Prosperity Watch Issue 24, No. 3: North Carolina’s unusual recovery - state's economy grows while job creation stagnates

In another unusual feature of the current business cycle, North Carolina experienced net positive economic growth over the past five years, but that growth has failed to translate into significant job creation.  For most of the 20th century, economic growth tended to generate corresponding rates of job creation, but an examination of North Carolina's recent record of both Gross Domestic product growth and employment growth over the past five years shows a troubling divergence between these two formerly interconnected trends—the economy is growing, but jobs are not.

As seen in the following graph, North Carolina experienced a total 4.2 percent growth in GDP between 2006 (the last full year prior to the recession) and 2011 (the last year in which GDP data is available from the Bureau of Economic Analysis).  At the same time, the state’s employment remained essentially flat, with just 0.2% total growth over the same five-year period (according to the BEA employment data).  Given these trends, it is clear that the current business cycle is reshaping the connection between economic growth and job creation.

 

According to economists, this divergence is likely due to a number of different trends, including the ability of firms to increase productivity without hiring additional workers, usually through additional capital investment.  Nowhere is this more evident than in North Carolina’s manufacturing sector—the largest sector in the private economy in both GDP and employment.  In 2006, durable goods and non-durable goods manufacturing comprised a combined 21.6 percent of the state’s economic output (measured by GDP), and accounted for 11 percent of the state’ employment base. Over the next five years, manufacturing employment fell by almost 21 percent, while the sector’s economic output experienced negligible—but positive—0.5 percent growth in terms of GDP. In other words, while manufacturing grew in terms of overall economic output, the sector’s employment base cratered.

As policy makers consider strategies for addressing the state’s struggling employment growth, addressing the disconnect between GDP growth and job creation in specific industries like manufacturing should be a top priority.
 

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