Economic Stories of Relevance — 2017
The Expansion Broadens — and Capacity Becomes the Constraint
THE LEVELS REPORT — 2017
The economic system entering 2017 was no longer defined primarily by recovery from the Great Recession. That transition had been developing for several years, but 2016 had made the distinction clearer. Employment was strong, household income was finally rising, Hickory manufacturing was expanding again, North Carolina continued attracting population and investment, and the Federal Reserve had raised interest rates for the second time since the crisis. At the same time, the political consensus surrounding globalization and trade had fractured, along with confidence in many of the institutions that had managed the postwar economic order. The preceding year had produced Brexit, an American presidential election dominated in part by arguments over manufacturing and trade, and increasing recognition that national economic gains could coexist with profound regional dissatisfaction. The recovery had become difficult to dispute statistically even as confidence in the system producing it became more difficult to sustain.
What followed in 2017 was significant because many of the economic problems that had dominated the previous decade didn't intensify. They receded. The American labor market tightened further. Household income continued rising. Poverty declined. Business investment strengthened. Manufacturing contributed to growth. North Carolina added population and industrial employment. The Hickory area's manufacturing recovery continued, while companies investing in fiber optics, advanced manufacturing and other technology-intensive production forced Catawba County to think increasingly about workforce capacity rather than simply job creation. Across the broader Foothills Corridor, investment appeared not only around Hickory but in Shelby, Kings Mountain, Morganton, Lenoir, Marion and other communities, while the High Country continued developing around tourism, higher education and services.
Internationally, an even more striking change occurred. The global economy, which had entered 2016 amid concerns surrounding China, commodities and financial instability, moved into its strongest synchronized expansion in several years. By mid-2017 the International Monetary Fund was calling the recovery firmer, with accelerating activity across Europe, Japan, China and emerging markets. By year-end, world merchandise trade was growing at its fastest rate since 2011. That expansion arrived at precisely the moment the United States was withdrawing from the Trans-Pacific Partnership and beginning to renegotiate NAFTA, creating an unusual divergence between the performance of the global trading economy and the political reassessment of the rules governing it. (IMF)
The movement of 2017 therefore was broader than another year of declining unemployment. The economic machine was beginning to encounter a different set of constraints: not too few jobs and too little investment, but shortages of workers, skills, housing and infrastructure. In the years following the recession, the principal problem had been insufficient demand, too few jobs, idle workers, vacant industrial buildings and capital reluctant to invest. As 2017 progressed, many places increasingly confronted the inverse: employers searching for workers, manufacturers requiring more technical skills, communities needing housing and infrastructure to accommodate growth, and the Federal Reserve deliberately removing support from an economy judged strong enough to function with less of it.
That didn't mean scarcity had replaced weakness everywhere. Labor-force participation remained stubbornly low nationally. Household debt was rising again. Housing prices were appreciating faster than incomes in many markets. Some rural communities continued losing population or operating below the prosperity of the major metropolitan centers. Manufacturing was recovering without recreating the employment density of the twentieth-century industrial economy. Yet the underlying economic question was shifting. More often than during the preceding years, the problem was becoming not whether activity could be generated, but whether households, workers, institutions and communities possessed enough capacity to capture what the expansion was producing.
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I. GROUND LEVEL
Entering 2017, the household economy was standing on considerably firmer ground than it had at the beginning of either 2015 or 2016. January payroll employment increased by 227,000, the unemployment rate stood at 4.8 percent, and long-term unemployment had declined to approximately 1.9 million people. Labor-force participation rose to about 62.9 percent during January, still substantially below the levels that preceded the Great Recession but strong enough to suggest that a tighter labor market might finally begin drawing some people back into employment. For households connected to that labor market, the fear of widespread job destruction had largely disappeared. The economic argument was moving toward compensation, advancement and whether tightening conditions would eventually translate into stronger worker leverage. (Bureau of Labor Statistics)
The starting position nevertheless contained an important reversal from the preceding two years. Cheap energy had provided households with an extraordinary secondary benefit during 2015 and 2016, but that advantage was beginning to weaken. Regular gasoline would average $2.41 per gallon during 2017, 27 cents higher than the previous year. The increase was hardly a return to the $4 gasoline that had burdened households earlier in the decade, but it meant that additional purchasing power would increasingly have to come through wages and income rather than another reduction in transportation costs. Hurricane Harvey later disrupted Gulf Coast refining and contributed to a temporary late-summer price shock, further illustrating how quickly the energy margin could move against consumers. (U.S. Energy Information Administration)
During the first half of the year, the labor market continued absorbing workers without generating the kind of inflationary pressure that would normally be expected from unemployment moving toward levels historically associated with full employment. The Federal Reserve would raise interest rates in March and again in June, but consumer inflation remained modest enough that the economy continued delivering real household gains. What was increasingly notable was the duration of the expansion. A worker entering 2017 was operating in a labor market that had been improving for years rather than months, which gradually changed the balance between employers searching for labor and workers searching for any available job.
