Economic Stories of Relevance — 2016
The Recovery Matured — and the Economic Consensus Fractured
THE LEVELS REPORT — 2016
The 2015 Economic Stories of Relevance Levels Report ended with an economy that had achieved “normalization without restoration.” The emergency conditions surrounding the Great Recession had largely passed, unemployment had fallen far enough for the Federal Reserve to raise interest rates for the first time in seven years, and the industrial economy of Hickory and the Foothills had moved beyond continuous contraction into something more stable, diversified and technologically complicated. Yet the underlying economic relationships hadn't returned to where they had been before the recession or, locally, before the much longer industrial restructuring that preceded it. Labor-force participation remained weak, the connection between industrial investment and mass employment had changed, and the benefits of national growth remained unevenly distributed between households, industries and regions.
That was the economy inherited by 2016, and the first weeks of the new year immediately demonstrated why normalization wouldn’t proceed along a straight line. The Federal Reserve had barely taken its first step away from near-zero interest rates before financial markets were again confronting uncertainty surrounding China, collapsing commodity prices and crude oil that fell toward $30 per barrel. American employment continued improving, but economic growth had slowed late in 2015, exports remained soft and inflation was still below the Federal Reserve's target. When policymakers met in January, they acknowledged stronger labor conditions while simultaneously describing weaker growth, softer net exports and continued downward pressure on inflation from energy and imported goods. (Federal Reserve)
During the months that followed, the American consumer generally proved more durable than the industrial economy. Jobs continued accumulating, wages began showing better movement, gasoline became cheaper still, housing continued recovering and household spending strengthened. Business investment was far less convincing. The Federal Reserve, which had entered the year having finally begun raising interest rates, spent almost all of 2016 declining to raise them again. By June it was openly acknowledging that job gains had weakened and business fixed investment remained soft, even while household spending strengthened. The recovery was no longer in danger of being confused with recession, but it was becoming increasingly difficult to describe through one set of numbers. (Federal Reserve)
The same contradiction was visible closer to home. Manufacturing employment continued increasing across Hickory-Lenoir-Morganton, Catawba County accumulated hundreds of millions of dollars in announced and realized investment, and advanced manufacturing projects increasingly offered wages substantially above county averages. At the same time, county leadership was sufficiently concerned about projections for a declining workforce that 2016 became the starting point for a strategic effort explicitly aimed at expanding the working-age population. Economic development and demographic capacity were no longer separate conversations. The success of one was beginning to expose the weakness of the other. (Catawba County NC)
Then came the middle of the year. The period around July 1, 2016 provides an unusually revealing checkpoint because several conflicting signals arrived almost simultaneously. The Federal Reserve had just decided against another rate increase after a weak May employment report. The United Kingdom voted on June 23 to leave the European Union, introducing a new form of political and economic uncertainty into an already slow-growing global system. Oil prices had recovered substantially from their winter lows, and the financial panic surrounding China had eased. Within a week of July 1, the United States would receive a surprisingly strong June employment report showing 287,000 additional payroll jobs, reversing much of the anxiety generated by May. The economic picture hadn't simply improve or deteriorate during those weeks; it demonstrated how quickly the interpretation could change depending upon which part of the system was being measured. (Bureau of Labor Statistics)
By December, many of the conventional economic measures were better than they had been in January. American unemployment had fallen to 4.7%. Subsequent Census data would show another substantial increase in real median household income and another decline in poverty. Hickory-area manufacturing employment finished the year above where it began. North Carolina continued adding population and personal income faster than the national state average. Corning announced a higher-wage expansion in Hickory, and GKN announced another major expansion in Maiden. The Federal Reserve finally raised interest rates again in December. Yet 2016 also produced Brexit, extraordinary political conflict over trade and globalization in the United States, the economic-development controversy surrounding North Carolina's House Bill 2, devastating flooding from Hurricane Matthew, and the weakest growth in world merchandise trade since the aftermath of the financial crisis.
The defining economic story of 2016 therefore wasn't that the recovery failed. In several important respects, the recovery strengthened. The more consequential development was that improving economic statistics increasingly failed to settle the argument over whether the economic system itself was working as intended. The distance between aggregate performance and public confidence, between investment and workforce capacity, between metropolitan growth and regional stability, and between the theoretical benefits of economic integration and their geographic distribution became much harder to ignore.
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I. GROUND LEVEL
Entering 2016, the Ground Level economy inherited conditions that were materially better than those facing households only a few years earlier. The national unemployment rate had fallen to 5% by the end of 2015, and January 2016 brought another decline to 4.9%. Approximately 7.8 million Americans remained officially unemployed, down by more than one million from the previous January, while long-term unemployment had continued declining. Gasoline prices were falling again as crude oil moved through another downturn, extending the household benefit that had begun during the second half of 2014. The improvement was real enough to change daily economics: commuting, shopping, transporting children and maintaining an automobile all consumed less of the household budget than they had during the years of $3 and $4 gasoline. Yet the labor-force participation rate remained only 62.7% in January, almost exactly where it had been a year earlier, while roughly six million people were still working part time for economic reasons because they couldn't obtain the full-time hours or employment they preferred. (Bureau of Labor Statistics)
That combination established the Ground Level tension for the year. Households were no longer living primarily inside an employment crisis, but neither had the labor market recovered all of the economic capacity lost during the previous decade. A worker who had regained employment after a layoff was clearly better positioned than someone still unemployed, but employment alone hadn't answer questions involving wage progression, savings, retirement security, health costs, housing affordability or the ability to absorb an unexpected expense. The recovery had reached a stage where the difference between having a job and possessing economic leverage became increasingly important. Cheap gasoline could widen the margin, and a tightening labor market could increase bargaining power, but neither automatically reconstructed the household balance sheet damaged by years of weak income growth and diminished participation.
