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HomeMy WebLinkAboutAgenda - 02-16-2021; 12-3 - Memorandum - Financial Report-Second Quarter FY 2020-21 1 ORANGE COUNTY NORTH CAROLINA FINANCE and ADMINISTRATIVE SERVICES Gary Donaldson, CTP,Chief Financial Officer I gdonaldson@orangecountync.gov I PO Box 8181, Hillsborough, NC 27278 1 919.245.2453 MEMORANDUM To: Board of County Commissioners From: Gary Donaldson, Chief Financial Officer Date: February 16, 2021 Re: Financial Report- Second Quarter FY 2020-21 The COVID-19 induced recession resulted in County measures as part of the FY 2020-21 Adopted Budget. This second quarter report provides an updated status of Revenue and Expenditure of the County's Operating Funds as compared with the prior fiscal year. National Revenue Outlook reports by both Moody's Analytics and S&P Global reports project 2021 revenue declines for State and Local Governments due to the COVID-19 induced recession. Following a review of the first six months of FY 2020-21 General Fund, Sportsplex and Visitors Bureau revenues are projected to be lower than budgeted. Below is the General Fund revenue impact. Table 1: FY 2020-21 General Fund Revenues COVID-19 Impacted Revenues Notes Federal Detention Fees $ (1,000,000) Potential to be larger revenue declines Motor Vehicle $ (700,000) Lower motor vehicle sales Investment Earnings $ (400,000) Lower interest rate environment Planning/Inspection Fees $ (220,000) Decreased inspections due to permittee closures DEAPR Fees $ (200,000) Public health restrictions and County facility closures Estimated Loss $ (2,520,000) As noted, Property Tax and Sales Tax are not included above for recession fiscal impact for FY 2020-21; the rationale for property tax is further gleaned in the table below for the S&P Core Logic/Case-Shiller Index of National Home Price Index which increased 9.49% from November 2019 through November 2020. This is an underlying difference between the Great Recession which was induced by the sub-prime real estate market crisis and this public health induced recession. As noted in Table 2 below, current economic declines have not impacted the real estate tax base as compared to the revenue streams listed above. The Orange County housing market sector is consistent with the Case-Shiller Index increases below. 1 2 Table 2: Orange County Average Sales Price and Case-Shiller National Home Price Index $395,000.00 224.0 $385,000.00 / 217.5 $375,000.00 211.0 204.5 $365,000.00 198.0 $355,000.00 191.5 $345,000.00 185.0 $335,000.00 178.5 172.0 $325,000.00 165.5 $315,000.00 159.0 $305,000.00 152.5 $295,000.00 146.0 139.5 $285,000.00 133.0 $275,000.00 126.5 $265,000.00 120.0 2014 2015 2016 2017 2018 2019 2020 -1111 Orange County Average Sales Price Case-Shiller National Home Price Index Table 3: UNC-Charlotte Economic Forecast 2020-202 I NOIZTH CAROLINA UNEMPLOYMENT RATE 160 -- 14.0 1z.o 10.0 8,0 4A z.o 0.0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NUV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC —LI.S.Seasonally Adjusted —NC Seasonally Adjusted Forecast —NC Seasonally Adjusted FORECAST reports historical seasonally adjusted monthly unemployment rates for North Carolina and the United States and forecasts the seasonally adjusted monthly unemployment rate for North Carolina. The seasonal adjustment accounts for variations in labor market conditions that cause regular fluctuations in the unemployment level each month. The graph at the top of this page provides a summary of the monthly unemployment rates for 2020 and 2021. The solid blue line represents the United Slates seasonally adlualcd historic unemployment rate.The seasonally adjusted uncmploymcnt rate for the North Carolina is represented by the solid gmen line. The North Carolina seasonally adjusted unemployment rate forecast is represented by the solid red line.The seasonally adjusted rates for the united States and North Camlina can be compared directly and provide more reliable estimates than the unadjusted rates. 