That stronger labor market did not mean every household was prospering. Participation moved around during the first half and remained close to where it had been for several years. Older workers retiring, demographic changes and people remaining outside the workforce continued limiting the usefulness of the unemployment rate as a complete measure of labor-market health. But the employment problem itself was narrowing. The number of unemployed Americans was falling, long-term unemployment was declining, and a worker already participating in the labor market increasingly encountered an economy in which employers had fewer idle workers from which to choose.
Around July 1, that tightening had become one of the clearest economic signals of the year. The participation rate was approximately 62.8 percent in June and would move to 62.9 percent in July, while unemployment was around 4.3 to 4.4 percent. The Federal Reserve had already judged conditions strong enough to raise rates twice during the first six months and to publish the framework through which it eventually intended to begin reducing the enormous balance sheet accumulated during the crisis. The significance at Ground Level wasn't monetary policy itself. It was what monetary policy implied: the institution that had spent most of the previous decade worrying about insufficient employment was increasingly preparing for an economy with less available slack. (Bureau of Labor Statistics)
Housing began exposing the other side of that improvement. A stronger labor market, easy credit relative to historical standards and years of recovery in household formation were supporting demand, but housing supply wasn't expanding everywhere at the same pace. By the end of 2017, the FHFA national house-price index would be 6.7 percent higher than a year earlier, with prices rising in 49 states and the District of Columbia and in every one of the country's 100 largest metropolitan areas measured by the agency. For existing homeowners, rising values repaired wealth destroyed during the housing crash. For a younger household attempting to become a homeowner, the same appreciation raised the cost of entry. (FHFA.gov)
That distinction becomes increasingly important as 2017 moves toward its conclusion. Rising home and asset values helped repair household wealth after 2008, but those gains flowed mainly to people who already owned those assets. A household owning a home could experience stronger net worth while a renter attempting to buy encountered a steadily rising threshold. Economic recovery had therefore reached a point at which one household's restored wealth could become another household's affordability constraint.
Debt followed a similar pattern. During the first quarter of 2017, total household debt surpassed its previous 2008 nominal peak, and by the fourth quarter it had reached $13.15 trillion. That total included $8.88 trillion of mortgage balances, $1.38 trillion in student loans, $1.22 trillion in auto loans and $834 billion in credit-card balances. The composition and credit quality differed substantially from the pre-crisis debt structure, and overall serious delinquency remained much lower than during the housing collapse, but the direction was unmistakable. After years of deleveraging, American households were again expanding their use of credit. (Federal Reserve Bank of New York)
The second half strengthened the income side of the picture. Census data would eventually show real median household income increasing 1.8 percent to $61,372 in 2017, the third consecutive annual increase, while the official poverty rate fell from 12.7 to 12.3 percent. The improvement was broad enough to demonstrate that the long recovery was finally reaching households through more than lower unemployment. Yet the distribution remained complicated: the number of people working full time and year round increased, even while real median earnings for full-time, year-round workers didn't rise across every measure. More people were participating successfully in employment, but the gains didn't automatically translate into rapid individual wage progression. (Census.gov)
By December, unemployment had fallen to 4.1 percent, the number of unemployed people had declined by roughly 926,000 over the year, and payroll employment had grown by about 2.1 million jobs. Average hourly earnings were 2.5 percent higher than a year earlier. Consumer prices had increased 2.1 percent from December to December, leaving nominal wage growth modestly ahead of headline inflation, although household expenses didn't move uniformly: energy prices rose 6.9 percent and shelter continued increasing. (Bureau of Labor Statistics)
What didn't improve materially was labor-force participation. December's 62.7 percent rate was essentially where the country had been at the end of 2016. The economy had become highly effective at employing people who were in the labor force without producing a comparable restoration in the share of the population participating in it. That distinction prevents the year from being described as a complete labor-market restoration, but it doesn't negate the degree to which labor scarcity had begun replacing unemployment as the immediate concern for many employers. (Bureau of Labor Statistics)
The Ground Level economy therefore ended 2017 in one of its strongest positions of the post-recession period. Income was rising, poverty was declining, unemployment was low and housing wealth was increasing. But some of the mechanisms producing security were beginning to create new pressure. Higher house prices made ownership harder to enter. Household debt was expanding. Gasoline had stopped getting cheaper. Participation remained stubbornly weak. The economic problem had moved farther away from widespread collapse, but the household margin increasingly depended upon whether income could keep pace with the rising cost of assets, credit and ordinary participation in an expanding economy.
