Expert: U.S. Economic Outlook Terrific, North Carolina Keeps Setting Records

November 24, 1998

CHAPEL HILL - Recent turmoil in financial markets has led some analysts to predict a recession in 1999 or even before the end of 1998, but such dire predictions are just nonsense, says a University of North Carolina at Chapel Hill business expert who accurately predicted the stock market would reach record highs anyway.

"A few really crazy economists were on CNBC in September saying that we might already be in a recession," said Dr. James F. Smith, professor of finance at UNC-CH's Kenan-Flagler Business School. "This was just before the Bureau of Economic Analysis (BEA) told us that real Gross Domestic Product (GDP) growth in the third quarter was 3.3 percent.

"As pointed out in a recent analysis by Dr. Stephen S. Roach, chief economist at Morgan Stanley, these gloom and doom purveyors have seemed to pop out of the woodwork every fall for the past five years," Smith wrote in the November issue of "Business Forecast," a bimonthly newsletter he produces for the school. "They are likely to be just as wrong this year."

Dr. William Poole, president of the Federal Reserve Bank of St. Louis, recently said it would be highly unusual to have a recession when employment and income were rising and interest rates were falling, the UNC-CH economist said. Poole expects 2.5 percent growth in real GDP for 1999.

"Since that is exactly the same as my forecast, it made me feel good," Smith said. "Steve Roach is only marginally below that with his forecast of 2.3 percent growth."

As long as consumer confidence remains high with employment, income, retail sales and industrial production rising with interest rates stable or declining and consumer prices rising at around 1.4 percent or less, he said, dreaming up a plausible recession scenario is extremely difficult.

"My forecast remains that the next recession will not begin until May 16, 2002, at 9:15 a.m.," Smith said. "This is when the Board of Governors of the Federal Reserve System will release industrial production data for April, and we will see clear evidence of widespread declines across many industries."

Personal income in North Carolina during the second quarter this year - at a seasonally adjusted annual rate -- was $179.1 billion, a new record, 13th in the nation on that measure and more than twice as much as South Carolina.

For September, the unemployment rate for North Carolina unadjusted for seasonal variations was 3.1 percent, well below the national average of 4.4 percent. The lowest unemployment rate among the state's metropolitan statistical areas (MSAs) continued to be in Raleigh-Durham-Chapel Hill at 1.7 percent.

"This MSA, widely known as the Triangle, has achieved 4 percent job growth in the past year despite this very low unemployment rate," Smith said. "Clearly, large numbers of people have moved to the Triangle in the past year to take newly created jobs."

In September, 610,000 people were employed in the Triangle and only 10,300 people were unemployed and looking for work, he said.

The Asheville MSA had the second-lowest unemployment rate in the state in September at 2.3 percent. The Greensboro-Winston-Salem-High Point MSA was just behind at 2.4 percent, followed by Charlotte-Gastonia-Rock Hill (S.C.) at 2.5 percent, Hickory-Morganton-Lenoir at 2.7 percent and Jacksonville at 3.2 percent. Next came Wilmington at 3.7 percent, Greenville at 3.8 percent, Fayetteville and Goldsboro at 4.1 percent and Rocky Mount at 6.0 percent.

"With only one MSA above the national average unemployment rate, North Carolina is clearly in an enviable position," Smith said. "Population growth is likely to continue, as many people want to move to a location where jobs are plentiful."
Note: Rated the nation's most accurate economic forecaster by the Wall Street Journal in 1996 and the second-most accurate by Business Week in 1997, Smith is a frequently quoted financial expert and teacher known for his clarity, wit and common-sense approach to economics. He can be reached at 919-962-3176. As time allows, he's willing to discuss most economic issues with reporters. Fax: 919-962-4266.

Contact: David Williamson, 919-962-8596.

University of North Carolina at Chapel Hill

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