2 3 Based on the first six-months of FY 2020-21 activity, additional mid-year financial measures are necessary to achieve General Fund breakeven results. The County's Long-Term Financial Model projects using $3.7 million of the $8.2 million appropriated fund balance. Alternative strategies rather than any actual use of fund balance are in implementation to remain in compliance with the County's Unassigned Fund Balance Policy. General Fund Summary FY 2021 FY 2020 FYs 2021 vs 2020 GENERAL FUND Original Budget Revised Budget YTDActual* Percentage YTDActual* Percentage YTD %Variance' Property Tax $167,694,880 $167,694,880 $140,261,324 83.64% $135,702,146 82.17% $4,559,178 1.47% 1 Sales&Use Tax $23,827,353 $23,827,353 $7,136,219 29.95% $7,081,317 27.91% $54,902 2.04% a Licenses and Permits $274,550 $274,550 $72,675 26.47% $65,299 20.84% $7,376 5.63% a Charges for Services $12,645,090 $12,645,090 $4,488,448 35.50% $6,034,138 47.40% -$1,545,690 -11.90%4p z Intergovernmental $17,710,005 $24,213,182 $10,174,823 42.02% $5,226,123 27.69% $4,948,700 14.33% s Transfers In $5,486,817 $5,511,817 $0 0.00% $0 0.00% $0 0.00% Miscellaneous $3,139,009 $3,493,398 $488,674 13.99% $885,857 24.17% -$397,183 -10.18% 4 Appropriated Fund Balance $8,268,603 $7,812,302 $0 0.00% $0 0.00% $0 0.00% Total $239,046,307 $245,472,572 $162,622,163 66.25% $153,691,283 64.18% $8,930,880 2.07% Community Services $14,322,250 $14,976,592 $6,806,321 45.45% $6,703,250 45.14% $103,071 0.31% General Government $10,525,739 $10,980,760 $5,285,998 48.14% $5,581,438 51.49% -$295,440 -3.35%0 Public Safety $27,994,203 $28,282,669 $14,145,155 50.01% $12,519,973 45.62% $1,625,182 4.39% :! :0 Human Services $41,614,328 $42,937,557 $18,222,726 42.44% $18,470,470 43.95% $247,744 1.51% CL Education $93,440,414 $93,560,414 $45,025,409 48.12% $45,026,694 48.15% -$1,285 -0.03% w Support Services $12,773,209 $14,094,304 $9,288,542 65.90% $6,668,694 55.70% $2,619,848 10.20% s Debt Service $33,410,925 $33,410,925 $18,440,583 55.19% $13,478,282 43.83% $4,962,301 11.37% e Transfers Out $4,965,239 $7,229,351 $0 0.00% $0 0.00% $0 0.00% Total $239,046,307 $245,472,572 $117,214,734 47.75% $108,448,801 45.29%1 $8,765,933 2.46%❑ Notes: *-Actual amounts include Encumbrances. +-Based on percentage. 1-Property tax revenue are attributed to collections timing. 2-Charges for services due to lower Federal Detention bed utilization and Planning Inspection fees due to COVID-19. 3-Intergovernmental includes CARES funds from the State. 4-Miscellaneous includes facility lease rentals,donations and lower investment earnings. 5-Support services increases reflects Non-Departmental expenditures per capita payments to the towns,Asset Management Services expenditures related to CARES funding.Aditionally,Retiree Health expenditures were paid out of the 70 Fund instead of the General Fund in FY 2019-20 through Second Quarter. 6-Debt service increases reflects the Series 2019A and B Bonds to support the Capital Improvement Program General Fund revenues are 66.2% of budgeted revenues compared to 64.1%the prior fiscal year. The variance is due to FY 2020-21 Intergovernmental revenues which includes Round 1 ($2.6 million) and Round 2 ($2.8 million). General Fund Revenues • Property Tax collections are 83.6% of the total Property tax budget compared to 82.2%the prior fiscal year; this represents a timing variance in collections. Real and personal taxes are due September 1 but peak at the end of December tax collections prior to the January assessment of penalties and interest. Assessed Values for FY 2020-21 by statute are as of January 1, 2020. The property tax category includes 3 4 real, personal, and motor vehicle taxes and with the exception of motor vehicles, the COVID impact on property taxes is limited. • Motor vehicles are 52.7% of the Motor Vehicle budget as compared to 51.2% in the prior fiscal year. The FY 2020-21 estimate has been updated to reflect a $700,000 decline attributed to decreased motor vehicle sales. • Motor vehicle taxes are payable on the vehicle renewal date and the tax is based on market value of the vehicle. The State remits this tax to the County on a monthly basis. • Sales Tax for Articles 39, 40 and 42 are 29.9% of the budget as compared to 27.9% in the prior fiscal year. The amounts listed above includes collections for three months (July, August and September); there is a three-month revenue lag from the NC Department of Revenue (NCDOR). This sales tax distribution reflects the State continuation of Phase 3 public health restrictions and steps to expedite unemployment insurance claims. Executive Order unemployment claims protections for the unemployed. As noted in the first quarter report, other sales tax factors on the sales tax include: - Online Sales Tax collections resulting from NCDOR enforcement of online retailers as consumers increased their Internet purchases. - Federal Stimulus spending from