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II. LOCAL — HICKORY / CATAWBA COUNTY
Entering 2017, Hickory and Catawba County were carrying forward one of the most consequential changes identified in the 2016 report: the regional problem was beginning to invert. For much of the previous fifteen years, the dominant question had been what could replace disappearing industrial employment. By the end of 2016, manufacturing jobs had risen again, major companies were expanding, and local government had begun planning explicitly around projections of an insufficient working-age population. The old problem had not vanished, but economic development was beginning to run into the demographic consequences produced by the years of decline.
Manufacturing employment across the Hickory-Lenoir-Morganton metropolitan area began January at approximately 41,400 jobs, already more than 1,000 above the level at the beginning of 2016 and substantially above the post-recession bottom. During the first half it continued rising, reaching approximately 41,900 in June. This remained only about half of the extraordinary manufacturing employment supported by the region around 1990, but that historical comparison increasingly described two different industrial economies rather than a simple failure to recover the old one. The manufacturing base surviving into 2017 was more automated, more specialized and more closely connected to automotive systems, fiber optics, engineered materials, logistics and advanced production than the labor-intensive economy that had disappeared. (FRED)
Corning provided the most important early-year example. In February the company and Corning Optical Communications announced $176 million of investment across Catawba and Cabarrus counties, with the Catawba portion involving a new $67 million optical-cable manufacturing facility in Newton and 210 jobs. Fiber optics wasn't new to the region; telecommunications manufacturing had played an important role in Hickory for decades and had experienced its own severe restructuring after the technology collapse. What made the 2017 expansion important was the context. The industry was no longer being supported primarily by the telephone network of the twentieth century. Increasing demand for broadband, data transmission and digital infrastructure was giving an existing regional technical capability a new economic purpose. (NC Commerce)
Other investments reinforced the same pattern without producing one dominant replacement sector. Catawba County's 2017 annual financial reporting identified more than $468 million in new investment and 834 new jobs during the preceding year. US Conec was expanding manufacturing and engineering operations in Hickory with a $20 million investment and 42 jobs; Prysmian was restoring previously discontinued operations in Claremont through another $20 million investment and an expected 50 jobs; Peoples Bank was expanding its headquarters; and Temprano Techvestors was establishing its headquarters in Newton. County employment increased by 1,883 between June 2016 and June 2017, while the June unemployment rate had fallen to 4 percent. (Catawba County)
The important development wasn't simply the accumulation of press releases. Fiber optics, specialized manufacturing, finance, engineering and technology-related businesses were increasingly using the same local economic platform. Hickory's legacy manufacturing skills, industrial buildings, utility capacity, highway access and community-college infrastructure were becoming useful inputs for industries whose products and business models differed considerably from those that had originally created the regional economy.