The first half of 2016 provided stronger evidence that labor conditions were finally beginning to produce wage movement, although the path was uneven enough to create periodic concern. Payroll growth weakened sharply in May, eventually revised to only 11,000 jobs, and the Federal Reserve cited diminishing job gains when it met in June. Yet the June report, released shortly after the July 1 checkpoint, reversed much of that concern with 287,000 additional payroll jobs. Average hourly earnings were running 2.6% above the previous year, among the stronger wage-growth readings of the recovery to that point. The number of involuntary part-time workers fell to approximately 5.8 million in June, substantially below the recessionary peak even though it remained about 1.4 million above the level seen just before the recession. Participation remained at 62.7%. The labor market was becoming tighter, but significant unused labor capacity was still present. (Bureau of Labor Statistics)
Around July 1, someone judging the economy in real time could reasonably have reached two different conclusions depending upon when the assessment was made. The most recently available employment report at the beginning of July was still the unusually weak May report, and the Federal Reserve had just described labor-market improvement as slowing. Within days, June's 287,000-job increase would radically soften that interpretation. That timing matters when reconstructing the year because hindsight makes economic trajectories appear smoother than they were. At midyear, households had cheaper energy, unemployment below 5%, improving wages and a housing market far removed from the crisis years, but the durability of job creation had briefly become uncertain and labor-force participation had made little progress. The economy was strong enough that recession wasn't the central fear; the question was whether the tightening labor market had enough momentum to convert recovery into sustained improvements in household income. (Federal Reserve)
Energy continued providing unusually favorable support. Regular gasoline averaged $2.14 per gallon across 2016, another 29 cents below the 2015 average and the lowest annual price since 2004. For a household filling a twenty-gallon tank several times each month, the difference compared with the earlier years of the decade could amount to hundreds or even thousands of dollars over the course of a year. That money hadn't necessarily appear as a wage increase on a pay stub, but it affected discretionary income in much the same way. The broader significance was that the household economy was receiving assistance from two directions at once: labor demand was improving while a major recurring expense remained unusually low. (EIA)
During the second half of the year, the evidence that households were finally receiving a larger share of the recovery became more convincing. Subsequent Census measurements showed real median household income reaching $59,039 in 2016, an increase of 3.2% from the previous year and the second consecutive annual gain. The official poverty rate declined from 13.5% to 12.7%, representing approximately 2.5 million fewer people living below the poverty threshold. Households in the South recorded a 3.9% increase in real median income. These weren't marginal statistical changes. After years in which employment and financial markets often improved more visibly than household income, the recovery was finally producing broad measurable gains in purchasing power. (Census.gov)
The complication appeared toward year-end as some of the temporary conditions that had boosted real purchasing power began reversing. Consumer inflation, which had remained exceptionally low while oil and import prices fell, accelerated to 2.1% over 2016. Crude oil prices, after beginning the year near their lows, recovered enough that West Texas Intermediate finished December around $53 per barrel. The extraordinary disinflationary benefit (price relief) households had received from energy was therefore beginning to diminish just as wage growth was becoming more meaningful. The economy was moving toward a more conventional relationship in which households would increasingly need earnings growth, rather than falling commodity prices, to produce improvements in real purchasing power. (Bureau of Labor Statistics)
By December, unemployment had declined to 4.7% and long-term unemployment to approximately 1.8 million people, while involuntary part-time employment had also fallen over the year. Yet labor-force participation remained 62.7%, unchanged from twelve months earlier, and the employment-to-population ratio showed little net improvement. The Ground Level economy therefore ended 2016 in a stronger financial position without resolving one of the central structural weaknesses inherited from the Great Recession. People who were connected to the labor market were increasingly benefiting from a tighter economy; the larger question remained what happened to those whose connection to employment had weakened or disappeared entirely. (Bureau of Labor Statistics)
The distinction is important because 2016 was one of the first years in the post-recession expansion when the household evidence itself became difficult to dismiss. Income really did rise. Poverty really did fall. Employment really was strong. Cheap gasoline really did return purchasing power. The dissatisfaction visible elsewhere in the economic and political system can't therefore be reduced to the claim that households were objectively becoming poorer in 2016. The more complicated reality was that aggregate household improvement coexisted with stagnant participation, large regional differences, accumulated insecurity from the previous decade and a labor market that increasingly rewarded workers according to skills, location and industry. Ground Level had improved substantially. It hadn't become uniform.
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II. LOCAL — HICKORY / CATAWBA COUNTY
Entering 2016, Hickory and Catawba County were no longer attempting merely to stop industrial decline. Manufacturing employment in the Hickory-Lenoir-Morganton metropolitan area had risen from 39,700 jobs in January 2015 to approximately 40,500 by December, extending a recovery that had been developing gradually since the 2010 bottom. Transportation Insight had converted the old Lyerly Full Fashioned Mill into a headquarters for technology-enabled logistics, advanced textile producers were investing, automotive suppliers were expanding, and the industrial base increasingly combined furniture, fiber optics, automotive components, specialized materials and information-intensive logistics. The old economy hadn't returned, but enough new activity had accumulated that the region could begin asking a different question: whether the workforce and infrastructure surrounding the productive economy were capable of supporting another stage of growth. (FRED)
That question became increasingly concrete during 2016. Catawba County's own later description of the period identifies workforce decline as serious enough that county commissioners began implementing a strategic plan in response to projections showing a shrinking labor pool. The objective wasn't simply to recruit additional companies; it was to strengthen the economy while increasing the working-age population. This is an important turning point in the local economic story. For most of the previous fifteen years, the public discussion naturally centered on lost companies and lost employment. By 2016, economic development officials were beginning to confront the opposite constraint: an economy capable of generating new jobs could eventually be limited by the availability of workers to fill them. (Catawba County NC)
The first half of the year showed why that concern could coexist with optimism. Manufacturing employment moved from approximately 40,200 jobs in January to 40,700 in June. Catawba County reported 629 additional jobs between June 2015 and June 2016, while the county unemployment rate stood at 4.9% in June. Over the previous year, the county recorded more than $579.5 million in new investment associated with 963 jobs. Apple alone increased its local investment by more than $423 million, bringing its cumulative real and personal property and alternative-energy investment in the county above $1 billion. GKN Sinter Metals announced another $19.8 million investment and 55 jobs, Prysmian reopened previously idled manufacturing space, Snyder Paper added industrial capacity, and other smaller companies continued broadening the productive base.
