
October. The rate measures the percentage of individuals aged 16 years and older who are in the
labor force, meaning they are working or actively looking for work. The state’s rate continues to
track the national rate, but has been averaging a full percentage point higher.
North Carolina workers saw larger gains than their national counterparts in their real
hourly wages – wage gains after subtracting inflation – in 2017 (Figure 6). This repeats the
result seen in 2015 and reverses the pattern experienced for most of the years immediately after
the recession when national gains exceeded North Carolina gains. A likely reason is the faster
growing North Carolina economy compared to the national economy in recent years.
Last, Figure 7 shows that the labor market phenomenon of “hollowing-out” persisted in
2017 in North Carolina. “Hollowing-out” means growth in jobs occurs at both the “high-paying”
end as well as the “low-paying” end, with little or no growth in “middle-paying” jobs.2
Although the annual rates in 2017 were slightly lower for “high-paying” and “low-paying” jobs
Figure 6. Annual Real Wage Rate Changes (%), NC and the U.S., 2010-2017.
Source: U.S. Bureau of Labor Statistics; October of each year using the CPI deflator; private sector wages.
2 For the definitions of “high-paying”, “middle-paying”, and “low-paying”, see Michael L. Walden, “North Carolina’s
‘U-Turn’ and Alternative Economic Paths of the State’s Regions,” Studies in the North Carolina Economy, July 2017.
-3
-2
-1
0
1
2
3
4
5
2010 2011 2012 2013 2014 2015 2016 2017
%
Axis Title
NC US
13
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Figure 7. The “Hollowing-Out” of the Labor Market, Percentage Change, 2009-2016 and
2017 (Annualized Percentage Change in Jobs Classified by Level of Pay in North Carolina).
Source: U.S. Bureau of Labor Statistics.
and slightly higher for “middle-paying” jobs compared to the annual rates in the 2009-2016
period, the pattern was clearly the same. Like the nation, North Carolina still has a problem in
creating sufficient jobs paying a middle-income salary
Regional Trends
A clear urban/rural divide has persisted in North Carolina for several decades, and 2017
did little to change that observation. Aggregate payroll job growth rates for North Carolina
regions between 2010 and 2017 are shown in Figure 8. Clearly the Charlotte and Raleigh
metropolitan areas have been in a class by themselves, with job growth rates approaching 25%.
Wilmington, Asheville, and Durham also had aggregate job growth rates above the state average.
Next are the Triad and mid-sized metros, followed by the slowest job growth in rural North
Carolina and the smallest regions. Goldsboro and Rocky Mount lost payroll jobs over the
period.
0
0.5
1
1.5
2
2.5
3
3.5
High Paying Middle Paying Low Paying
%
2009-16 2017
14
8
Figure 8. Job Growth Rates (% Change) in North Carolina Regions, 2010-2017.
Source: U.S. Bureau of Labor Statistics, based nonfarm employment from February 2010 (low point of job market)
to October 2017 (latest available data) using seasonally-adjusted data. Rural NC includes counties outside the
listed metropolitan areas.
Figure 9 provides similar information for the regions grouped into size categories. In
2017 the large and medium sized regions had the fastest job growth. Indeed, the five largest
metropolitan areas in the state accounted for 83% of the state’s payroll job growth in 2017.
Forecasts
The NCSU Index of North Carolina Leading Economic Indicators (Figure 10) has
followed a modest upward trend since late 2015, suggesting gradual improvement in economic
growth into the early months of 2018. Importantly, there is no indication of a downward trend in
the Index, thus suggesting no occurrence of a recession in the immediate future. As Figure 10
shows, the Index was successful in predicting the 2007-2009 Great Recession by over a six-
month lead.
-10 -5 0 5 10 15 20 25
Rocky Mt
Goldsboro
Fayetteville
Jacksonville
New Bern
Rural NC
Greenville
Hickory
Greensboro
Winston-Sal
Burlington
State
Durham
Asheville
Wilmington
Raleigh
Charlotte
%
15
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Figure 9. Annualized Payroll Job Growth Rates in North Carolina Regions Classified by
Size, 2017 and 2009-2016.
Source: U.S. Bureau of Labor Statistics; a large metros are Charlotte, Durham-Chapel Hill, Greensboro, Raleigh, and
Winston-Salem; medium metros include Asheville, Burlington, Fayetteville, Greenville, Hickory, and Wilmington;
small metros are composed of Goldsboro, Jacksonville, New Bern, and Rocky Mount; and non-metros are counties
not included in the large, medium, and small metro categories
Figure 10. NCSU Index of North Carolina Leading Economic Indicators
-1
-0.5
0
0.5
1
1.5
2
2.5
Large metros Medium metros Small metros Non-Metros
%
2017 2009-2016
70
75
80
85
90
95
100
105
20
0
7
f
e
b
20
0
7
m
a
y
20
0
7
a
u
g
20
0
7
n
o
v
20
0
8
f
e
b
20
0
8
m
a
y
20
0
8
a
u
g
20
0
8
n
o
v
20
0
9
f
e
b
20
0
9
m
a
y
20
0
9
a
u
g
20
0
9
n
o
v
20
1
0
f
e
b
20
1
0
m
a
y
20
1
0
a
u
g
20
1
0
n
o
v
20
1
1
f
e
b
20
1
1
m
a
y
20
1
1
a
u
g
20
1
1
n
o
v
20
1
2
f
e
b
20
1
2
m
a
y
20
1
2
a
u
g
20
1
2
n
o
v
20
1
3
f
e
b
20
1
3
m
a
y
20
1
3
a
u
g
20
1
3
n
o
v
20
1
4
f
e
b
20
1
4
m
a
y
20
1
4
a
u
g
20
1
4
n
o
v
20
1
5
m
a
r
20
1
5
j
u
n
20
1
5
s
e
p
20
1
5
d
e
c
20
1
6
m
a
r
20
1
6
j
u
n
e
20
1
6
s
e
p
20
1
6
d
e
c
20
1
7
m
a
r
20
1
7
j
u
n
e
20
1
7
s
e
p
Source: calculations by Dr. Michael Walden
NCSU INDEX OF NORTH CAROLINA LEADING ECONOMIC INDICATORS
16
10
Like most states, North Carolina’s economy in 2018 will be strongly influenced by
national economic events. A large majority of contemporary economic forecasts are presently
indicating a continuation of national economic growth in 2018.