CARES Payroll Protection Program - Gradual Easing of Business restrictions Below is a three-year historical sales tax revenues, FY 2020-21 budget and FY 2020-21 estimate which provides context for sales tax performance during this recession. FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 Budget FY 2020-21 Estimate $25,678,025.00 $27,844,578.66 $28,126,261.22 $ 25,595,372.00 $ 27,266,000.00 Percent Change 8.4% 1.0% -9.0% 6.5% • Charges for services are 35.5% of the budget as compared to 47.4% lower the prior fiscal year. The decline is attributed to COVID-19 public health measures for inmate inhabitants at the County Detention Center which reduced population and commensurate cost recovery from the Federal Government. Aging, Animal Services and DEAPR, Planning and Inspection fees are slightly lower as well due to COVID- 19 related revenue impacts as indicated previously. As noted earlier the full impact is estimated at $1.5 million but could be near$2 million. • Miscellaneous revenue variance of 13.9% of budgeted revenues as compared to 24.1% the prior fiscal year is due to the reclassification of$252, 411 in Aging Grants from the General Fund to the Grant Fund. 4 5 The timing of Asset Management lease rental revenues for County facilities and lower investment earnings attributed to interest rate declines. General Fund expenditures are 47.7% of budgeted expenditures as compared to 45.2%the prior fiscal year. The variance is attributed to debt service, emergency services COVID-related contracted services and reclassified non-departmental retiree health care benefits previously paid from the Health and Dental Fund. General Fund Expenditures • General government represented 48.1% of total general government as compared to 51.5%the prior fiscal year. This is a timing variance attributed to property casualty and workers compensation premium being paid in installments as compared to upfront payments in the prior fiscal year. • Support services represented 65.9% of total support service as compared to 55.7%the prior fiscal year. The increase reflects $1.3 million in Round 2 CARES funds paid out of a Non-Departmental to the towns and $1.2 million in Retiree Health fund post-employment benefits are now paid from the General Fund this fiscal year rather than the Health and Dental Fund in the prior fiscal year. • The remaining Functional Leadership teams are consistent with historical spending rates and compliance with the County's proactive measures in response to the COVID related economic crisis. • Education appropriations are 48.1% of its budget as compared with 48.1%the prior fiscal year. School appropriations are paid to both School systems by the 1511 of each month. The remaining Education budget includes School Health and Safety Contracts, Deferred Maintenance, Durham Tech Current Expense and Recurring Capital. Through FY 2020-21 second quarter there were no payments to both school districts for School Nurses or School Resource Officer as the payments are based on receipt of invoices and County staff verification. This compares to FY 2019-20 second quarter expenses of $205,844 (Orange County School Nurses) and $11,362 (Orange County Schools Equity Training). The County requested and received in late December how both school districts have been utilizing School Resource Officers and Nurses prior to making any disbursements. The County also provided $120,000 from Round 2 CARES funding for 800 Hot Spots to Orange County Schools for remote learning. • Second Quarter debt service represents 55.2% of total debt service as compared to 43.8% the prior fiscal year. This is due to prior Limited Obligation Bonds (LOB) issuances. 5 6 Summary of Other Funds FY 2021 FY 2020 FYs 2021 vs 2020 OTHER FUNDS Original Budget Revised Budget YTDActual* Percentage YTDActual* Percentage YTD %Variance' 29-Annual Grants Project Fund $149,095 $149,095 $10,345 6.94% $22,360 15.62% -$12,015 -8.68% 30-Multi-Year Grant Projects Fund $631,947 $912,324 $621,642 68.14% $211,587 39.27% $410,055 28.87% 32-Multi-Year Community Development Fund $1,899,076 $7,300,766 $757,332 10.37% $224,512 12.44% $532,820 -2.07% y 33-Housing Fund $4,448,289 $4,527,659 $2,084,042 46.03% $2,157,088 48.65% -$73,046 -2.62% d 35-Emergency Telephone Fund $755,471 $755,471 $314,780 41.67% $238,844 30.54% $75,936 11.12%40 a 37-Visitor's Bureau Fund $1,621,017 $1,941,778 $703,371 36.22% $949,872 49.19% -$246,501 -12.97%0 cc 38-Spay/Neuter Fund $82,350 $82,350 $36,642 44.50% $19,208 19.83% $17,434 24.66% 50-Solid Waste Enterprise Fund $12,092,884 $12,092,884 $8,977,009 74.23% $8,765,964 69.70% $211,045 4.53%40 53-Sportsplex Fund $3,796,991 $3,796,991 $1,055,795 27.81% $1,818,196 39.70% -$762,401 -11.90%0 70-Employee Health&Dental Fund $14,085,214 $14,085,214 $6,604,699 46.89% $5,766,730 33.70% $837,969 13.20%40 29-Annual Grants Project Fund $149,095 $149,095 $38,311 25.70% $85,841 59.96% -$47,530 -34.27% 30-Multi-Year Grant Projects Fund $631,947 $912,324 $351,885 38.57% $363,178 67.40% -$11,293 -28.83% 32-Multi-Year Community Development Fund $1,899,076 $7,300,766 $4,570,792 62.61% $669,340 37.09% $3,901,452 25.52% 33-Housing Fund $4,448,289 $4,527,659 $2,159,326 47.69% $2,149,541 48.48% $9,785 -0.79% 0 35-Emergency Telephone Fund $755,471 $755,471 $415,373 54.98% $433,793 55.47% $18,420 0.49% a 37-Visitor's Bureau Fund $1,621,017 $1,941,778 $1,198,282 61.71% $1,233,357 63.87% -$35,075 -2.16% ux, 38-Spay/Neuter Fund $82,350 $82,350 $21,953 26.66% $27,589 28.49% -$5,636 -1.83% 50-Solid Waste Enterprise Fund $12,092,884 $12,092,884 $5,146,318 42.56% $5,509,920 43.81% -$363,602 -1.25%0 53-Sportsplex Fund $3,796,991 $3,796,991 $1,130,847 29.78% $1,618,692 35.35% -$487,845 -5.56% 70-Employee Health&Dental Fund $14,085,214 $14,085,214 $6,102,427 43.33% $7,344,800 42.92% -$1,242,373 0.41% Notes: *-Actual amounts include Encumbrances. +-Based on percentage. 7-Multi-Year Grant includes reclassification of Carol Woods Grant from the General Fund. 8-Reflects higher E-911 subscriber fees. 9-Reflects COVID-19 impact on occupancy tax revenues. 10-Reflects COVID-19 impact on user fees. 11-Approved FY 2020-21 CARES and NCORR HOPE funds to counter COVID-19 impacts. Sportsplex Fund Sportsplex revenues are 27.8% of budget as compared to 39.7%the prior fiscal year due to the public health restriction impacts on user fees. Sportsplex expenditures are 29.8% of budget as compared to 35.3%the prior fiscal year. FY 2020-21 revenues are $1,055,795 and expenditures are $1,130,847 for the Second Quarter. FY 2019-20 revenues were $1,818,196 and expenditures were $1,618,692 for the Second Quarter. The monthly Sportsplex revenues below provides comparative trends for the past two fiscal years and FY 2020- 21 Year-To-Date Actuals and Forecasted January 2021 through June 2021 forecasted. As noted the public health restrictions has resulted in a revised revenue estimate of$2.2 million. Sportsplex revenues include ice skating activities, ice rink rentals, and a new adult league hockey season. Sportsplex management will continue with cost containment measures in response to the revised revenue estimates as the State remains in Phase 3. 6 7 Sportsplex Revenue $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Jul Aug Sept Oct Nov Dec Jan Feb Mar April May Jun FY 2018-19 FY 2019-20 FY 2020-21 Visitors Bureau Fund Visitors Bureau revenues are 36.2% of budget as compared to 49.2%the prior fiscal year due to the public health restrictions. Visitors Bureau expenditures are 61.7% of budget as compared to 63.8%the prior fiscal year. FY 2020-21 revenues are $703,371 and expenditures are $1,198,282 for the Second Quarter. FY 2019-20 revenues were $949,872 and expenditures were $1,233,357 for the Second Quarter. The monthly occupancy tax revenues below provides comparative trends for the past two fiscal years and FY 2020-21 Year-To-Date Actuals and Forecasted January 2021 through June 2021 forecasted. Staff has identified contractual expenses in the amount of$327,352 to counter declining revenues however Visitors Bureau fund balance may still be needed. 7 8 Monthly Occupancy Tax $200,000 — $180,000 $160,000 5140,000 5120,000 $100,000 $80,000 $60,000 $40,000 $20,000 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY2018-19 —FY2019-20 —FY2020-21 Solid Waste Fund Solid Waste revenues are 74.2% of the total revenues as compared to 69.7%the prior fiscal year. The solid waste program fee of$142 is billed as a line item on the Property Tax bill. As noted previously, peak collections occur by the end of December. Solid waste expenditures are 42.5% of total expenditures as compared to 43.8% the prior fiscal year. Functional Leadership Teams by Department Community Services-Animal Services, NC Cooperative Extension, DEAPR, Economic Development, Orange Public Transportation, Planning and Inspections. General Government- Board of Elections, Clerk to the Board, County Attorney, County Manager, Register