How can state grow? | News & Observer

Recently in one of my statistical journeys, I discovered a mystery about North Carolina’s economy. Like the nation and most states, North Carolina’s economy has made progress since the end of the Great Recession. However, compared to recent recoveries from recessions, the pace of North Carolina’s current economic progress has been relatively slow.

Now this actually isn’t the mystery. The speed of the current economic recovery at the national level has also been slow by historical standards.

What is surprising and mysterious is that our state’s economic progress has been even slower than the nation’s progress. Even more, this has not been our tradition. Usually, North Carolina’s economic recoveries are stronger than the national recoveries.

. By this point in the economic recovery after the 1990-91 recession, North Carolina’s gross domestic product – the value of goods and services produced in the state – was 43 percent higher than at the bottom of the recession. After the 2001 recession, our state’s real GDP was 20 percent higher compared to the bottom of the recession.

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But in the current economic recovery, North Carolina’s real GDP is only 10 percent higher than it was at the low point of the Great Recession.

Also, in the recoveries from the 1990-91 and 2001 recessions, North Carolina’s rebound was stronger than the nation’s. But that not the case this time. As of 2016, North Carolina’s recovery in real GDP was 4 percent under the national recovery in real GDP.

So the mystery is – what happened? How did North Carolina go from a state that had faster economic bounces from recessions to a state that now is having a slower bounce?

Economies grow slower for three reasons – they are expanding in industries with relatively low productivity, they are not expanding in industries with high productivity or a combination of the two. Productivity refers to output compared to inputs, or in investment terms, rate of return.

After hours of comparing and calculating numbers, I think I cracked the case. Compared to the nation, North Carolina has had less expansion in high-productivity industries and more expansion in low-productivity industries during the current economic recovery.

Here are the specifics. Compared to the nation, North Carolina has seen slower expansions in high-productivity industries like agriculture, utilities, manufacturing (especially non-durable manufacturing) and finance. At the same time, the state has seen faster expansions in lower-productivity sectors such as administrative services, leisure and hospitality and personal services.

Does this mean the state has done something wrong in its economic-development strategy? Not necessarily. North Carolina’s economy is still being impacted by dramatic changes in two big forces – globalization and technology. These forces have been occurring for decades, and I – for one – don’t see their influences on our economy receding. In short, our state continues to go through an economic transformation.

But the results of my sleuthing do point to how we want to proceed to improve North Carolina’s economic performance. First, we should seek to increase our development in high-productivity industries. Here the possibilities are many. For example, our state has an active and significant agriculture and agribusiness industry where expansion to serve growing international markets is certainly feasible. We also have a long and prominent tradition in manufacturing, and today there is new and exciting research offering the potential for growth in 21st century production techniques and products.

And although it was hit hard during the Great Recession, North Carolina has one of the highest concentrations of financial services in the country. Our relative advantage in the sector can serve as a springboard for new applications in personal, commercial and international financial applications.

Second, if we can upgrade the skill and talent levels of more of our workforce, they will serve as a magnet for attracting more high-productivity and high-paying industries to the state.

Improvement in any area begins with an assessment of where you’ve been and where you want to go. Solving the mystery of North Carolina’s recent economic performance has revealed both problems and promise. You decide if the case is closed.