Five Things to Watch in the 2023 North Carolina Economy

By many measures, North Carolina’s economy performed well in 2022, placing the state on strong economic footing going into 2023. There were potential signs of cooling near the end of the year, but, overall, labor market and economic conditions remained strong. As LEAD continues to monitor the state’s labor market and economy this year, here are five indicators and trends we are paying especially close attention to in 2023.

1. Will record employment growth continue?

As most observers of the economy will tell you, 2022 was a great year for job growth in North Carolina. With a net increase around 190,000 jobs (+4 percent), last year was the best year for employment growth in the state in over 30 years.[1] But month-over-month job growth did slow near the end of 2022, which begs the question of whether such solid job growth is sustainable into 2023. If the Federal Reserve can engineer a soft landing—effectively slowing inflation without causing a recession—as many analysts and economists increasingly see as possible, slow, steady employment growth in 2023 could continue. However, if a recession occurs in 2023, it could actually reverse the growth trends we saw in 2022. Of course, other factors will also influence employment in 2023 such as the availability of jobseekers to fill open positions, global geopolitical conflicts, and disease outbreaks, among other factors.

2. Will strong wage growth persist in 2023 and continue outpacing inflation?

Average hourly wages among private employers in North Carolina showed strong growth in 2022, continuing trends from the preceding two years. Of course, inflation reduced the real value of wages earned by workers in the state and across the country, but growth in worker earnings outpaced price increases through much of 2022. Wage growth in lower wage sectors has been especially strong, which is welcome news for workers who often feel the impact of inflation the most.

Strong wage growth has largely been driven by tight labor market conditions and the supply of labor lagging employer demands. In every month last year, there were more job openings than jobseekers in North Carolina, and these two indicators were roughly equivalent through much of 2021 as well. This has forced employers to increase wages more rapidly than they might otherwise to attract workers. The overall health of the economy will likely determine the degree of imbalance between labor supply and demand in 2023. If North Carolina and the country’s economy continue humming along without a recession, wage growth for workers and hiring struggles for employers may persist. But labor market conditions could reverse in the event of a recession, especially a serious downturn, which could dampen wage growth. In any event, labor market tightness, wage growth, and inflation are certainly trends to keep an eye on in 2023.

3. Can low rates of unemployment, including for historically disadvantaged populations, be maintained?

In 2022, North Carolina’s unemployment rate dipped below its pre-pandemic rate for the first time since the initial detection of COVID-19 in the US. The unemployment rate for all workers averaged 3.6 percent during the year and dipped as low as 3.4 percent during some months, near the historical low point in North Carolina. Strong demand for workers helped fuel low unemployment rates. If the economy and labor market continue cooling off in 2023 as began to happen at the end of last year, the unemployment rate could begin increasing more rapidly, especially if the country slips into a full-fledged, deep recession. However, some estimates suggest a mild recession may shield unemployment from spiking too considerably.

Tight labor market conditions have also delivered gains for population groups such as racial minority and rural workers. The annual average unemployment rates for Black and Hispanic or Latino workers in 2022 were 2.7 and 6.1 percentage points, respectively, lower than 2020 levels.[2] However, the 6.8 percent Black unemployment rate remains more than double the rate of White workers. Additionally, 29 counties had lower average annual unemployment rates in 2022 than any year since 1990, all of which were rural counties. If past recessions are any indication, Black, rural, and other historically marginalized workers could see unemployment rates start increasing in the wake of an economic downturn.

4. Will strong population growth in North Carolina continue?

North Carolina is the 9th largest state in the US with 10.6 million people and added 133,000 people from July 1, 2021 to July 1, 2022, according to the US Census Bureau. Among states, this was the third largest increase in sheer numbers, following Texas and Florida. In percentage terms, the state was the 9th fastest growing in the nation. North Carolina’s population increase of 1.3 percent was higher than the average annual change over the preceding decade, but lower than the average annual growth rate in the 2000s. About 75 percent of 2022’s population gain was due to migration from other states, while international migration contributed roughly 20 percent.

5. North Carolina’s labor market is projected to shift toward occupations with higher typical education requirements. What will 2023 bring?

LEAD’s most recent round of projections, covering 2021 to 2030, anticipates jobs requiring more education to grow at the fastest rates, but still expects more than half of 2030’s jobs will typically not require more than a high school diploma. Between 2021 and 2030, LEAD projects North Carolina will add 445,729 net jobs, or about an average of 49,500 jobs per year. However, projections are not meant to be linear and net job growth will vary year-to-year based on larger economic conditions. LEAD will keep an eye on employment changes in 2023, the occupations in which growth or loss occurs, and unlikely or unforeseen events like massive technological breakthroughs, which could all affect employment trajectories through the rest of the decade.