The composition of that activity deserves more attention than the aggregate investment number. Apple represented an extremely capital-intensive form of economic development in which the tax base and physical investment could be enormous relative to direct employment. In other words, lots of money, not many jobs. GKN represented advanced automotive manufacturing. Prysmian and Corning connected the region to telecommunications and fiber infrastructure. Furniture continued to generate demand for industrial suppliers and skilled production workers. Blue Bloodhound represented an attempt to combine software and logistics with trucking. The region wasn't moving cleanly from an “old” economy into a “new” one. Several different economic eras were beginning to operate on top of one another, each requiring different workers and producing different relationships between capital investment, payroll employment and local circulation.
Catawba County and CVCC were simultaneously constructing the workforce infrastructure around that system. The $25 million Workforce Solutions Center was designed as an 83,000-square-foot facility supporting advanced manufacturing instruction. The Catawba Valley Manufacturing Academy had begun its inaugural session in October 2015 using input from 29 area manufacturers to prepare students for occupations such as machining and industrial maintenance. Apprenticeship Catawba paired thousands of hours of paid on-the-job training with associate degrees in mechatronics or computer-integrated machining, while the Furniture Academy was preparing a major expansion because demand had produced a waiting list averaging roughly 100 people. The Manufacturing Solutions Center had meanwhile worked with more than 1,200 entrepreneurs and companies across all fifty states and dozens of countries. These initiatives weren't supplemental educational programs sitting outside the economic-development system; they were becoming part of the production infrastructure itself.
Around July 1, the local economic picture had therefore changed considerably from the defensive posture that characterized the earlier restructuring years. Manufacturing employment was approximately 40,700, roughly one thousand jobs above the level at the beginning of 2015. Catawba County unemployment was around 5%, employment was rising, and investment announcements were broad enough to involve data infrastructure, software, specialized manufacturing and traditional industrial production. The local question was no longer whether Hickory could retain a productive economy after furniture and textiles lost their former dominance. The evidence increasingly said that it could. The unresolved issue involved scale and population: could the region supply enough appropriately trained workers, and could it make itself attractive enough to working-age households, to translate industrial stabilization into sustained growth?
The labor-force data around this period show why that concern wasn't theoretical. The seasonally adjusted Hickory-Lenoir-Morganton labor force fell below 165,000 during the opening months of 2016 before beginning to rise during the spring and summer. By July it had recovered to approximately 165,600 and would continue increasing during the second half of the year. That movement was encouraging, but it followed years in which workforce contraction had helped reduce the apparent unemployment problem. A region can't indefinitely solve unemployment by having fewer people available for work. Sustainable development required growth in both employment and the labor force. (FRED)
The second half of the year strengthened the investment side of the equation. In September, Corning Optical Communications announced an expansion involving 205 jobs across Hickory and Winston-Salem and nearly $83.5 million in investment. Hickory itself was scheduled to receive 105 of those jobs, with average annual salaries of approximately $58,151 compared with a Catawba County average wage of $38,238. The importance wasn't simply that another plant was hiring. Fiber optics represented one of the industries that had survived the region's earlier telecommunications restructuring and remained connected to a rapidly expanding national dependence upon data transmission. The difference between the announced Corning salary and the county average also demonstrated the potential household value of technologically advanced industrial employment. (NC Commerce)
December brought another major development when GKN Driveline announced a $179 million expansion across four North Carolina facilities. Maiden was scheduled to receive 143 jobs over four years at wages averaging at least $45,860, again well above the Catawba County average. The company wasn't producing yesterday's automotive components; its product portfolio included all-wheel-drive systems, transaxle technologies and electric-drive systems. A manufacturing region once defined by furniture and textiles was becoming increasingly embedded in the technological transition occurring inside automobiles and communications infrastructure. (NC Commerce)
Manufacturing employment finished December near 41,300 jobs, about 1,100 above January and roughly 1,600 above January 2015. The local unemployment rate also continued moving downward, while the metropolitan labor force strengthened during the final months of the year. These weren't the statistics of an industrial economy still experiencing uncontrolled decline. At the same time, they hadn't recreate the employment density of the earlier manufacturing era, when more than 80,000 people worked in Hickory-area manufacturing. The region was becoming more productive and technologically capable without returning to the labor intensity of its past. (FRED)
By year-end, the central local story had therefore moved another step beyond the 2015 conclusion. Hickory wasn't simply “recovering into a different economy.” The outlines of that economy were becoming clearer. It was manufacturing-heavy but less dependent upon any single manufacturing sector; increasingly tied to fiber optics, automotive systems, logistics, specialized materials and data infrastructure; supported by institutions deliberately aligning education with employer demand; and capable of attracting capital investment far larger than the direct employment associated with some projects.
That success created its own constraint. The more competitive the productive base became, the more important workforce quantity and quality became. Catawba County's decision to treat working-age population growth as a strategic objective was therefore not separate from its industrial development strategy. It was the logical consequence of it. By the end of 2016, Hickory's economic challenge was beginning to invert. For years the region had too many workers chasing disappearing jobs. The emerging problem was whether the region could eventually have more jobs and investment than its demographic trajectory could comfortably support.
