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Economic Crystal Ball: Slow, Steady Growth in 2007

Posted January 2, 2007

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— The state of the U.S. economy is good, and 2007 should be a year of continued growth, a trio of speakers said at the annual 2007 Economic Forecast Forum on Tuesday.

The New Year also looks good for North Carolina, a sellout crowd of more than 1,100 people heard at the Sheraton Imperial in Durham.

“The stock market is going to have another strong year,” said Knight Kiplinger, editor-in-chief of Kiplinger’s Personal Finance magazine, Kiplinger.com and the Kiplinger Letter. Based on interviews and information gathered from around the country, Kiplinger forecast a 2 percent growth rate in gross domestic product buy “by the end of the year it will be up around 3 percent.”

Harry Davis, economist for the North Carolina Bankers Association, said he also expects GDP growth through 2007. Citing a variety of factors such as growing global economic growth that will in turn drive up demand for U.S. exports, Davis said, “Are we in for a soft landing? I think we are.”

The forum, which is put on by the Bankers Association and North Carolina Citizens for Business and Industry, also heard a positive prediction from John Allison, the chairman and chief executive officer of BB&T.

Allison cited the “Blue Chip Forecast” based on views of various private economists, noting it called for “healthy growth” in the GDP of 2.5 to 3 percent, moderate inflation and stable interest rates.

The economic expansion will include North Carolina for a sixth straight year, added Davis, who is an economist at Appalachian State University.

“North Carolina will grow at 2.7 percent – a little faster than the national rate,” Davis said. “That’s pretty good.”

Davis also said he expected unemployment to remain around 5 percent. The November jobless rate was 4.9 percent.

Overall, he added, “North Carolina has an economy that continues to grow and will do so for several more years.”

North Carolina State Treasurer Richard Moore joined the parade of positive speakers.

“I am incredibly bullish on the future of North Carolina,” said Moore, who is a leading contender in North Carolina’s race for governor in 2008.

Noting that the state had added 133,000 jobs between November 2005 and November 2006, he pointed out, “The down and dirty on that is never before have more people been working in North Carolina.”

Job growth is expected to continue, he added, with non-farm employment expected to increase 1.6 percent annually in 2007 and 2008.

Because of growth in North Carolina’s economy, Moore pointed out that the state’s tax collections exceeded budget projections by $1.056 billion for fiscal year 2006.

However, Moore did sound one note of warning. The state’s General Assembly convenes later this month, and he said he expected requests to be made for between $6 billion and $9 billion in new spending for schools, infrastructure and other projects.

“We can’t afford to confuse what we want and what the state needs,” he said. The state can “prudently borrow” no more than $1.5 billion to $2 billion, Moore added.

A variety of factors point to continued growth for the national economy, according to Kiplinger.

“Growth will be sluggish in the first half, but it won’t be the start of a retraction,” he explained. “Spending by big business will growth, but not as robustly in recent years. Consumers are getting tired, but they aren’t exhausted. There will be pretty good net job creation and earnings.

“After six months, a lower dollar, strong growth in government spending by your and my Uncle Samuel, which keeps spending like drunken sailors, and increased exports” will boost the GDP, he added.

With the real estate market having suffered through slumping resale values and fewer housing starts, more people will look to put money into stocks, Kiplinger predicted. He also said Democratic control of Congress won’t mean changes in tax policy or the capital gains tax rate. “They would rather talk about it than do it,” he said.

Later, Davis echoed several of Kiplinger’s remarks, especially on housing. “Housing has stabilized,” he said. “Housing is not depressed. It’s back where it makes sense.”

Two other economists in the region have made similar observations recently.

Bruce Yandle, dean emeritus of the College of Business & Behavioral Sciences at Clemson University, expects economic growth to average 2 percent the first two quarters of 2007 and then pick up in June.

And John Connaughton, a professor at the University of North Carolina at Charlotte, predicted that North Carolina’s economy would grow at a rate of 2 percent in 2007.
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