At the same time, local leadership was acknowledging that physical capacity wasn't enough. K-64 emerged from population studies undertaken during 2016 and was formally launched during 2017 to connect education more deliberately with workforce needs. Its organizing principles included technology access, employer engagement, work-based learning and career adaptability, linking public schools, CVCC, Lenoir-Rhyne University, economic-development organizations, government and businesses inside one workforce framework. The initiative represented a notable shift in how economic development was being conceptualized. Recruiting capital without simultaneously developing people would increasingly produce a labor bottleneck rather than sustainable growth. (Catawba County)
The City's bond program was approaching the same demographic issue from another direction. During a March 2017 Bond Commission discussion, Mayor Rudy Wright described projects such as City Walk and Riverwalk explicitly in terms of attracting and retaining young people and the companies that employed them. Whatever judgment is eventually made about the costs, execution or long-term effectiveness of those projects, their economic-development rationale is revealing. Hickory was beginning to treat quality of place as part of workforce infrastructure. The strategy assumed that jobs alone wouldn't retain a younger population if the city itself failed to provide an environment in which that population wanted to remain. (Hickory NC)
Around July 1, the local economy therefore occupied a much different position than it had during the years when economic strategy centered on replacing vanished furniture and textile employment. Manufacturing employment was approaching 42,000, Catawba County unemployment was near 4 percent, a major fiber-optic project had been announced, and the county was deliberately constructing a talent pipeline around employers whose labor requirements were becoming more technical. The metropolitan labor force itself had expanded substantially during the first half, reaching roughly 169,500 in June compared with approximately 167,300 in January. That movement was especially important because it suggested that employment growth was no longer being produced solely against a shrinking workforce. (FRED)
The midyear question was whether Hickory could turn investment into lasting local prosperity. Could new capital investment produce a larger labor force, higher wages, locally retained purchasing power and a durable younger population? Could educational institutions produce the skills demanded by advanced manufacturers quickly enough? Could Hickory's quality-of-life investments attract households rather than merely create physical amenities? And could the region maintain enough housing, infrastructure and transportation capacity to absorb the growth it was trying to generate?
The second half didn't answer those questions conclusively, but the industrial evidence remained favorable. Manufacturing employment softened somewhat during late summer and early autumn before recovering to approximately 42,100 jobs in December, ending the year above January. The movement was modest compared with the enormous employment swings of earlier decades, but that stability was itself part of the structural change. Hickory manufacturing no longer behaved primarily as a sector in retreat. It had become a large industrial base capable of holding and gradually adding employment while its internal composition continued changing. (FRED)
Catawba County's workforce problem therefore became more credible, not less, as 2017 closed. The county had spent years confronting what happened when industrial employment disappeared faster than workers could adapt. The newer danger was different: companies could announce expansions faster than the region could produce technically prepared workers and attract enough working-age households to replace retirements. Economic development was no longer only about recruiting employers. Schools, colleges, broadband, housing, transportation, parks and public spaces were increasingly part of the same workforce strategy.
By December, Hickory was no longer merely proving that manufacturing could survive. The region was beginning to construct an ecosystem around the manufacturing that had survived. Fiber optics and telecommunications were acquiring renewed importance in the digital economy. Automotive and advanced manufacturing were strengthening. Traditional furniture production remained present at a smaller and more productive scale. Logistics and professional services continued developing. Educational institutions were becoming part of the labor-supply system, while municipal investment was increasingly justified through workforce attraction.
The local economic problem was becoming more sophisticated because the local economy itself was becoming more sophisticated. The defining question entering 2018 wouldn't simply be how much investment Hickory could attract. It would be whether the region could convert that investment into enough people, skills, household income and locally retained economic activity to create prosperity broader than the industrial balance sheet.
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III. FOOTHILLS CORRIDOR
The broader Foothills Corridor isn't simply a larger version of Hickory. By 2017, several distinct local economies operated across the region at the same time: the central Unifour remained heavily industrial, Cleveland County connected the southern Foothills to I-85 manufacturing and the Charlotte market, Rutherford continued recovering from massive textile-era losses while attempting to reuse its industrial facilities, McDowell occupied an important position along I-40 with manufacturing and healthcare products, Wilkes retained a substantial production base alongside tourism and small business, and the High Country relied increasingly on Appalachian State University, healthcare, tourism, hospitality, and an amenity economy that drew consumers from outside the region.
That diversity had always existed to some degree, but 2017 increasingly demonstrated its strategic importance. The Corridor wasn't waiting for one industry to restore the economic structure lost during globalization. Instead, investment was arriving through different nodes and sectors, creating a regional portfolio whose pieces weren't necessarily coordinated but were less dependent upon a single economic trajectory.