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III. FOOTHILLS CORRIDOR
The Foothills Corridor entered 2016 with the same basic transformation underway across a larger geographic system. Catawba, Caldwell, Burke and Alexander counties remained far more industrial than many metropolitan economies, but the industries themselves were changing. Furniture had survived in a reduced and more productive form. Textiles had increasingly moved toward specialized materials. Automotive suppliers were growing. Fiber optics and communications technology remained significant. Food processing, machinery, health care and logistics added additional layers. Workers crossed county boundaries every day, companies drew employees and suppliers from across the region, and community colleges increasingly served labor markets rather than merely the counties in which their campuses happened to sit.
The longer labor-force trajectory remained the principal weakness inherited from the previous decade. Western Piedmont Council of Governments data based on North Carolina Commerce figures show the regional labor force declining from approximately 174,936 in April 2010 to 166,940 by April 2015 even as the number of employed residents gradually increased. The region had been reducing unemployment partly through job creation and partly through the disappearance of people from the active labor pool. In 2016 that pattern finally showed a modest reversal. By April, the regional labor force had increased to approximately 168,117 while the number of employed people rose from 157,991 a year earlier to 160,231. The April unemployment rate fell from 5.4% to 4.5%. For the first time in several years, a meaningful improvement in employment was occurring alongside an expanding rather than contracting labor force. (wpcog)
The first half also produced evidence that the quality of industrial recruitment was changing. In February, Krystal Engineering announced a production facility in Caldwell County involving $20.9 million in planned investment and 82 jobs over five years. The company worked with specialized crystalline and optical materials used in aerospace, automotive, industrial, medical and telecommunications applications. More revealing than the job count was the expected compensation: average annual salaries of approximately $60,580 compared with a Caldwell County average of $32,812. The project represented the kind of manufacturing that could fit a region with a long industrial tradition without depending upon the low-wage, labor-intensive production structure that had made the area vulnerable to offshoring. (NC Commerce)
This transition had a regional implication. A company seeking highly skilled CNC operators, quality engineering technicians and specialized craftsmen hadn't necessarily recruit only from the county where its property line was located. Training capacity in Caldwell, Catawba or Burke could serve employers throughout the Corridor; workers living in one county could commute to another; an expansion in Maiden could affect households in Caldwell; and a facility in Lenoir could compete for technically skilled employees already employed elsewhere in the regional manufacturing system. As industries became more specialized, labor-market boundaries became less aligned with political boundaries.
Around July 1, the Foothills economy therefore looked stronger than it had entering 2015, but the improvement exposed an approaching capacity problem. Regional employment was rising, unemployment was falling, the labor force had finally begun to move upward, and high-value manufacturing investments were appearing in several parts of the corridor. At the same time, the scale of workforce recovery remained modest relative to the losses accumulated since 2010. The region had more than 6,000 fewer people in its labor force than it did six years earlier despite having more people employed. The economic system had become more efficient at putting the available labor force to work, but it hadn't fully replaced the human capacity that had disappeared during the restructuring period. (wpcog)
That is where the Catawba workforce initiatives acquire regional significance. Apprenticeships, mechatronics, machining, robotics, furniture training and the Manufacturing Solutions Center weren't simply responses to individual companies. They were attempts to reconstruct an industrial labor pipeline suited to the kind of production emerging throughout the Western Piedmont. The historical labor system had often transmitted skills informally from one generation of factory workers to another. The newer economy increasingly required formal technical instruction, credentials, computer-integrated production and closer coordination between manufacturers and educational institutions. The industrial base was becoming more sophisticated at the same time the available workforce was becoming more scarce.
During the second half of the year, the Corning and GKN announcements in Catawba County strengthened that dynamic. Both projects offered compensation above the prevailing county average and required the kinds of technical competencies that could pull workers from throughout the Foothills. Manufacturing employment across the Hickory-Lenoir-Morganton metropolitan area continued increasing toward 41,300 by December, while the labor force also strengthened during the latter months of the year. The corridor was beginning to encounter an economic condition that had been almost unimaginable during the worst years of furniture and textile contraction: employers could increasingly find themselves competing for labor rather than workers competing for a shrinking pool of jobs. (FRED)
The change hadn't mean that prosperity had suddenly become broad or secure. Wage levels varied considerably by employer and occupation, many service jobs paid much less than the advanced manufacturing positions appearing in development announcements, and population growth remained weaker than in the major metropolitan centers of North Carolina. The region also continued carrying the legacy of lower educational attainment and the economic displacement created during the previous two decades. A new $50,000 or $60,000 technical manufacturing job could provide meaningful upward mobility, but only for someone with access to the skills required to obtain it.
By December, the Foothills had therefore moved into the next phase of its industrial adjustment. The central economic question was no longer whether the region could produce competitive goods in a global economy. Corning, GKN, Krystal Engineering, Prysmian and other manufacturers demonstrated that it could. Nor was the central problem simply unemployment; rates were approaching levels that would traditionally be regarded as healthy.
The developing constraint was regional capacity—the ability to attract and retain working-age people, train them for increasingly technical occupations, provide housing and infrastructure, develop industrial sites, maintain transportation connections and create enough economic opportunity around major employers that people would choose to build their lives in the region rather than simply commute through it or leave.
Manufacturing had survived the Foothills restructuring. In 2016, the harder work of building an economic system around the surviving manufacturing was becoming more visible.
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IV. STATE — NORTH CAROLINA
Entering 2016, North Carolina occupied a stronger position than it had several years earlier. The statewide unemployment rate had fallen to 5.4% by December 2015, manufacturing employment had recovered substantially from its post-recession lows, personal income was growing rapidly, and the state had crossed the ten-million-resident threshold. Charlotte and the Triangle continued generating population and professional employment, while advanced manufacturing, logistics, pharmaceuticals, food production and aerospace broadened the industrial base. Yet the geographic differences identified during 2015 remained. The state was becoming more prosperous in aggregate while its regions were succeeding through increasingly different economic models.