of Deeds and Tax Administration Public Safety—Courts, Emergency Services, Criminal Justice Resource Department, and Sheriff's Office 8 9 Human Services—Department on Aging, Child Support, Housing, Human Rights, and Community Development, Library, Public Health and Social Services Support Services-Asset Management Services, Community Relations, Finance, Human Resources, and Information Technology Thanks to the Budget Division for their support in the preparation of this quarterly report. cc: Bonnie Hammersley, County Manager 9 10 Barings / UNC Economic Forecast December loth 2020 Ir UNC CHARIjOrrE BARINGS BELK COLLEGE of BUSINESS -- - - YEARS The data used in this report comes from the websites for the U.S. Department of Commerce's Bureau of Economic Analysis (www.bea.gov) and the North Carolina Employment Security Commission (www.ncesc.com) as of November 24, 2020. The opinions expressed in this Forecast by Professor Connaughton (the Barings Professor of Financial Economics at the Belk College of Business) and UNC Charlotte do not necessarily represent the views of Barings. 11 FORECAST HIGHLIGHTS Annual Growth Rates In Real GSP •For 2020, NORTH CAROLINA real GSP is expected to decrease by 3.4 percent over the 2019 level. 4- 3— Twelve of the state's fifteen economic sectors are forecast to experience output 2— 4.5 [2.5] [2.6 2.0 decreases during 2020. The sectors with the largest expected declines are 1 hospitality and leisure services with a projected real decrease of 33.9 percent, 0— p� ty p j -1 — other services with a projected real decrease of 10.7 percent, durable goods -2 — J34 manufacturing with a projected real decrease of 9.3 percent, health services -3 — with a projected real decrease of 6.9 percent, and retail trade with a projected -4 — real decrease of 3.7 percent. -5 — •For 2020, NORTH CAROLINA establishments are expected to lose 224,100 2017 2018 2019 2020f 2021 f net jobs during the year, a decrease of 4.8 percent. GSP/Gross State Product is a yardstick that measures • For 2021, NORTH CAROLINA real GSP is forecast to increase by 4.5 the total output of a state's economy for a given year. percent over the 2020 level. It is analogous to the U.S. Gross Domestic Product (GDP). All fifteen of the state's economic sectors are expected to experience output increases during 2021. The sectors with the strongest expected growth rates are Year-End Seasonally Adjusted North Carolina agriculture with a real growth rate of 21.7 percent, hospitality and leisure services with a real increase of 7.3 percent, educational and health services with Unemployment Rates a real increase of 6.8 percent, information with a real increase of 6.0 percent, 8 other services with a real increase of 5.6 percent, wholesale trade with a real increase of 4.8 percent, retail trade with real increases of 4.7 percent, and 6 business and professional services with a real increase of 4.6 percent. 4 6.0 5 1 •For 2021, NORTH CAROLINA establishments are forecast to add 245,100 2 4.2 4.0 3 6 net jobs, an increase of 5.4 percent. 2017 2018 2019 2020f 2021 f •The North Carolina unemployment rate peaked at 12.9 percent in April and by December 2020, the state's unemployment rate is expected to be around 6.0 percent. Quarterly Growth Rates In Real GSP 2020 GSP 12 Gross State Product (GSP) is expected to reach a level of $560,309.2 20- million in 2020. Real (inflation-adjusted) GSP is expected to decrease by 9- 27.0 3.4 percent over the 2019 level. The Covid-19 shutdown in earl 2020 6- p y 3- 6 ended the ten plus year economic expansion that the North Carolina 0 -3.0 5 economy had experienced since 2010. 3- 6- For 2020, first quarter GSP decreased by an annualized real rate of 3.0 9- -'0.5 percent as the Covid-19 response slowly kicked in. During the second 12- quarter, GSP decreased by an annualized real rate of 30.5 percent, during 30- which the U.S. economy was essentially shutdown by government action. In the third quarter, GSP is expected to increase by an annualized real rate 2020 I 2020 II 2020 III 2020 IV of 27.0 percent as recovery begins. In the fourth quarter of 2020, GSP is 2020 Highlights expected to increase by an annualized real rate of 5.6 percent. 