Too soon to judge GOP's affect on NC economy

by Mark Barrett, Asheville Citizen-Times, October 3, 2014.

What political commentators sometimes call "voting your pocketbook" may not be such an easy thing in state races this fall.

Figures comparing North Carolina's economic performance with those of its neighbors on two key metrics show the state's economy is improving slowly — but it stops short of standing out when compared to Georgia, South Carolina, Tennessee and Virginia.

North Carolina ranks in the middle of the pack among neighboring states in job growth, though its drop in unemployment does compare well.

And analysts on the left and right say it is too soon to measure the impact — good or bad — of policies like tax cuts and regulatory changes enacted since Republicans took control of the state General Assembly in 2011.

Decisions made in Raleigh do affect how many North Carolinians have a job and how much they might be paid, but their influence is often dwarfed by national and international trends.

It is not possible to "wall off any state from the rest of the country and indeed from the rest of the world," said John Hood, head of the conservative John Locke Foundation in Raleigh.

Liberals and conservatives say state government decisions do matter to the state's economy. But it can take a long time for the decisions to make a difference.

"It's very hard to say 'x' policy change created 'y' change in the economy," said Allan Freyer, director of the workers' rights project at the liberal-leaning North Carolina Justice Center.

Just ammunition

Improvement in the state's unemployment rate "is simply the state getting pulled along with national trends, and nationally we have a relatively modest but slow recovery," said John Quinterno, a public policy analyst who heads South by North Strategies in Chapel Hill.

That doesn't mean that politicians won't try to take credit or cast blame for the state's economic performance.

During an August speech to the Council of Independent Business Owners in Asheville, state House Speaker Thom Tillis called North Carolina's job creation numbers "second only to Florida in the Southeast."

He also trumpeted "five straight quarters of reductions in unemployment."

A spokesman said Thursday that Tillis was referring to the total number of jobs created from January 2011 to July 2014. August 2014 figures were not yet available at the time Tillis spoke.

The number of jobs created is heavily influenced by the size of a state's population and economy. The rate of growth for North Carolina is less impressive.

From December 2010 — the month before Tillis became speaker — to August of this year, North Carolina's growth rate was higher than in South Carolina and Virginia and lower than in Georgia and Tennessee, according to the federal Bureau of Labor Statistics.

Tillis, a Republican, is trying to unseat U.S. Sen. Kay Hagan, a Democrat.

The nation as a whole, and most of its states, have seen drops in jobless rates in recent years, but North Carolina has done better than some.

In December 2010, only South Carolina among the neighboring states had a higher unemployment rate than North Carolina. In August, the state's rate was lower than Georgia and Tennessee's and higher than South Carolina's and Virginia's.

Hood said he has seen Democrats contend changes in education funding and policies have already hurt the state's economy.

He doesn't buy it, saying Republicans have been more generous with school funding than Democrats give them credit for. And, he said, it will take years for any resulting changes in the quality of education in North Carolina schools to show up in the course of the state's economy.

"In 10 years you see the effect," Hood said. "First-graders don't go out and start businesses, normally."

Quinterno said he often winces when he hears politicians talk about the state of the economy.

"I think many elected officials and particularly the campaign apparatus" look at economic figures as just another means of making themselves look good or their opponents look bad.

Their attitude is, "We just need ammo to use and we're not interested in how real it is," he said.

Outside factors

It is widely agreed that North Carolina was hit especially hard by the recession in the later years of last decade because of its high concentration of jobs in manufacturing, especially in industries more vulnerable to foreign competition.

"North Carolina fell farther during the Great Recession than other states. As a result, we had farther to climb out," Freyer said.

Hood said he thinks some efforts by the legislature to reduce business regulation in 2011-12 and the choice to allow a previously scheduled sales tax decline take effect might already be giving the state's economy a modest boost.

And, because of changes in tax withholding, 2013 tax cuts have already made some changes in how much money workers will find in their paycheck, he said.

Freyer said those cuts will make it difficult for the state to fund its needs in the future, citing data showing a decline in tax revenue for the first two months of the fiscal year.

Hood said it is natural to expect tax cuts will cause revenue to decline, but it is far too soon to say whether the state will have a problem balancing its next budget.

Quinterno and Freyer worry the General Assembly's decision last year to dramatically cut unemployment benefits will harm the state's workers and those looking for work.

Justin Wolfers, a senior fellow at the Brookings Institution and professor of economics and public policy at the University of Michigan, looked this summer at the effects of the benefit cuts on the state's unemployment rate by comparing its movement to the four bordering states.

His conclusion? "The bottom line is that North Carolina looks quite similar to its peers, and certainly not better," he wrote in The New York Times in July.

Quinterno said receiving jobless benefits "keeps people tied to the labor force" because they are required to look for a job in order to keep getting payments and the changes are probably a contributing factor in the state's declining rate of labor force participation.

That's a measure of how many people ages 16 to 64 are either working or looking for work, and Freyer said it is at its lowest level since the federal government began tracking it in the 1970s.

"People are dropping out because they can't find work," he said. "There are still about three, maybe two-and-a-half unemployed people for every job opening," he said.

Despite population growth, the number of jobs in the state has yet to return to its December 2007 level, Freyer said, and a relatively large proportion of the jobs that have been created pay low wages, he said.

Of course, other states are experiencing similar problems.

Hood said the rate of job creation in North Carolina is disappointing, "but that would would be true for almost every state in the union. The national economic recovery is weak by historical standards."

Not so bad, not so wonderful

Here's a look at how two key economic indicators for North Carolina compare with those in neighboring states during the period Republicans have controlled the state General Assembly. Figures cover changes from December 2010, the month before the GOP took over, to August 2014 and are seasonally adjusted.

Total jobs

Georgia: 4.1 million jobs, up 6.7%

North Carolina: 4.2 million jobs, up 6.6%

South Carolina: 1.9 million jobs, up 6.3%

Tennessee: 2.8 million jobs, up 6.8%

Virginia: 3.8 million jobs, up 3.3%

Unemployment rate

Georgia: From 10.2% to 8.7%

North Carolina: From 10.5% to 6.8%

South Carolina: From 10.6% to 6.4%

Tennessee: From 9.7% to 7.4%

Virginia: From 6.7% to 5.6%

Source: U.S. Bureau of Labor Statistics