Why NC’s low unemployment isn’t all good news

First, the good news: North Carolina’s unemployment rate is reported as being among the lowest in decades.  

The NC Department of Commerce reported in August that the state’s unemployment rate for July came in at 3.3%, tying two months in 2022 for the lowest rate since 1999.  

Now, the not-so-good news.  

For starters, a low unemployment rate is no guarantee that all is right with the economy. President Joe Biden and Gov. Roy Cooper might want to hold off on taking a victory lap. Indeed, the last time North Carolina’s unemployment rate was lower was when it reached 3.1% in early 1999. By the beginning of 2001, the nation had entered recession.  

How can near-historic lows in the unemployment rate not be a guarantee of a thriving economy?  

Employment is a lagging indicator, meaning that unemployment typically rises after the economy has begun its downward trajectory. Employers will try to avoid layoffs as long as possible even as their business begins to struggle, often choosing to scale back on hours first. Such hesitancy arises in part due to the employers’ worry that those positions may be hard to fill if and when the business’ fortunes turn back around. 

North Carolina, like many states, continues to suffer from a worker shortage. The US Chamber of Commerce reports that North Carolina’s shortage, however, is worse than average, with just 59 available workers for every 100 open jobs.  

Manufacturing hours worked continued its downward spiral since the beginning of the year, falling by 2.7% since January. The manufacturing sector is often the canary in the coal mine for the rest of the economy. 

Not only are hours being cut for North Carolina workers, but their paychecks continue to buy less and less. July’s real wages are down 0.2% from the previous month, down a fraction of a percent from a year ago, and down 3.5% from 2 years ago. 

Helping to drive the unemployment rate down is the continued reluctance of working-age people to re-enter the workforce. July’s labor force participation rate was 60.7%, stubbornly below the 61.5% just before the COVID lockdowns.  

Of the 13,000 net new jobs created in July in North Carolina, roughly one-third (4,200) were government jobs. Such a heavy reliance on government jobs is not the mark of a healthy economy.  

Further evidence points to a growing number of North Carolinians needing second (or third) jobs to make ends meet. This can be discovered by comparing the household survey with the establishment survey. The household survey, which directly asks members of households if they are gainfully employed, showed 110,742 new jobs from January 2022 to July 2023. 

By comparison, the establishment survey, which tracks the number of people on payroll at a sample of business establishments, showed an increase of 230,300 during that time.  

If a person holds two jobs, they will only count as one employed person in the household survey but will count as two jobs in the establishment survey because they are on two different payrolls. The most likely explanation for the divergence between the two surveys is people taking multiple jobs.   

Moreover, 42% (5,500) of net new jobs in July were in the leisure and hospitality sector, and no other industry added as many jobs over the past year. These are the types of jobs commonly taken on as second jobs.  

Nationally, the number of part-time workers has grown by 5% over the past year, while the number of full-time workers has grown by just 1.3%.  

Rising initial unemployment claims in North Carolina further expose cracks in the state’s labor market. Initial unemployment claims in July were above 16,000 for the third straight month, the first stretch that long since January 2022. 

There are several other strong headwinds facing the economy, as I highlighted previously. Some of those include: record high credit card debt combined with record high credit card interest rates, mounting corporate bankruptcies, the deflating of the housing bubble, falling investment, and an emerging credit crunch by nervous banks.  

North Carolina’s unemployment rate of 3.3% is certainly low by historic standards. But this gaudy number may just be a temporary silver lining to approaching economic storm clouds. Politicos like Biden and Cooper may end up regretting taking full ownership over the state of the economy. They want credit when some select topline numbers look rosy, but will they accept blame when things turn sour?