2020` Percent The North Carolina economy, like the U.S. economy, experienced its Current Dollars Change biggest decline in GDP since the Great Depression of the 1930s. The Total Gross Product 560,309.2 -2.1 decline was caused not by an economic disequilibrium, but by a designed Constant(2012 Dollars) action by the government to shutdown normal economic interaction to Total Gross Product 495806.9 -3.4 save lives in response to an unprecedented pandemic. Not since the Agricultural 5785.0 5.8 Spanish Flu pandemic of 1918 have we seen anything approaching this Mining 660.5 4.4 year's health crisis. However, in 1918 scientists did not understand as Construction 19,123.6 -2.0 much about viral spread as we do today, and shutting down the economy Manufacturing 87,098.7 -4.8 Durable Goods 39,462.E - .3 and social distancing were not considered. In fact,because of the weapons Nondurable Goods 47,636.1 -0.8 production associated with World War I, the U.S. economy actually TWU 19,123.6 -1.9 expanded during 1918. Wholesale Trade 29,486.4 -0.6 Retail Trade 28,341.8 -3.7 Information 22,444.1 -1.7 Going forward from the middle of 2020, the number one question is how FIRE 92,379.58 0.3 long before the economy gets back to its 2019 level and will the s&P 67,252.6 -1.1 unemployment rate again approach "full employment." Given the E&H 39,477.8 -6.9 devastating hit the economy took during the second quarter of 2020, it is H&L 11,987.6 -33.9 likely to take until late 2021 before GDP reaches the 2019 quarter 4 high Services 7 8,87 .8 -10.7 Government 6 ,8 . -0. point. Unfortunately, the unemployment rate will take another 6 to 9 months before it again approaches 4.0 percent. *millions of dollars 2020 Total Real GSP Growth -3.4% 12 Agriculture 5.8 2020 GSP SECTOR ANALYSIS 13 0.1 Mining 4.4 3.9 TWU- -1.9 Construction -2. The chart to the left presents the projected contributions of each major 3.4 economic sector to North Carolina's Gross State Product(GSP). The real Durables -9.3 (inflation-adjusted) growth rate for 2020 is forecast to decrease by 3.4 8.0 percent. Projected real growth rates for each sector (displayed in black type) are plotted on the horizontal axis. Projected percentages of GSP contributed by each sector (displayed in green type) are plotted on the 9.6 Nondurables -0.8 vertical axis. The resulting rectangles show the expected weighted 00 importance of each sector's growth during 2020. All of the sector information presented in the table to the left is based on the new North American Industry Classification System(NAICS)definitions. 6.0 Wholesale Trade -0.6 Twelve of the state's fifteen economic sectors are forecast to experience 5.7 Retail Trade -3.7 output decreases during 2020. The sectors with the largest expected o declines are hospitality and leisure services with a projected real decrease c4.5 Information-1.7 of 33.9 percent, other services with a projected real decrease of 10.7 percent, durable goods manufacturing with a projected real decrease of y 9.3 percent, health services with a projected real decrease of 6.9 percent, 18.6 FIRE 0.3 and retail trade with a projected real decrease of 3.7 percent. a� a Seven other sectors are expected to experience GDP declines, but at levels less than the overall 3.4 percent GSP real decline. These sectors are construction with a projected real decrease of 2.0 percent; 13.6 B&P Services -1.1 transportation, warehousing, and utilities (TWU) with a projected real decrease of 1.9 percent; information with a projected real decrease of 1.7 percent;business and professional services with a projected real decrease 8.0 E&H Services -6.9 of 1.1 percent; nondurable goods manufacturing with a projected real decrease of 0.8 percent; government with a projected real decrease of 0.6 2.4 H&L Services -33.9 percent; and wholesale trade with a projected real decrease of 0.6. 1.8 Other Services -10.7 Three sectors: Finance, insurance, and real estate (FIRE); agriculture; 13.3 Government -0.6 and mining are expected to experience growth in 2020. Percent of Real Sector Growth Quarterly Growth Rates 2021 GSP 14 in Forecasted Real GSP 5 Gross State Product(GSP) is forecast to reach a level of$589,766.5 million in 2021. Real (inflation-adjusted) GSP is expected to increase by 4.5 4 percent over the 2020 level. This growth in 2021 will represent the first year of growth since Covid-19. 3 4.8 4.4 2 For 2021, first quarter GSP is expected to increase by an annualized real I I _J - - ill rate of 4.8 percent. During the second quarter, GSP is expected to increase 0 by an annualized real rate of 4.4 percent. In the third quarter, GSP is 2021 I 2021 II 2021 III 2021 IV expected to increase by an annualized real rate of 4.2 percent. In the fourth quarter of 2021, GSP is expected to increase by an annualized real rate of 2021 Highlights 3.6 percent. 