The first major signal arrived in Shelby. In February, Clearwater Paper announced a $330 million expansion of its Cleveland County production and distribution operation that was expected to create 180 jobs. This was a substantial capital commitment in an older industrial community, but it also demonstrated a fundamental change in modern manufacturing: enormous investments no longer required enormous workforces: Hundreds of millions of dollars of sophisticated production capacity could be added with fewer than two hundred direct positions. That ratio should not be read simply as a weakness. Modern capital equipment could support competitive production and local tax capacity that might otherwise disappear altogether. But it reinforced the need to evaluate economic development through wages, suppliers, tax base and circulation rather than through direct headcount alone. (NC Commerce)
McDowell County showed a different combination in March. Baxter International announced 90 additional positions and more than $7.4 million of investment at its Marion health-care manufacturing operation, while Taylor Stave planned another 28 jobs at its wood-products facility in Nebo. One project was connected to global medical supply chains; the other drew upon one of the region's oldest material and craft traditions. The coexistence matters because the Corridor's industrial evolution wasn't a clean replacement of old manufacturing with high technology. It was a recombination of inherited skills with industries capable of finding a competitive niche. (NC Commerce)
Caldwell County produced an even more symbolically important development in April when Ryan-AL announced that it would move fiberglass-door manufacturing from Zhejiang, China, to Lenoir, creating 53 jobs and investing $1.7 million. Fifteen years earlier, much of the region's economic conversation had concerned manufacturing leaving North Carolina for China. The 2017 project was too small to reverse that history, but its direction was significant. Global production decisions were no longer moving automatically one way. Transportation costs, quality control, market proximity, existing industrial buildings and a trained manufacturing culture could occasionally make the Foothills competitive enough to bring production back. (NC Commerce)
Burke County reinforced the broader trend only days later. Continental Automotive announced more than $40 million of investment and 160 new positions at its Morganton operation. The Corridor that had once been known overwhelmingly for furniture, hosiery and textiles was increasingly connected to automotive systems, medical products, engineered materials and telecommunications. None of those industries erased the legacy sectors, but together they reduced the economic dependence upon any one of them. (NC Commerce)
Around July 1, the regional picture was therefore materially broader than the 2015 or 2016 recovery story. Industrial announcements were no longer clustering only around Hickory. Shelby, Marion, Lenoir and Morganton were participating through different types of manufacturing, while the High Country continued expanding through a different mechanism altogether. Appalachian State University enrolled roughly 18,000 students and was preparing to welcome a record enrollment later that summer, functioning as a major employment, human-capital and consumer anchor for Boone and Watauga County. The Walker College of Business alone served thousands of undergraduate students, demonstrating the scale at which higher education had become part of the northern Corridor's economic infrastructure. (Walker College of Business)
This geographic variation wasn't a weakness in itself. It offered a degree of resilience that the earlier monocultural industrial economy had lacked. A downturn in furniture no longer had the same ability to pull the entire Corridor downward. Manufacturing demand, tourism, university enrollment, health care and logistics didn't move in perfect synchronization. Yet diversity spread across a region isn't the same thing as regional coordination. Workers still encountered county lines, different school systems, fragmented development organizations, limited transit and inconsistent infrastructure capacity even when the underlying economic relationships crossed those boundaries.
The problem was no longer whether the Corridor had economic activity. The problem was how to connect its separate economic centers. A manufacturer in Cleveland County, a health-products producer in McDowell, an automotive supplier in Burke and a university-driven service economy in Watauga all required labor, housing, transportation and infrastructure, but the precise requirements differed. The Corridor possessed several economic engines; it didn't yet possess a single system for coordinating the capacity around them.
The second half strengthened the industrial side further. In August, Albemarle announced plans for 170 additional positions at its Kings Mountain operation in Cleveland County, with average salaries projected at $78,225—more than twice the county's prevailing average wage at the time. The company's specialty chemicals and lithium-related activities connected the southern Foothills to energy storage, electronics, transportation and other industries that would become considerably more important during the following decade. In retrospect the project looks like an early signal of the energy-materials economy developing around the Carolinas, but even without hindsight the wage differential demonstrated how advanced industrial specialization could alter household economics far more than the raw job count alone suggested. (NC Commerce)
Rutherford County continued trying to convert its older industrial footprint into usable capacity. State rural-infrastructure funding supported renovation of a 225,181-square-foot building in Spindale for Manual Woodworkers & Weavers. That kind of reuse received less attention than a large recruitment announcement, but it represented one of the Corridor's practical competitive advantages. Buildings, utility connections and industrial land created during the old manufacturing era could become lower-cost entry points for new or reconfigured production instead of remaining stranded assets. (NC Commerce)
The High Country simultaneously continued converting a very different asset base into outside income. Contemporary state tourism statistics placed Watauga among the larger tourism economies in western North Carolina, while Wilkes also recorded meaningful visitor spending. Appalachian's 2017 enrollment reached more than 18,800 students. The northern Corridor was demonstrating that regional economic value could be imported through visitors, students and recreation just as the industrial portions imported capital through factories and production contracts. (Visit North Carolina)
Burke County finished the year with another cluster of investment. VEKA announced a new Morganton operation with 102 jobs and more than $18 million of investment in December, followed later that month by Greenworks/Sunrise Global Marketing, which planned 187 jobs and more than $23 million for a facility combining warehousing, assembly and manufacturing of battery-powered outdoor equipment. The latter was especially suggestive because the product itself sat at the intersection of manufacturing and electrification: an older industrial region was becoming a production location for equipment replacing gasoline-powered tools with battery systems. (NC Commerce)
By December, the Foothills Corridor could no longer reasonably be described through a single narrative of post-industrial decline. The losses remained embedded in its demographics, wages and institutional capacity, but the productive economy had become too varied for that description. Fiber optics, automotive components, specialty chemicals, medical products, engineered doors, paper products, battery-powered equipment and other manufacturing were appearing alongside tourism, higher education, health care and service economies.