With a new national income tax plan enacted for 2018, North Carolina could see some
added economic growth motivated by the plan’s lower marginal tax rates. If a national
infrastructure plan is submitted and passed during 2018, more state construction programs could
be planned. However, there are rumors a national plan would require an 80% funding
commitment from states. If true, there would be a challenge about how North Carolina would
generate its contribution.
The North American Free Trade Agreement (NAFTA) is currently being renegotiated by
treaty partners Mexico, Canada, and the U.S. If negotiations fail, there is a likelihood NAFTA
would be terminated. While a termination would create both winners and losers in North
Carolina, a recent study suggested the short-run impacts would be relatively minor in the context
of the total state economy.3
For 2018, it is forecasted North Carolina real GDP will increase by 2.8% - one-tenth
percentage point faster than the national rate - and payroll employment in the state will grow by
1.6% - the same rate as the nation. The payroll job growth rate will translate to
approximately 71,000 net new positions.
Predicting the most-used unemployment rate – the “headline rate” - is more difficult.
The rate will drop as more jobs are added and nothing else changes. But if some individuals who
had dropped-out of the labor force because they could not find work – and therefore are not
officially counted as unemployed – resume looking for work as labor market conditions improve,
the jobless rate can remain the same, or perhaps rise, as jobs increase.
The lowest state unemployment during the economic expansion of the 2000s decade was
4.6%; the lowest state rate during the economic expansion of the 1990s decade was 3%.
Economic conditions today – such as globalization - are much more like the 2000s than the
1990s, with an estimated 100,000 to 300,000 able-bodied, working-age individuals having left
the labor force in North Carolina. As labor market conditions continue to improve, it would be
expected significant numbers of this “hidden labor force” will actively look for work, thereby
moderating any reductions in the unemployment rate. Therefore, a year-end statewide
unemployment rate of 3.6% is expected in 2018. This would represent half the drop seen in
the 2017 jobless rate with a comparable number of payroll jobs added.
Regional unemployment rate forecasts are presented in Table 1. Asheville, Durham, and
Raleigh are predicted to have the lowest end-of-year jobless rates in 2018, at or near 3%.
With a tighter labor market, real (inflation-adjusted) wage growth should accelerate
from its 0.8% rate in 2017 to 0.9% in 2018. This represents a major improvement over the
fall in real wage rates in the state between 2010 and 2014.
3 Michael L. Walden, “How Would Ending NAFTA Impact the North Carolina Economy?” Studies in the North
Carolina Economy, November 2017, https://ag-econ.ncsu.edu/wp-content/uploads/2015/11/nceconomy-
nafta2.pdf.
17
11
Table 1. North Carolina Regional Unemployment Rate Forecasts.
Region October 2017 Rate Forecasted October 2018 Rate
Asheville 3.3% 3.0%
Burlington 3.8% 3.4%
Charlotte 3.9% 3.5%
Durham 3.6% 3.2%
Fayetteville 5.2% 4.6%
Greensboro 4.3% 3.9%
Greenville 4.5% 3.8%
Goldsboro 4.6% 4.1%
Hickory 4.0% 3.8%
Jacksonville 4.7% 4.4%
New Bern 4.3% 3.8%
Raleigh 3.6% 3.2%
Rocky Mount 6.0% 5.4%
Wilmington 3.9% 3.5%
Winston-Salem 4.0% 3.7%
Source: U.S. Bureau of Labor Statistics; author’s forecasts.
There is no expectation that either the household income divide or the geographic
economic divide in North Carolina will significantly change in 2018. The forces providing
advantages to large metropolitan areas – transportation linkages, vibrant downtowns attracting a
college-educated workforce, international ties, and a 21st century economy based on higher
education, technology, finance – will still give those regions strong advantages. Also,
technology will continue to “disrupt” the occupational market by producing machinery and
programs that can increasingly substitute for a broader range of human-performed tasks. Those
with cognitive abilities not (yet!) able to be performed by technology will be rewarded in the job
market, while those workers competing with technology-based applications will find it more
difficult to be valued.
So, 2018 will be a further year of economic growth in North Carolina, with both income
and employment improving. But beneath the broad statewide picture will linger economic
disparities that are yet to be closed.
18