During the first half, unemployment continued declining, reaching approximately 5% by May and June. Manufacturing employment, however, no longer accelerated as quickly as it had during 2015. After rising strongly during the previous year, statewide manufacturing payrolls settled into a plateau near 465,000 jobs through much of 2016. That wasn't necessarily a negative signal. It indicated that North Carolina had retained the manufacturing gains created during the recovery, but it also demonstrated how difficult it had become for even a manufacturing-friendly state to generate large increases in factory employment when modern production depended increasingly upon automation, technology and capital intensity. (FRED)
North Carolina's broader economic-development strategy remained aggressive, and in March it produced what initially appeared to be another significant technology win. The state announced that PayPal would establish a global operations center in Charlotte with 400 jobs and more than $3.6 million in planned investment. Less than three weeks later, PayPal withdrew the project after enactment of House Bill 2, explicitly stating that the legislation conflicted with the company's employment and nondiscrimination principles. Whatever one's political view of the underlying policy controversy, its economic-development significance was concrete: a project that had been publicly recruited and announced by the state disappeared because a corporate location decision had become entangled with North Carolina's political environment. (NC Commerce)
That episode demonstrated how the definition of “business climate” was becoming more complicated. Taxes, utility costs, transportation, incentives and workforce quality remained fundamental, but companies increasingly considered recruitment, corporate reputation and workforce culture when choosing locations. North Carolina could possess favorable conventional development metrics and still encounter resistance from employers whose internal priorities extended beyond those metrics. The controversy would continue affecting the state's reputation during the remainder of the year, even while other companies continued announcing investments. Economic development had become inseparable from a broader competition involving talent and institutional identity.
Around July 1, the state's economic fundamentals remained solid despite that controversy. Unemployment stood near 5%, personal income continued increasing, manufacturing employment remained near its post-recession high, and population growth continued concentrating people and economic activity in North Carolina. The state's July 2016 population estimate would reach approximately 10.15 million, an increase of more than 111,000 residents in a year and the sixth-largest numerical population gain among the states. Population itself was becoming an economic advantage: more residents expanded the labor pool, housing demand, consumer spending and tax base while making the largest metropolitan areas increasingly attractive to employers seeking scale. (Census.gov)
The difficulty was that this population growth hadn't distribute itself evenly. Charlotte and the Triangle absorbed a disproportionate share of new residents and professional activity, while many rural and older industrial counties continued confronting demographic stagnation. The same state could therefore contain communities worrying about congestion, housing supply and infrastructure overload alongside communities worrying about whether they had enough working-age residents to support employers. North Carolina's aggregate growth was real, but the pressures produced by growth could point in opposite directions depending upon geography.
The second half of the year added an entirely different economic shock. Hurricane Matthew crossed eastern North Carolina in October and produced catastrophic inland flooding after dumping extraordinary rainfall across large portions of the state. By mid-November, the state's initial assessment placed economic damage around $2 billion. At the height of the disaster approximately 800,000 people were without electricity, thousands were displaced, hundreds of roads were closed, 34 school systems suspended operations and 28 people were reported killed. More than 30,000 businesses were estimated to have suffered physical or economic damage affecting approximately 40,000 employees, while the impacted counties accounted for roughly two-thirds of North Carolina's agricultural income. (NC DPS)
Matthew revealed another dimension of regional inequality. Much of the damage fell upon eastern communities that hadn't participated equally in the growth occurring around Charlotte and Raleigh. A statewide economy could continue recording respectable employment and income numbers while individual communities suffered destruction capable of erasing years of household and municipal progress. Disaster recovery would require federal, state and local resources well beyond what could be captured in the annual unemployment rate. Subsequent assessments would increase the estimated damage substantially, but even the information available before 2016 ended made clear that the storm represented one of the state's major economic events of the year.
Meanwhile, industrial investment continued. Corning's September expansion connected Hickory and Winston-Salem through a major fiber-optic investment, while GKN's December announcement involved $179 million and 302 jobs across four North Carolina facilities. These projects reinforced the state's growing position within advanced manufacturing and demonstrated that the HB2 controversy hadn't stopped investment altogether. North Carolina's economic story was becoming one of simultaneous strength and fragmentation: companies continued choosing the state, population continued arriving, incomes continued growing, yet geography, workforce constraints, political controversy and natural disaster distributed the experience unevenly.
When the annual figures were assembled, North Carolina personal income had increased approximately 4.1% during 2016, ranking thirteenth among the states and exceeding the 3.6% average state growth rate. The population stood at about 10.15 million, more than 600,000 above 2010. Unemployment finished December around 5%. The state was larger, richer and more deeply integrated into several high-growth economic sectors than it had been entering the decade. (Bureau of Economic Analysis)
By year-end, however, North Carolina also demonstrated why aggregate growth could no longer serve as a complete measure of development. Charlotte and Raleigh could grow rapidly while Foothills communities confronted workforce scarcity and eastern communities recovered from catastrophic flooding. The state could lose a 400-job technology project over a political controversy while simultaneously securing hundreds of advanced manufacturing jobs elsewhere. Manufacturing could remain strong without producing the enormous employment growth associated with an earlier industrial era. North Carolina was succeeding economically, but the mechanisms distributing that success were becoming more complicated.
The state's 2016 problem was therefore not whether growth existed. It plainly did. The deeper issue was whether North Carolina could translate metropolitan momentum, population growth and business investment into a statewide economic structure capable of supporting regions operating under very different demographic and industrial conditions.
