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John Hood: State’s economic recovery is sputtering

By John Hood

RALEIGH — According to the latest jobs report, North Carolina’s headline unemployment rate fell to 6.5% in August, down from 8.5% in July. Good news worth celebrating, right?

Don’t pop the cork on that champagne just yet. This was mostly a statistical artifact, not a major improvement in the state’s labor market. While the government counted about 100,000 fewer North Carolinians as unemployed last month, only 28,000 got jobs. The remaining 72,000 dropped out of the labor force.

In other words, they either gave up looking for a job in North Carolina or left the state. In a healthy economic recovery, your labor force should be growing, not shrinking. Indeed, according to other measures, North Carolina is experiencing the worst economic recovery in the southeastern United States.

Let’s begin with the issue I just referenced: labor-force participation. In February, 61.6% of North Carolinians at least 16 years of age and not living in some kind of institution were participating in the labor force. That is, they were either employed or actively looking for a job.

In August, that rate was 57.5%. North Carolina’s labor-force participation is down 3.9 percentage points. The other 11 states in the Southeast all had smaller declines. The regional average dropped by just 1.5 points.

Now let’s look at employment itself. Unlike the unemployment and participation rate statistics, the government’s job count comes from a survey of employers, not households. This survey has a much larger sample size and produces more stable results. Unfortunately, it doesn’t paint a rosier picture of our state’s labor-market recovery to date.

In August, North Carolina employers reported 4.3 million filled positions. That comes to about 350,000 fewer jobs than in February, before the onset of the COVID-19 recession, a drop of 7.6% in total employment.

Again, that’s the worst performance in the Southeast. The next-hardest-hit state, Louisiana, experienced a 7% decline during the same period. Among our neighbors, employment fell 6.1% in Virginia, 5.6% in South Carolina, 5.4% in Tennessee and 4.7% in Georgia.

Want to broaden our perspective beyond the labor market to take in the rest of the state’s economy? Unfortunately, the resulting picture has a built-in time lag. The most-recent measure of gross domestic product by state was for the first quarter of 2020, which includes only the initial month of COVID impact (March). With that caveat in mind, however, our state’s performance still lags the regional average, although not by as much. North Carolina GDP fell 5.1% during the first quarter. That’s worse than in Georgia (4.7%), South Carolina (4.8%) Virginia (3.8%) and the Southeast as a whole (5%), but it’s better than Tennessee’s 6.2% drop.

Perhaps the next wave of economic reports will be more positive. Perhaps North Carolina’s second-quarter GDP growth will turn out much better. Perhaps our labor markets will look much healthier by October or November than they do right now. Taking an accurate temperature of any economy is always a challenging task, and COVID has made it more so in a number of ways. So, we should always be open to the possibility that employment and GDP statistics will undergo significant revisions in the future.

Right now, though, based on the available evidence, it would be fair to say that North Carolina’s economic recovery is sputtering. Thousands of North Carolinians are finding new jobs every month, to be sure, but thousands more — frustrated, depressed, angry — are being left behind.

For some, their employers or their own small businesses have gone bankrupt. Others have intact employers but, faced with school closures, are having to cut back their hours at work or leave their jobs altogether so they can stay home with their young children. And some are exiting the state in search of better opportunities elsewhere in the region.

As we are in the middle of election season, you are of course free to draw whatever political conclusions you like. But first, please just give a thought, and say a prayer, for the North Carolinians who are suffering.

John Hood is chairman of the John Locke Foundation.

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