Author: Andrew Berger-Gross
Welcome to the January 2025 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.
This article kicks off our 2025 season of economic updates. We recently took a break from this series to focus on tracking the economic impact of Hurricane Helene, but now we’re back on schedule. Stay tuned for bimonthly installments of NC Economy Watch in the year to come.
Speaking of the year to come: what will the new year bring for North Carolina’s economy? Unfortunately, it’s hard to say for sure. The direction of the economy is as uncertain as it’s ever been, and for now, we have a lot more questions than answers. Here are three of the big questions we’ll be asking as 2025 gets underway:
Will Asheville’s labor market recover from Hurricane Helene?
The impact of Hurricane Helene can still be felt in local labor markets across much of North Carolina’s mountain region. Evidence so far suggests that the employment impact of Helene was concentrated primarily in the Asheville area, including Buncombe and nearby counties, which saw their unemployment rates skyrocket after the storm hit the region.
Although no two storms are the same, examining the labor market recoveries of other hurricane-impacted areas can offer some clues about what we might expect to see in the Asheville area over the course of the next year.
The scale of Helene’s devastation has invited comparisons to the 2005 impact of Hurricane Katrina on the New Orleans metro area, which lost nearly one-third of its jobs and never recovered to its pre-hurricane employment level [Figure 1].
Figure 1
But preliminary estimates suggest the labor market impact of Helene could be more analogous to that of Hurricane Florence in 2018. Employment in the Wilmington, NC metro area fell 4% in the wake of Florence—much less than the losses New Orleans experienced following Katrina—and returned to pre-hurricane levels four months later. Similarly, current figures indicate the Asheville metro area lost 3% of its employment in October following the impact of Helene and was down only 1% as of November. While these estimates are still preliminary, they offer hope that Asheville might follow Wilmington in quickly returning to its pre-hurricane employment level.
For now, however, the region’s labor market recovery remains incomplete. The Asheville metro area’s unemployment rate jumped to a four-year high of 8.5% in October, and although it declined to 6.1% in November as communities started to rebuild, it remained much higher than the region’s November 2023 rate of 2.7%. Preliminary signs of improvement are a cause for optimism, but we also know that many Asheville-area residents continue to endure severe economic hardship, and infrastructure damage from the storm could potentially impede the region’s progress toward a full recovery.
Will labor market conditions improve for jobseekers across the state?
Landing a new job has become much more challenging over the past three years as the economy has slowed and labor markets have cooled. Although layoff activity remains relatively subdued, many employers have implemented hiring freezes, making it harder for jobseekers to find work.
Hiring rates in North Carolina (i.e., hires as a share of total nonfarm employment) averaged below 3.8% in 2024, a steep decline from our pandemic-era peak of 6.6% [Figure 2]. The last time hiring rates were this persistently low was back in 2014, when we were still struggling to recover from the Great Recession.
Figure 2
There are reasons to believe that labor market conditions for jobseekers across the state could improve in the year to come. The risk of a serious economic downturn is lower now than it was a year ago: consumer prices aren’t rising as quickly, interest rates are starting to fall, and North Carolina’s unemployment rate has settled below 4%, evidence that we might be approaching a soft landing for our economy. But while an outright recession seems unlikely at this time, we also can’t rule out the possibility that job-finding conditions will deteriorate further as employers continue to trim headcounts and jobseekers experience higher rates of long-term unemployment.
Will we see any more relief on interest rates?
Interest rate hikes have been among the most significant headwinds to economic growth in recent years. Whether you’re borrowing money to expand your business, to purchase a new home, or simply to get you through the month, higher interest rates make borrowing more expensive, which is why everyone from entrepreneurs to homeowners to consumers has been eagerly awaiting relief on interest rates.
The Federal Reserve’s benchmark interest rate (the so-called “Fed funds rate”) receives the lion’s share of news coverage, but most of us pay an interest rate that is set by the financial markets. These market interest rates are determined not just by current Federal Reserve policy, but also by expectations of future changes in the interest rate environment. For example, the average rate on a 30-year fixed rate mortgage fell from a high of 7.6% in October 2023 to a low of 6.2% in September 2024 due in part to a widespread belief that the Fed would eventually start to lower their benchmark interest rate [Figure 3].
Figure 3
By the time the Fed finally implemented their first rate cut in September 2024, the market had already become more pessimistic about the likelihood of further decreases. This helps explain why the average rate on a 30-year fixed rate mortgage has shot back upward in recent months: continued inflationary pressures have forced the Federal Reserve to pare back their plans for future rate cuts. At this point, interest rates are unlikely to decline much further unless we see more progress on disinflation, or a more severe deterioration in labor market conditions, or both.
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Of course, these aren’t the only trends we’ll be watching in 2025. Emerging technologies, geopolitical turmoil, and changes to America’s immigration, trade, energy, and fiscal policies all have the potential to meaningfully shift our economic outlook. For now, these factors are so uncertain that it’s difficult to speculate about their implications for the North Carolina economy, but we will continue to follow them and report back to you in upcoming installments of NC Economy Watch.
For inquiries and requests, please contact:
Meihui Bodane, Assistant Secretary for Policy, Research and Strategy
NC Department of Commerce, Labor & Economic Analysis Division (LEAD)