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V. UNITED STATES
The United States entered 2016 in what was supposed to be the early stage of monetary normalization - raising interest rates back toward historical norms . The Federal Reserve had raised the federal funds target in December 2015 for the first time since before the financial crisis, and the conventional expectation was that further gradual increases would follow as the labor market strengthened. Yet almost immediately the international environment complicated that path. Oil prices continued falling, China's financial markets generated renewed concern, equities declined and credit spreads widened. The gap between riskier and safer borrowing costs increased. When the Federal Reserve met in January it acknowledged continued labor-market improvement but also slower economic growth, soft exports and inflation persistently below its 2% objective. By March, policymakers were explicitly discussing the global financial turbulence that had characterized the opening weeks of the year. (Federal Reserve)
The first half never developed into the straightforward tightening cycle implied by December 2015. Household spending and housing remained relatively resilient, but business fixed investment and exports were weak. The energy sector was still absorbing the consequences of the oil collapse, while the strong dollar continued pressuring manufacturers and multinational companies. Economic growth during the opening part of the year was modest enough that the Federal Reserve repeatedly postponed another rate increase. The central bank was no longer rescuing the financial system, but neither was it confident enough in the expansion to remove support rapidly.
The labor market generated its own confusion. January unemployment had already fallen to 4.9%, and employment continued expanding, but the pace became less reliable during the spring. By its June 15 meeting, the Federal Reserve stated directly that labor-market improvement had slowed and job gains had diminished. Household spending was strengthening and housing continued improving, but business investment remained soft and inflation below target. The May payroll gain had collapsed to a level that raised legitimate questions about whether employment momentum was weakening at precisely the moment policymakers were considering another rate increase. (Federal Reserve)
Standing around July 1, the United States therefore appeared more uncertain than it does in hindsight. The June employment report showing 287,000 additional jobs hadn't yet been released. The information available to policymakers and the public still included the weak May report and a Federal Reserve that had just declined to tighten monetary policy. Then, on June 23, British voters chose to leave the European Union. American markets absorbed the international shock, interest-rate expectations shifted again and the already cautious path toward monetary normalization became even less certain. At that moment, the domestic expansion looked intact but vulnerable to external disruption.
The June jobs report, released July 8, changed the interpretation almost immediately. Payroll employment jumped 287,000, unemployment stood at 4.9%, wage growth reached 2.6% over the previous year and the labor market again appeared capable of absorbing workers. In July, the Federal Reserve described labor conditions as strengthening and household spending as growing strongly, although business fixed investment remained soft. The economy hadn't accelerated dramatically; rather, it had demonstrated enough resilience to survive another sequence of weak data and international shocks without falling into recession. (Bureau of Labor Statistics)
That resilience made the political economy of 2016 more consequential. Economic statistics were improving at the same time questions involving trade, manufacturing, offshoring, regional decline and the distribution of growth became central to the presidential campaign. Pew found in July that 84% of registered voters considered the economy very important to their vote, while trade policy had featured prominently in both parties' primary campaigns. It would be analytically careless to reduce the election result to one economic explanation; voting behavior reflected many overlapping political, cultural and institutional factors. But it would be equally careless to ignore that economic integration, trade and the geographic distribution of industrial change had moved from specialized policy discussions into the center of national politics. (Pew Research Center)
This was particularly relevant to regions such as the Foothills because the national argument was finally concentrating on economic experiences that communities like Hickory had already lived through. Factory closures, offshoring, Chinese competition and the disappearance of production employment weren't abstractions locally. The worst of Hickory's industrial contraction had occurred years earlier, and by 2016 the region was actually regaining manufacturing employment. Yet the national political debate was only then fully absorbing the cumulative consequences of the restructuring that had transformed such communities during the previous fifteen years.
The second half of the year produced stronger household and labor evidence while overall economic growth remained relatively modest. Subsequent BEA estimates showed real GDP increasing only 1.6% during 2016 compared with 2.6% in 2015. Private inventory investment and nonresidential fixed investment weakened, limiting growth even as consumer spending remained positive. The annual GDP figure therefore looked considerably less impressive than the labor market. An economy capable of pushing unemployment below 5% was simultaneously producing slower output growth and weak business investment. (Bureau of Economic Analysis)
By December, inflation had finally moved closer to the Federal Reserve's target as the drag from energy prices dissipated, unemployment reached 4.7% and household income gains were becoming harder to dismiss. On December 14, almost exactly a year after its first post-crisis increase, the Federal Reserve raised the federal funds target again, this time to 0.50–0.75%. The fact that an entire year passed between the first and second increases is itself revealing. What had appeared in December 2015 to be the beginning of a conventional tightening cycle became a year-long exercise in caution shaped by weak investment, international instability, low inflation and periodic questions about employment momentum. (Federal Reserve)
The United States ended 2016 with a labor market substantially healthier than the one it entered, higher household income, lower poverty and a Federal Reserve sufficiently confident to tighten again. Yet the year also made clear that statistical recovery hadn't produced agreement about the economic system. Trade had become politically contested. Manufacturing employment and regional decline occupied a much larger place in national debate. Business investment remained soft. Participation remained depressed. The benefits of globalization were increasingly being judged not simply by aggregate consumer prices and national output but by who had gained employment, who had lost it and where those changes had occurred.
The national economic argument was therefore shifting from whether the recovery existed to whether the structure created by the recovery was politically and economically sustainable.
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VI. INTERNATIONAL
The international economy entered 2016 in a fragile condition. China's slowdown and financial-market instability had dominated the second half of 2015, commodity-producing economies remained under severe pressure, global manufacturing was weak and the collapse in oil prices continued redistributing income from producers toward consumers. The Federal Reserve had just raised American interest rates while Europe and Japan remained committed to extraordinarily accommodative monetary policies. The global system wasn't moving together. It was becoming increasingly defined by divergence.
