03/28/2024
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YouDecideSome troubling news about North Carolina’s economy made the headlines
recently. Numbers for an economic concept called gross domestic product”,
or GDP, were released for 2014. While North Carolina’s GDP increased in
2014, it rose much less than in the nation. The comparison was a 1.4
percent gain for the state versus a 2.2 percent improvement for the nation.
Does this mean it’s time to worry about the state’s economic rebound?

Before addressing this important question, let me explain the meaning of
GDP. Economists like GDP because it comprehensively measures the size of an
economy in a single number. It allows the production of farmers, factory
workers, office workers, salespersons and all other workers and firms to be
combined. It also takes out general price inflation, so the number won’t
rise just because average prices are higher. GDP is measured in the same
way for all states and for all nations, so it gives us an easy way to
compare different economies.

GDP also is the main metric used to denote and measure recessions. For an
official recession to occur, the rule of thumb is a decline in GDP for two
consecutive three-month periods. For a depression to be designated, the
decline in GDP must be 10 percent or more, or last for two or more years.
For both the nation and for North Carolina, the downturn from late 2007 to
mid-2009 qualified as a recession but not as a depression.

While North Carolina’s GDP growth rate came up short compared to the nation
in 2014, the opposite was the case for 2013. In that year North Carolina’s
GDP grew 2.7 percent, and national GDP increased 1.9 percent.

What happened between the two years? In a phrase, the change was due
to the *impact of a stronger dollar on manufacturing*.

Let me break down this answer into its parts. First, relative to other
states, North Carolina is a manufacturing state. While manufacturing
certainly isn’t as dominant as it was decades ago, more than 20 percent of
North Carolina’s GDP still comes from manufacturing. This is far higher
than the 12 percent for the nation. Only three other states (Indiana,
Oregon and Louisiana) have a higher contribution of manufacturing to their
GDP. (And, in case you are wondering, manufacturing’s GDP contribution in
South Carolina is 16 percent.)

Second, international trade is important in manufacturing. Almost half of
U.S. manufactured products are exported. At the same time, the United
States imports even more manufactured goods than it exports.

Third, the international value of the dollar against foreign currencies has
big impacts on exports, imports and manufacturing. In general, a “weaker”
dollar against foreign currencies makes U.S. exports cheaper in foreign
countries and foreign imports more expensive in the United States,
resulting in more U.S. exports, fewer foreign imports and more U.S.
manufacturing. The opposite happens with a “stronger” dollar – fewer U.S.
exports, more foreign imports and less U.S. manufacturing.

Merging these three points gives a plausible explanation for North
Carolina’s GDP performance in 2013 and 2014. The U.S. dollar’s
international value weakened through much of 2013. North Carolina
manufacturing production surged 6 percent, four times more than the
production from national factories. The growth in North Carolina
manufacturing was a big factor behind the state’s superior GDP performance
that year.

But the opposite happened in 2014. Due to several factors – among them
concerns about recessions in Europe and Japan and slower growth in China —
the U.S. economy was considered to be the strongest in the world. As a
result, the international value of the dollar rose. While this sounds good,
it did have the adverse impacts on manufacturing cited above. Manufacturing
production in North Carolina stalled – with production at the same level in
2014 as in 2013.

If output from the state’s factories had increased at the same rate in 2014
as in 2013, total GDP growth in North Carolina in 2014 would have almost
doubled and would have exceeded the national pace.

There are two lessons here. The first is that the state’s economy can still
be moved by manufacturing; indeed, manufacturing’s role in North Carolina
is greater than in 46 other states. One out of five dollars in the state
directly comes from manufacturing.

The second lesson is that forces well beyond North Carolina’s control can
have an impact – either positive or negative – on the state economy. In
2013 the dollar’s lower international value helped North Carolina; in 2014
the dollar’s higher value had a slowing effect on the state economy.

How we move, economically speaking, is not totally in our hands. As global
ties increase – as many expect – the degree to which *we can decide* our
economic future may lessen!
# # #

*Dr. Mike Walden* is a William Neal Reynolds Distinguished Professor and
North Carolina Cooperative Extension economist in the Department of
Agricultural and Resource Economics of North Carolina State University’s
College of Agriculture and Life Sciences. He teaches and writes on personal
finance, economic outlook and public policy. The College of Agriculture and
Life Sciences communications unit provides his *You Decide* column every
two weeks.

Previous columns are available at
http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

*Related audio files are at*
http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective

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