News

Gut feeling trumps measurement when it comes to economy

By John Hood, Published: August 3, 2022

RALEIGH — North Carolinians are greatly concerned about our economy. According to the John Locke Foundation’s latest Civitas Poll, 77 percent of state voters believe we are currently in a recession.

Most call inflation “a huge problem” and say it’s difficult to afford housing, food, and gas.

At the same time, North Carolinians have been treated to months of positive economic news. We continue to attract new residents at a healthy clip and clinch top rankings for business and quality of life. Major companies are building new plants, warehouses, and headquarters in our state, creating thousands of jobs on site as well as new supplier and vendor networks likely to create many more.

So, is it irrational for North Carolinians to feel so dissatisfied and anxious about our economy? Not at all. In our present circumstance, it’s hardly irrational to care more about absolute than relative performance.

Regarding the latter, North Carolina fares well by most objective criteria. From the fourth quarter of 2020 (before the onset of the pandemic) to the first quarter of 2022, our state’s economy grew by an inflation-adjusted annual average of 2 percent. That’s the eighth-fastest growth rate in the country. It’s much higher than the national average of 1.2 percent and regional average of 1.4 percent. During the same period, North Carolina ranked 12th in per-capita income growth, again beating the national and regional averages.

Our labor markets are healing, as well. North Carolina’s U-3 jobless rate was 3.4 percent in June, down from 5 percent a year ago and 14.2 percent during the worst of the COVID downturn. While this headline unemployment rate is statistically indistinguishable from the national average, the state compares better on a broader measure that includes people who’ve dropped out of the labor force and part-timers who’d rather have full-time jobs. North Carolina’s U-6 rate of 7.8 percent is below the national average of 8.4 percent.

When it comes to the rising cost of living, one could do much worse than live here. For example, as of late July the average retail price of a gallon of gas was about $4 in our state — significantly below the national average of $4.33. North Carolina is also doing a better job than most at new home construction, which is helping to moderate price inflation in housing. In a recent Realtor.com survey of the nation’s 300 largest housing markets, a disproportionate share of those earning high rankings were in our state, including Burlington (#2), Raleigh (#6), Durham-Chapel Hill (#12), Wilmington (#32), and Hickory-Morganton-Lenoir (#40).

Relatively speaking, then, North Carolina’s economy is performing well. Still, what does that mean in practice?

If you’re employed but struggling to make ends meet — because your recent pay raise was outpaced by the prices you’re paying for rent, food, transportation, and other goods and services — how much better does it make you feel to learn that you’d be even worse off if you moved to New Jersey or Illinois?

It may well be true. But it may not feel relevant. You weren’t planning to move, anyway. Meanwhile, there’s a stack of bills to pay.

When I was more deeply engaged in public-policy analysis, I paid a lot of attention to measures of relative performance. Because state and local government, in particular, can have only small-to-moderate effects on economic outcomes over time — or on a variety of other indicators of interest, from test scores to crime rates — it’s essential to construct models that adjust for national and international trends, or other factors beyond the control of state and local governments, in order to isolate the problem you’re studying. Otherwise, a relatively small signal will get lost in the statistical noise.

We don’t live our lives within econometric models, however. Based on our own experiences, and those of people we know or read about, we draw broad inferences about how things are going. North Carolinians have clearly drawn the inference, I think correctly, that something has gone horribly wrong. Try talking them out of it at your own risk.

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John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (FolkloreCycle.com).