The opening weeks intensified those concerns. Crude oil fell into the low-$30 range, Chinese markets remained volatile and investors became increasingly concerned that slowing global demand and excessive debt could produce a larger downturn. Financial conditions deteriorated before improving again during the spring. Oil eventually began recovering, reducing pressure on producers while gradually removing some of the extraordinary benefit enjoyed by consumers. What had looked like a potentially destabilizing global contraction in January became less threatening by late spring, but the underlying weakness in trade and investment remained.
China demonstrated both the resilience and ambiguity of the emerging-market story. Official Chinese data eventually showed GDP growing 6.7% in each of the first three quarters of 2016, slower than the growth rates that had characterized the previous decade but stable enough to reduce immediate fears of a hard landing. Services continued increasing their share of the economy as policymakers attempted to shift activity away from the investment-heavy model that had driven enormous demand for commodities and industrial goods. The transition mattered throughout the world because an economy consuming differently also imported differently. China's stabilization hadn't automatically restore the pattern of global trade that existed during its industrial expansion. (National Bureau of Statistics of China)
Then came June 23.
The United Kingdom's decision to leave the European Union placed a political rupture directly into the center of the international economic system. Brexit wasn't simply a British domestic political event. The European Union represented one of the world's largest integrated markets, and the vote immediately created uncertainty over trade arrangements, investment, migration, regulation and London's role within European finance. The pound depreciated sharply and financial markets initially reacted severely, although the disruption remained orderly enough to prevent the immediate crisis some observers feared.
Around July 1, the international economic picture was therefore almost the reverse of what it had looked like only a few months earlier. The panic surrounding China and oil had eased, commodity prices had partially recovered and financial conditions had improved, but a completely different uncertainty had appeared through Brexit. The IMF subsequently reduced its global growth forecast by 0.1% point to 3.1% for 2016 and 3.4% for 2017, emphasizing the increase in economic, political and institutional uncertainty created by the British vote. The downgrade itself was modest; the more significant concern was that the institutional structure supporting economic integration could no longer be treated as politically permanent. (IMF)
That concern became more important as evidence accumulated that international trade was weakening independently of any single crisis. The World Trade Organization entered 2016 expecting world merchandise trade volume to increase about 2.8%. By September it had reduced that forecast to only 1.7%, which would represent the slowest expansion since the financial crisis. The WTO also reported 182 new trade-restrictive measures introduced by members from mid-October 2015 through mid-October 2016 and warned that the stockpile of restrictions accumulated since 2008 continued increasing. The institutional defender of the global trading system was no longer simply promoting trade expansion; it was increasingly arguing that the gains from trade needed to be distributed and explained more effectively if political support for openness were to survive. (World Trade Organization)
Later data would show that the slowdown was even more pronounced than the contemporaneous forecast suggested. World merchandise trade volume ultimately increased only about 1.3% during 2016, roughly half the 2015 growth rate and the weakest performance since the financial crisis. Part of that reflected sluggish investment in the United States and China's continuing transition away from investment-intensive growth. But the political significance went beyond the cyclical weakness. Global integration had been built on the assumption that increasing trade would generate enough aggregate benefit to sustain political support for the system. In 2016, that assumption was becoming visibly less secure. (World Trade Organization)
The IMF arrived at a similar concern by October. Global growth was projected at only 3.1%, with weak advanced-economy performance and slower trade increasing the risk that political dissatisfaction could strengthen protectionist or anti-integration movements. Brexit had already demonstrated that economic integration could be challenged through the ballot box, while the American presidential campaign placed trade agreements, Chinese competition and industrial relocation at the center of political debate. The issue wasn't that globalization suddenly stopped during 2016. Supply chains remained deeply integrated, capital continued moving internationally and companies such as Corning and GKN were making local investments precisely because they operated inside global industrial systems. The change involved the political legitimacy surrounding those arrangements. (IMF)
Oil completed another major reversal during the second half of the year. Although West Texas Intermediate averaged only about $43 per barrel for the full year, below its 2015 average, it finished December near $53. Brent followed a similar path, ending around $54 after averaging $44. Agreements among OPEC members and several non-OPEC producers to restrain production contributed to the late-year increase. The same commodity that had delivered an enormous household benefit entering 2016 was therefore beginning to move back toward a more balanced price structure by the time the year closed. (EIA)
By the close of December, the international economy had successfully averted the crises that loomed so ominously at the beginning of the year. China avoided a total economic collapse, and Brexit hadn't trigger an immediate financial disintegration in Europe. Commodity markets found their footing, providing some much-needed relief to oil-producing nations, and global growth ultimately remained in positive territory.
However, the international economic order appeared significantly less stable than before. Global trade had stagnated, and trade restrictions continued to mount. The United Kingdom's decision to exit the European Union signaled the withdrawal from one of the most ambitious experiments in economic integration in modern history, while the United States concluded a presidential election where trade and manufacturing policy were central points of contention. Meanwhile, international institutions began issuing clear warnings that the uneven distribution of economic gains was fueling a growing backlash against globalization.
For the Foothills region, this shift held a particular, historical resonance. Hickory had navigated the turbulent consequences of global economic integration years before 2016. The local experience with furniture, textiles, and telecommunications had long demonstrated a painful dichotomy: while national consumers enjoyed lower prices on imports, specific communities absorbed the devastating impact of lost jobs and diminished productive capacity. By 2016, the broader international debate was finally beginning to align with this regional reality. While globalization hadn't come to an end, it had certainly lost its political immunity from scrutiny.
THE SYNTHESIS — THE WRAP
The economic landscape that entered 2016 had largely escaped the crisis conditions of the previous decade. The United States had begun raising interest rates, unemployment was around 5%, North Carolina was growing rapidly, manufacturing employment in Hickory had stabilized and begun moving upward, and households were benefiting from some of the cheapest gasoline they had seen in more than a decade. If 2015 marked the transition from emergency stabilization toward normalization, 2016 began with the reasonable expectation that the process would continue gradually.
