Author: Andrew Berger-Gross
Welcome to the April 2024 edition of NC Economy Watch: an update on what’s happening in the North Carolina economy and what it means for you, brought to you by the Labor & Economic Analysis Division (LEAD) of the NC Department of Commerce.
In this edition of NC Economy Watch, we document recent developments on the supply side of the economy. The early years of the pandemic-era economy were characterized by excessive demand and inadequate supply, but more recently, we’ve seen an easing in supply chain conditions and an immigration-fueled expansion of the workforce, both of which have helped drive faster-than-expected economic growth.
The Supply-Side Boom
Many of the problems in our economy during the early years of the COVID-19 pandemic were the result of too much demand and not enough supply. Too many job openings and not enough jobseekers to fill them. Too many families looking to buy a home and not enough homes available to sell. Too much consumer demand for goods and services and not enough productive capacity to meet that demand. This led to some of the defining features of the pandemic-era economy: long wait times, empty shelves, and high prices.
But things have changed over the past year. In all corners of the economy, from the labor market to the market for consumer goods, supply and demand appear to be approaching a more sustainable balance. This is a big reason why price inflation is slowing and fears of an economic recession are fading into the background.
In 2023, we experienced what Greg Ip of the Wall Street Journal called a “supply-side boom” as a growing labor force and a normalizing supply chain fueled faster-than-expected economic growth.
We have evidence of improving supply chain conditions in our own region courtesy of the Richmond Fed’s Survey of Manufacturing Activity. Vendor lead times grew longer and longer throughout 2020 and 2021 as manufacturers struggled to acquire raw materials and intermediate goods [Figure 1]. However, conditions started to ease in 2022 and by 2023, month after month, vendor lead times had steadily decreased. There’s also evidence of an easing supply chain beyond our own region: the New York Fed’s Global Supply Chain Pressure Index has settled back down to its historical average, and the Institute for Supply Management’s manufacturing survey panel is reporting that suppliers have ample capacity.
Figure 1
Immigration has also contributed to the supply-side boom. For much of the 21st century, and especially since the start of the COVID-19 pandemic, growth in our workforce has been limited by declining birthrates and rising retirements, leading to a persistent labor shortage. But although the native-born population has stagnated, growth in the foreign-born population has accelerated, due in part to recent improvements in visa processing. The number of foreign-born workers in our state surged in 2023 even as the number of native-born workers fell [Figure 2]. Most of North Carolina’s net employment growth since 2019, and all its growth in 2023, can been accounted for by a rising number of foreign-born workers. A similar trend is playing out nationwide as the number of native-born workers has held at or below pre-pandemic levels while the foreign-born workforce has expanded.
Figure 2
This article highlighted recent supply-side developments that have helped restore balance to the economy and brought us closer a “soft landing”. But there are two sides to this story: in addition to the normalization of supply conditions, easing demand conditions have also played an important role in keeping the economy afloat. Next month’s edition of NC Economy Watch will provide an overview of recent developments on the demand side of the economy.
For inquiries and requests, please contact:
Meihui Bodane, Assistant Secretary for Policy, Research and Strategy
NC Department of Commerce, Labor & Economic Analysis Division (LEAD)