North Carolina's economy will outpace the nation's this year, but the outlook isn't quite as rosy as last year.

After expanding by an estimated 3.1 percent in 2006, the state economy will slow to a growth rate of about 2.7 percent over the next 12 months, said Harry M. Davis, chief economist for the N.C. Bankers Association and a professor of finance at Appalachian State University.

That's a tad better than the 2.6 percent growth rate Davis predicts for the nation.

He said declines in housing and auto manufacturing will darken the national picture for spending, jobs and wages.

Davis made his predictions Tuesday at an annual economic forum in Durham sponsored by the N.C. Bankers Association and N.C. Citizens for Business and Industry.

Other observations:

* State employment will increase by at least 71,000 jobs, though the unemployment rate will remain about 5 percent, Davis said. And the state will continue to lose manufacturing jobs.

* The state's strongest sectors remain construction, financial and health services and hospitality.

* Strong government spending, including on the war in Iraq, will boost military-related economies in the eastern part of the state, said Knight Kiplinger, editor of the Kiplinger Letter, who also spoke Tuesday.

* The Federal Reserve will lower the federal funds rate to 4.75 percent after midyear, as inflation moderates and national unemployment rises to 4.8 percent, Davis said. The federal funds rate determines the cost of short-term loans for autos and credit cards.

* Home builders will breathe a little easier a year from now, though sales will remain flat, Kiplinger said.

"Sellers have got to get realistic about the market prices," said Kiplinger, who predicted that prices will continue to decline. "The last few years were an aberration."

The vast majority of population and job growth in the next 25 years will occur in North Carolina and 10 other states, Kiplinger said. These states will grow about 30 percent in the next quarter century, he said, well above the annual 1 percent population growth expected for the nation.

Fueling economic expansion this year will be lower petroleum prices, a halt in federal interest rate increases and strong corporate earnings, he said.

Still, compared with last year, growth will be sluggish.

Orders for industrial goods will weaken amid production cuts by automakers and a weaker home construction market. Business and consumer spending will also slow.

Consumers "are getting tired," Kiplinger said. "We were spending like crazy when massive cash-out refinancing of mortgages pumped billions of dollars into new cars, homes, boats, remodeling, vacation homes -- everything."