Local News

N.C. Jobless Rate Still 4.6%, But Economy Is Slowing, NCSU Economist Says

Posted July 21, 2006 10:37 a.m. EDT

— Unemployment in North Carolina remained at 4.6 percent in June, the same level as in May, the state's Employment Security Commission reported on Friday.

However, the number of people working actually dipped by 4,939, and Dr. Michael Walden, an economist at North Carolina State University, said that drop is an indicator that the state's economy is cooling.

"The number I always look at is the number of people working," Walden said in an interview with WRAL.com. "We lost 4,939 workers.

"What I would read in to that is that it may be an advanced indicator we will have a much slower economy the second half of the year," he added. "All the national indicators are certainly pointing that way."

However, Walden said he was not predicting a recession. "I'm not saying there is going to be a recession, but the economy is slowing down," he explained, pointing to a mixture of increasing gas prices, a slower rate of increase in retail sales, and climbing interest rates.

Earlier this week, the Federal Reserve cut its gross domestic growth forecast for 2006 to 3.25-3.5 percent from an earlier forecast of 3.5 percent.

The most recent Duke University/CFO Magazine's survey of chief financial officers, released a month ago, reflected the views about a slowing economy. Only 24 percent of CFOs surveyed said they were optimistic about the economy. That was a sharp 18 percent drop from the previous quarter.

"CFOs are telling us that we are moving closer to the danger zone for the U.S. economy, but that their firms can ride it out for now," John Graham, a finance professor at Duke's Fuqua School of Business and director of the survey, said in a statement. "There are several risk factors that are near the tipping point, and if any of them worsens, it would heighten the risk of a corporate slowdown."

CFOs were concerned about wages, inflation and energy costs as well as interest rate hikes by the Fed.

The economy's continued growth, even at a slower rate, has impressed Walden.

"A bright spot is that the economy hasn't collapsed with oil priced at $75 a barrel," he said. "If you had asked many people four years ago when oil was $30 a barrel what would happen if the price hit $75, many would have predicted the economy would collapse."

A slowing economy is exactly what the Federal Reserve Board wants as reflected in 17 increases of interest rates over the past four years, Walden added. However, he said the Fed's "purposeful policy" of raising rates could be over.

"They are reading the same numbers," he said. "Their policies are working. They are seeing some slowing down."

The Fed has raised rates 17 consecutive quarters by one quarter of a percentage points since June of 2004. Rates at that time were at 1 percent.

Increasing rates have led to higher mortgage rates, with 30-year fixed loans hovering near 7 percent.

"We will see more moderate growth, and although I do think the chances for a recession have increased, I don't think it's probable for the rest of this year," Walden said.

Unemployment had spiked upward in May from 4.3 percent in April. The 4.6 rate is the highest in the state for the year.

The state's unemployment rate remained the same as the national average.

"The labor market is virtually unchanged from May to June," said ESC Chairman Harry Payne Jr. "Summer employment, along with students graduating and seeking permanent employment, may cause the labor force to show some fluctuations at this time of the year. When we look at employment over a 12-month period versus month-to-month, employment has grown by over 106,000 since June of 2005."

Based on seasonally adjusted figures, the state's employment number fell 4,939 to 4,193,971. However, seasonally adjusted unemployment also dropped. The number dipped 4,398 to reach 200,245.

Initial claims for unemployment compensation did climb 930 from May to a total of 48,586.

The number of non-farm jobs increased by 11,700 to reach 3,893,000. That's an increase of 100,300 in the past year.

The biggest increase in non-farm jobs in June came in government (11,500) and educational and health services (4,000), the ESC said. Professional and business services added some 1,900 jobs.

Unemployment rates by county will be released next week.