2021 represents the first full year of the economic comeback from the 2021* Percent Covid-19 recession of 2020. The Covid-19 recession resulted in a more Current Dollars Change severe downturn than what we experienced during the Great Recession in Total Gross Product 589,766.5 5.2 2008. However, this recession is markedly different than any recession we Constant(2012 Dollars) have experienced. In most recessions, the cause comes from an imbalance Total Gross Product 517,942.7 4.5 in one or more sectors of the economy. In the Great Recession, it was the Agricultural 7,045.3 21•7 finance industry that almost collapsed in the fall of 2007 which led to the Mining 676.63 2.4 downturn. The 2001 recession was caused by investment overhang that Construction 17,638.3 3.6 Manufacturing 89,718.3 3.0 resulted from the Y2K buildup during 1998 and 1999. This recession was Durable Goods 40,546.8 2.7 cause by a mandated shutdown of many sectors of the economy. Nondurable Goods 49,171.5 3.2 TWU 19,761.7 3.3 What resulted was a very different looking decline. Normally, during a Wholesale Trade 30,906.1 4.8 Retail Trade 29,681.7 4.7 recession, GDP begins to fall, and 6-9 months later we see unemployment Information 23,789.3 6.0 begin to rise. During the recovery phase after a normal recession, GDP FIRE 95,213.6 3.1 begins to rise and the unemployment rate doesn't start to pickup until 6-9 B&P 70,356.7 4.6 months later. After that, it can take more than two years before the E&H 42,179.3 6•8 unemployment rate recovers. In the Covid-19 recession, the unemployment H&L 12,874.1 7.3 Services 9,370.9 5.6 rate was leading the downturn. In April of 2020, the North Carolina Government 68,728.2 4.3 unemployment rate jumped to 12.9 percent but by October, it had fallen back down to 6.3 percent. *Millions of dollars 2021 Total Real GSP Growth 4.5% 1.4 Agriculture 21.7 2021 GSP SECTOR ANALYSIS 15 0.1 Mining 2.4 8 TWU 3.3 The chart to the left presents the projected contributions of each major 3. 3. Construction 3. economic sector to North Carolina's Gross State Product(GSP). The real (inflation-adjusted) growth rate for 2021 is forecast to increase by 4.5 7.8 Durables 2.7 percent. Projected real growth rates for each sector (displayed in black type) are plotted on the horizontal axis. Projected percentages of GSP contributed by each sector (displayed in green type) are plotted on the vertical axis. The resulting rectangles show the expected weighted 9.5 Nondurables 3.2 importance of each sector's growth during 2021. All of the sector a information presented in the table to the left is based on the new North V1 V' American Industry Classification System(NAICS)definitions. 6.0 Wholesale Trade 4.8 All fifteen of the state's economic sectors are expected to experience 5.7 Retail Trade 4.7 output increases during 2021. The sectors with the strongest expected c growth rates are agriculture with a real growth rate of 21.7 percent, Information 6.0 hospitality and leisure services with a real increase of 7.3 percent, c educational and health services with a real increase of 6.8 percent, information with a real increase of 6.0 percent, other services with a real increase of 5.6 percent, wholesale trade with a real increase of 4.8 18.4 FIRE 3.1 percent, retail trade with real increases of 4.7 percent, and business and a professional services with a real increase of 4.6 percent. Seven other sectors are expected to experience growth rates, however, at 13.6 B&P Services 4.6 levels below the overall 4.5 percent GSP real growth rate. These sectors are government with a real increase of 4.3 percent; construction with a real increase of 3.6 percent; transportation, warehousing, and utilities (TWU) with a real increase of 3.3 percent; nondurable goods g.1 E&H Services 6. manufacturing with a real increase of 3.2 percent; finance, insurance, and H&L Services 7.3 real estate (FIRE) with a real increase of 3.1 percent; durable goods 2. manufacturing with a real increase of 2.7 percent; and mining with an 1.8 Other Services 5.6 annual real increase of 2.4 percent. 13.3 Government 4.3 Percent of Real Sector Growth 2020 Year-End Employment Trends 2020 EMPLOYMENT 16 0.1 Mining 0.0 SECTOR ANALYSIS 5.3 Construction-0.3 The sector employment analysis presented on this page is based on the new North American Industrial Classification System (NAICS). 