N.C.’s leading indicator index flat for 2015, forecasts strong economic growth in 2016

RALEIGH – The final monthly release of N.C. State University’s index of North Carolina leading economic indicators for 2015 continued the flat trend that defined the year, suggesting strong economic growth will continue in 2016. The index, which is compiled by NCSU economics professor Michael Walden, forecasts future economic growth in the state by looking at labor and construction measures, among other factors.

“The largest change among the components was in the volatile building permits measure, which fell over 20 percent,” Walden wrote in an email releasing the index. “Other components were mixed. For the year, the index also moved very modestly on trend, suggesting the current rate of economic growth in the state will continue in 2016.”

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The index posted a drop of one percentage point from November, and is 4 percentage points off the December 2014 figure. Its lowest mark in the past eight years came in early 2009, and the most recent peak was in the first quarter of 2014.

Walden also noted that the state’s manufacturing sector is an area of concern. The sector contracted in 2015, and Walden says it may slump further in 2016 if the dollar’s international value continues to rise.

Exports tend to drop when the dollar’s value rises, since American goods become more expensive for foreign consumers. However, this relationship is not as clear as it once was, owing to the rise in foreign-produced sourcing for American manufacturing.

The index of North Carolina leading economic indicators consists of five components:  the Economic Cycle Research Institute (ECRI)’s Weekly Leading Index, the North Carolina initial claims for unemployment benefits, North Carolina  building permits, average weekly hours of work of all North Carolina employees in manufacturing, and average weekly earnings of all North Carolina employees in manufacturing. All data are seasonally-adjusted and modified for differences in prices levels where appropriate, according to Walden. In addition to ECRI, data figures for the index are from the U.S. Bureau of Labor Statistics and the U.S. Census Bureau. Walden is the William Neal Reynolds Distinguished Professor and Extension Economist at NCSU.