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August 2024 NC Economy Watch: The Two-Track Economy

In this edition of NC Economy Watch, we show how our economy is running on “two tracks”, with many households and businesses experiencing the benefits of an expanding economy while others are coming under increasing pressure from high prices, high interest rates, and a weakening labor market.

Author: Andrew Berger-Gross

Welcome to the August 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 show how our economy is running on “two tracks”, with many households and businesses experiencing the benefits of an expanding economy while others are coming under increasing pressure from high prices, high interest rates, and a weakening labor market.

The Two-Track Economy

When economists talk about the direction of the economy, they often focus on recessions and recoveries (or expansions). Economic turning points are relatively easy to spot: indicators like employment, income, and gross domestic product (GDP) fall when the economy goes into a recession and rise when the economy is recovering or expanding. Our economy has been in expansion mode for the past four years, generating wealth and improving the economic well-being of households and businesses in North Carolina and around the country.

But just because the economy is growing doesn’t mean that everyone is benefiting. The economy can be said to be operating on two tracks, with some individuals gaining from our growing economy and others missing out.

For example, we reported in the July 2024 edition of NC Economy Watch that many businesses are currently reluctant to hire new employees, but they’re also reluctant to let workers go. This is a challenging environment for jobseekers who now face a labor market with fewer opportunities than before, but it’s a favorable environment for current workers who now have a relatively low likelihood of losing their job.

We also see differences in outcomes at the sectoral level. Even though North Carolina businesses as a whole have increased their employment headcount over the past year, some sectors of the economy are adding more jobs than others. The Health Care and Social Assistance, Accommodation and Food Services, and Construction sectors added tens of thousands of jobs between the fourth quarters of 2022 and 2023 [Figure 1]. Meanwhile, the Manufacturing sector and the Administrative and Support and Waste Management and Remediation Services sector both lost thousands of jobs during the same period. Your perspective on the economy might depend on whether you’re a healthcare worker or a manufacturing worker, with the former enjoying a favorable labor market outlook and the latter encountering a heightened threat of joblessness.

Figure 1

Some sectors are adding jobs, while other sectors are losing jobs

Your perspective on the economy might also depend on whether you’re a saver or a borrower. The Federal Reserve has raised their benchmark interest rate to its highest level in 17 years as part of their efforts to fight price inflation [Figure 2]. High interest rates make borrowing more expensive, which can hurt households and businesses looking to finance a new investment or who simply need a loan to get them through the month. On the other hand, high interest rates can be a boon to savers, including many retirees, who are now making more money on their bonds, certificates of deposit (CDs), and savings accounts than they have in years.

Figure 2

Highest interest rates since 2007: Good for savers, bad for borrowers

Even among borrowers, we find that some are riding out the current spell of high interest rates while others are coming under increasing pressure. The most recent report from the Federal Reserve shows that only 1.7% of homeowners nationwide were delinquent on their mortgages during the first quarter of 2024. Homeowners are currently enjoying record-high home values, in contrast to the challenges they encountered during the Great Recession, when home values plummeted, millions of homeowners were underwater on their mortgages, and the mortgage delinquency rate peaked at 11.5% [Figure 3]. Meanwhile, the delinquency rate on credit card loans increased to 3.2% in the first quarter of 2024, higher than the pre-COVID rate of 2.6%, as high prices, high interest rates, and slowing wage growth caused many consumers to burn through their savings.

Figure 3

Homeowners are in good shape, but credit card borrowers are under pressure

It’s important to recognize that the complexities of a modern economy like ours defy generalization. Even though economic indicators show that our economy is growing overall, if you scratch beneath the surface, you’ll find evidence that some households and businesses are faring worse than others. At the same time, it’s just as important to recognize the bright spots in our economy. Most sectors are still adding jobs, savers are realizing a high return on their savings, and homeowners are experiencing lower rates of mortgage delinquency than they have in decades. And while credit card delinquencies are rising, they remain well below the high rates that prevailed in the 1990s and 2000s, showing that even though many consumers have seen their financial position deteriorate over the past couple years, today’s consumers are still in better shape than previous generations of consumers.

For inquiries and requests, please contact:

Meihui Bodane, Assistant Secretary for Policy, Research and Strategy

NC Department of Commerce, Labor & Economic Analysis Division (LEAD)

mbodane@commerce.nc.gov­

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