The year did continue forward, but not in the way a simple recovery narrative would suggest.
At Ground Level, the evidence became substantially better. Unemployment fell to 4.7%, household income increased, poverty declined, wage growth strengthened and gasoline averaged only $2.14 per gallon. These were genuine improvements in living economic conditions rather than abstract gains confined to financial markets. Yet participation remained essentially unchanged, millions of people remained involuntarily part time, and the disappearance of the energy-price windfall toward year-end meant that continued household progress would increasingly depend upon wages and productivity rather than cheaper commodities.
In Hickory and Catawba County, the productive economy continued moving beyond stabilization. Manufacturing employment rose toward 41,300 jobs. Corning announced higher-wage fiber-optic positions. GKN expanded advanced automotive production. Apple deepened its capital investment. Specialized manufacturers continued adding capacity. Workforce institutions were being constructed around those industries through mechatronics, apprenticeships, machining, furniture training and advanced manufacturing education.
The striking feature of the local economy was that improvement itself began exposing the next constraint.
Catawba County was no longer dealing only with the legacy problem of insufficient jobs. It was beginning to plan around projections of an insufficient workforce.
That reversal is economically significant. Communities shaped by industrial contraction naturally organize development strategies around job creation. Once employment recovers and the labor force tightens, the problem changes. Employers need workers; workers require housing, education, amenities and wage opportunities; industrial sites require infrastructure; and communities have to become places where working-age households choose to remain or relocate. Economic development becomes less about the isolated announcement and more about the capacity of the surrounding system.
The Foothills Corridor showed the same evolution at regional scale. After years of labor-force contraction, the Western Piedmont recorded both an increase in employed people and a modest increase in the labor force during 2016. Krystal Engineering's Caldwell County project, Corning in Hickory and GKN in Maiden demonstrated the kind of advanced manufacturing capable of surviving global competition while paying considerably more than prevailing county averages. But those companies required technical workers who couldn't simply be produced through the hiring gate. The educational and workforce systems themselves became economic infrastructure.
North Carolina continued growing faster than much of the country and added more than 111,000 residents in a year, while personal income growth exceeded the national state average. Yet 2016 also showed how little a statewide average could tell us about the distribution of economic experience. Charlotte and the Triangle continued expanding. Older industrial regions wrestled with workforce demographics. Eastern communities suffered catastrophic losses from Hurricane Matthew. The PayPal reversal following House Bill 2 demonstrated that corporate site selection could be influenced by political and workforce considerations beyond taxes and incentives. The state was economically stronger while simultaneously becoming more complicated to govern as one economic unit.
Nationally, the Federal Reserve's experience tells much of the story. After raising rates in December 2015, policymakers spent almost an entire year waiting before raising them again. Labor conditions strengthened, but GDP growth slowed to 1.6%, business investment remained soft, inflation stayed weak for much of the year and international disruptions repeatedly complicated the outlook. The economy was sufficiently healthy to avoid recession and continue creating employment, yet insufficiently strong or predictable to support the regular monetary tightening that had appeared possible when the year began.
Then there was the political economy.
The national election can't responsibly be reduced to economics, and Brexit can't be reduced to trade. Both reflected political, cultural and institutional forces extending beyond the scope of this report. But economics was plainly inside those events. Trade, offshoring, immigration, manufacturing, regional inequality and dissatisfaction with existing institutions were being debated with an intensity that would have seemed unusual during earlier stages of globalization.
Timing matters. This political fracture didn't happen while the United States was losing hundreds of thousands of jobs every month; it occurred while unemployment was below 5%. It didn't take place while household incomes were collapsing; in fact, incomes were rising. It certainly didn't happen because the global trading system had ceased to exist, as supply chains had never been more integrated. This contradiction serves as one of the most significant economic signals of 2016: improved aggregate statistics were no longer sufficient to generate public confidence in the system.
Hickory helps explain why. For a national consumer, globalization might mean affordable furniture, inexpensive imports, and low inflation. For a furniture worker in the Foothills, that same process over the previous fifteen years meant a lost career, a shrinking labor market, and a community attempting to reconstruct its economic identity. Both experiences are economically true, but aggregate measures combine gains and losses while communities experience them separately. By 2016, this divergence had moved from regional history into the national and international political arena.
The global economy reinforced this point. China stabilized rather than collapsing, oil prices recovered, and Brexit didn't produce the immediate financial catastrophe some had feared. Nevertheless, world trade growth deteriorated to its weakest pace since the financial crisis, trade restrictions accumulated, and international institutions began emphasizing that the gains of trade must be spread more widely if political support for integration is to survive.
This gives 2016 a distinct place in the economic chronology. If 2015 represented 'normalization without restoration,' 2016 represented 'recovery without reassurance.' The economy was functioning better: more people were working, household income was rising, Hickory manufacturing was expanding, North Carolina was attracting population and investment, and the Federal Reserve was raising interest rates. None of these developments were imaginary, but the economy wasn’t stabilizing back to a pre-2008 employment structure.
However, the fundamental argument had changed. The central economic question was no longer simply whether the system could produce growth, but rather where that growth accumulated, how it circulated, what kinds of employment it created, which communities possessed the capacity to participate, and whether those experiencing the losses believed the gains made elsewhere compensated for what had disappeared.
These questions were already embedded in Hickory's experience before 2016. During that year, they became impossible for the broader economic system to ignore. The recovery had matured, but the consensus surrounding what that recovery meant hadn't survived with it. The progression holds together sequentially: 2015 established 'normalization without restoration,' while 2016 moved that condition forward into 'recovery without reassurance,' as the local story advanced from industrial survival toward the emerging workforce-capacity problem.