5.6 Durables -7.6 Seasonally adjusted nonagricultural employment in North Carolina is 4.7 expected to reach 4,369.800 persons by December 2020, a decrease of Nondurables -4.8 4.8 percent over the employment level in December 2019. The state is 4.3 Wholesale Trade -0.9 expected to lose 224,100 net jobs during the year. 11.3 Retail Trade -0.4 Twelve of the state's fourteen nonagricultural sectors of the economy are expected to experience employment decreases during 2020. The 3.6 TAFU -2.8 sectors with the largest expected employment decreases in 2020 are c 1.7 Information -5.3 hospitality and leisure services at 17.3 percent, durable goods 5.9 FIRE 0.0 manufacturing at 7.6 percent, and information at 5.3 percent. W 2020 Employment Highlights 14.0 B&P Services -4.9 Year-End* Percent C Total Establishment Change Employment 4,369.8 -4.8 y Mining 5.6 -0.0 E&H Services -4.7 Construction 230.9 -0.3 p, Manufacturing 448.7 -6.3 Durable Goods 242.3 -7.6 Nondurable Goods 206.4 -4.8 10.0 H&L Services -17.3 Wholesale Trade 187.4 -0.9 3.7 Other Services -1.3 Retail Trade 494.0 -0.4 TWU 158.0 -2.8 Information 73.8 -5.3 FIRE 259.6 0.0 16.2 B&P Services 612.3 -4.9 Government -3.6 E&H Services 593.2 -4.7 H&L Services 436.8 -17.3 Other Services 160.5 -1.3 Government 709.0 -3.6 Percent of Sector Employment Growth "thousands of persons 2021 Year-End Employment Trends 2021 EMPLOYMENT 17 0.1 Mining 0.0 SECTOR ANALYSIS 5.1 Construction 1.2 The sector employment analysis presented on this page is based on the new North American Industrial Classification System (NAICS). North 5.8 Durables 9.9 Carolina employment is expected to reach 4,614,900 persons by 4.5 December 2021, an increase of 5.4 percent over the employment level Nondurables -0.1 in December 2020. The state is expected to add 245,100 net jobs in 4.1 Wholesale Trade 1.3 2021. 10.9 Retail Trade 1.9 Twelve of the state's fourteen nonagricultural sectors of the economy are expected to experience employment increases during 2021. The 3.6 TWU 4.6 sectors with the expected strongest employment increases in 2021 are 1.9 Information 16.0 hospitality and leisure services and information,both at 16.0 percent. 5.8 FIRE 3.6 W 2021 Employment Highlights 14.1 B&P Services 6.2 Year-End* Percent C Total Establishment Change Employment 4,614.9 5.4 v E&H Services 6.1 Mining 5.6 0.0 13.6 Construction 233.6 1.2 a H&L Services 16.0 Manufacturing 472.6 5.4 Durable Goods 266.3 9.9 Nondurable Goods 206.3 -0.1 11.0 Wholesale Trade 189.9 1.3 3.7 JRetail Trade 503.5 1.9 Other Services 7.5 TWU 165.3 4.6 Information 85.6 16.0 FIRE 268.9 3.6 15.8 B&P Services 650.6 6.2 Government 3.1 E&H Services 629.2 6.1 H&L Services 506.8 16.0 Other Services 172.5 7.5 Government 730.8 3.1 Percent of Sector Employment Growth *thousands of persons 18 2020-2021 NORTH CAROLINA UNEMPLOYMENT RATE 16.0 14.0 12.0 10.0 8.0 6.0 %00- 4.0 2.0 0.0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC U.S.Seasonally Adjusted NC Seasonally Adjusted Forecast NC Seasonally Adjusted FORECAST reports historical seasonally adjusted monthly unemployment rates for North Carolina and the United States and forecasts the seasonally adjusted monthly unemployment rate for North Carolina. The seasonal adjustment accounts for variations in labor market conditions that cause regular fluctuations in the unemployment level each month. The graph at the top of this page provides a summary of the monthly unemployment rates for 2020 and 2021. The solid blue line represents the United States seasonally adjusted historic unemployment rate. The seasonally adjusted unemployment rate for the North Carolina is represented by the solid green line. The North Carolina seasonally adjusted unemployment rate forecast is represented by the solid red line. The seasonally adjusted rates for the United States and North Carolina can be compared directly and provide more reliable estimates than the unadjusted rates. The United States started 2020 with an unemployment rate of 3.6 percent, which fell to 3.5 percent in February. North Carolina started the year with a 3.6 percent rate of unemployment. Both the U.S. and North Carolina unemployment rates jumped dramatically in April to 14.7 and 12.9 percent respectively. Since then, both the U.S. and North Carolina rates have fallen dramatically to 6.9 percent and 6.3 percent by October. The North Carolina rate should decline through the rest of the year and reach 6.0 percent by December 2020 and 5.1 percent by December of 2021.