State economy sets brisk pace

As the 2016 general election unfolds in North Carolina, you should expect to hear a lot about how the state’s economy has fared under Republican governance in Raleigh.

If Donald Trump is not the GOP nominee — his nomination would instantly become the central theme of most fall contests, to the advantage of Democrats — then the electoral fates of Gov. Pat McCrory, Roy Cooper, and scores of other officeholders may well hinge on how voters perceive the recent track of North Carolina’s economy.

Context is critical. In comparison to the economic performance of the 1980s and 1990s, growth in North Carolina has been lackluster. But this statement applies to the nation as a whole, not just to the Tar Heel State. Compared to the rest of the Southeast and the nation, North Carolina’s recent economic performance fares better.

Do voters care more about historical patterns or state-by-state comparisons? There’s not much political-science research to go on here. Some scholars say the reelection prospects of governors tend to reflect the economic performance of the nation as a whole, not state-specific trends. Others think voters do have a general sense of whether their state is leading or falling behind.

When it comes to North Carolina’s economy, there’s not much legitimate dispute about the numbers. Since the mid-2013 adoption of a flat income tax, regulatory reform, unemployment-insurance changes, and several other key priorities of the General Assembly and the McCrory administration, the state has outperformed the regional and national average in most standard measures of economic growth, including job creation, gross domestic product (GDP), and personal income.

To be more specific, since June 2013 North Carolina employers have added some 252,000 net new jobs. That’s an increase of 6.2 percent, a rate significantly higher than the national average of 5.1 percent. If North Carolina had simply matched the national average in job creation, there would be about 45,000 fewer jobs in our state right now. Doing the same math for a regional comparison yields different numbers depending on whether you use a simple average of the job creation rates of the 12 Southeastern states (which translates into 82,000 fewer jobs if North Carolina had only matched it) or a weighted average that gives a lot of statistical heft to fast-growing Florida (and translates into 38,000 fewer jobs).

In other words, no matter how you run the numbers, our state’s better-than-average performance means that tens of thousands of North Carolinians have jobs they wouldn’t otherwise have.

Other standard measures confirm our relatively brisk pace of growth. Since mid-2013, North Carolina’s GDP has grown at an inflation-adjusted annual rate of 3.2 percent, higher than the national (2.5 percent) and regional (2.4 percent) averages. Using the same starting point, per-person incomes rose 3.6 percent in North Carolina, 3.4 percent in the nation, and 3.3 percent in the Southeast.

Now, just as liberals and Democrats fail basic statistics when they claim that North Carolina’s economy is lagging behind, conservatives and Republicans should avoid overstating what these statistics can prove. It is possible our state would have outperformed the national and regional averages even if McCrory and the legislature had not reduced and reformed the tax code, signaled an end to abusive regulation, constrained entitlements, and maintained fiscal discipline. And obviously you can’t claim that those Republican policies produced 252,000 new jobs — because most of the jobs would have been created even in the policies’ absence.

State economies are complex systems with many moving parts. California’s economy is doing comparatively well right now, for example, despite the fact that its tax and regulatory policies are (from a conservative perspective) atrocious. That the economies of Washington, Oregon, Idaho, Utah, and other Western states are also doing comparatively well should tell us that geography, natural resources, and trade patterns are major explanatory factors in state economic performance.

Nevertheless, Pat McCrory and the Republicans have a good story to tell about North Carolina’s economy — if developments in the presidential race allow them to get a word in edgewise.

John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.
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