Dr. Michael Walden’s Economic Outlook 2015
January 27th, 2015
Dr Michael Walden, a NC State Reynolds Distinguished Professor, spoke at the Cary Chamber of Commerce Eye Opener Breakfast earlier this month and gave us in the Triangle several reasons for a positive outlook for 2015. He offered some words of caution as well. Below is a brief recap of the main points of his session.
Why the upbeat outlook for economic lift off now? We’re in a rebound from the Great Recession. Housing is on the upswing. We lost 35k jobs and they are coming back. There is an increase in wealth along with the bullish stock market. And, there is the continued Fed stimulus. It’s time to see an acceleration.
A main topic of the conversation was housing. 2015 should be a year filled with lots of activity. The challenge for sellers though is that prices are not rising yet. And the biggest question: will Millenials buy? Millenials are the dominant generation. Will their tastes and preferences continue to lead them to rent in more urban areas or will their tastes change?
Inflation continues to baffle economists. Is inflation still too low at 1.3%? Forecasts show a modest increase in inflation.
Interest rates are low – short term and long term. There was a surprise drop in long-term interest rates in 2015 because of a large influx of foreign capital buying US bonds. The investors are jittery because of geopolitical events such as the unrest in Ukraine and ISIS. We should see an upward drift of long-term interest rates in 2015.
As for the President and Congress interacting to affect growth, there is not likely to be an appetite to new spending programs right now. The federal deficit is shrinking. Look for de-stimulation instead. The first indication of this de-stimulation will be that the Fed has stopped buying mortgages. The second indication is when short term interest rates are raised. This should not be a killer for the economy.
Economists expect a 3% growth in GDP which will affect 3 million payroll jobs for the better. There is still a lack of middle income jobs plus slow wage and salary gains. As a caution there is a rising ratio of retired to working people and a Federal fiscal balance issue with Medicare, Medicaid and Social Security. The country is also in need of infrastructure improvement: old electric grid, old roads, old bridges.
What can go wrong this year? An expanded Ukrainian conflict. A Chinese real estate implosion. Issues in the Middle East and Iran. A terrorist attack on Saudi Arabia.
But how is the NORTH CAROLINA economy? We have seen payroll job growth. 100,000 payroll jobs were added in 2014. Unemployment rates across the state are going down. There is significant growth in low and high paying jobs but not the middle. Too many young people are going to college instead of looking at middle paying jobs. In general, the NC metro areas have done best. Textiles and furniture are not carrying the rural areas into the 21st century. Look for 125,000 net new payroll jobs in 2015 and 5-5.5% unemployment. Perhaps NC will land an auto assembly plant.
How about the CARY/RALEIGH METRO outlook? The Triangle is doing fabulously. Optimism abounds. We are in the top ten of leading technology centers and we just added lots of tech jobs. Businesses like to come to the Triangle. The Triangle will add 25,000 jobs. We have 3.5-4% unemployment and housing sales are up 15%. Wake County should double its population by 2050 with the tremendous impact of Chatham Park. The challenges will be congestion and higher prices in land and housing.
Dr. Walden gave us a lot of information in a short period of time and frankly it seems a bit more cautious than not but perhaps we should get used to a little bit more caution.