The more important regional question was whether these separate victories could accumulate into shared leverage.
Without coordination, an industrial expansion in Shelby remained a Cleveland County story, a university expansion in Boone remained a Watauga story, and advanced manufacturing in Morganton remained a Burke story. With stronger transportation, workforce pathways, supplier networks, housing strategy and regional identity, the same developments could begin functioning as parts of one wider economic system.
The Corridor ended 2017 with more evidence of economic capacity than it had possessed in years. Its next challenge was learning how to connect that capacity across geography.
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IV. STATE — NORTH CAROLINA
North Carolina entered 2017 with the advantage of momentum. The state's population had crossed ten million, unemployment had fallen substantially, manufacturing employment had stabilized after decades of contraction, and several metropolitan regions were attracting people and capital at rates that placed North Carolina among the fastest-growing large states. The economic structure was increasingly diversified enough that weakness in one sector didn't dictate the statewide outcome, yet manufacturing remained important enough that its recovery carried particular meaning for communities outside Charlotte and the Triangle.
The labor market strengthened steadily during the first half. North Carolina's seasonally adjusted unemployment rate declined from 4.9 percent in January to 4.5 percent by May and June. Manufacturing employment, which began the year around 464,000 on the unadjusted monthly series, increased to roughly 470,000 by June. The movement was modest relative to the losses of earlier decades but continued a longer recovery that had raised annual average manufacturing employment from approximately 432,500 in 2010 to 468,500 by 2017. (FRED)
The geographic distribution of that manufacturing growth was becoming more interesting. Clearwater Paper in Cleveland, Baxter in McDowell, Ryan-AL in Caldwell, Continental in Burke and Corning in Catawba showed that advanced and specialized production could land outside the major metropolitan centers. North Carolina's strongest population growth remained concentrated around its larger metros, but the industrial investment of 2017 demonstrated that rural and small-city locations weren't economically obsolete when they possessed labor, infrastructure, buildings and proximity to transportation corridors.
Around July 1, North Carolina therefore stood in a comparatively favorable position. Unemployment was around 4.5 percent, manufacturing employment had increased, and the state was continuing to add residents. The economic debate was moving away from whether North Carolina could attract investment and toward whether different regions possessed the institutional and workforce capacity to participate in it. Charlotte and the Triangle could draw workers through large diversified labor markets. Many rural and industrial communities had to generate enough economic opportunity to retain workers before they could fully capitalize on new investment.
Population growth made that divide even more visible. Census estimates placed North Carolina's 2017 population at approximately 10.27 million, an increase of 116,730 in one year and the fifth-largest numerical population gain among the states. Population growth supplied labor, consumers, housing demand and tax capacity, but it wasn't spread evenly. The statewide gain could therefore coexist with workforce concerns in the Foothills and demographic weakness elsewhere. (Census.gov)
During the second half, the state's economic-development pipeline remained unusually active. The final 2017 Commerce analysis recorded 290 announced projects representing 24,501 jobs and $4.86 billion of investment. Manufacturing accounted for 54 percent of announced projects, 9,464 jobs and approximately $3.56 billion of investment. Sixty-three projects involved foreign direct investment from companies based in 21 countries. Expansion projects generated substantially more announced investment than completely new projects, suggesting that North Carolina's existing industrial platform was becoming as important as its ability to recruit first-time entrants. (NC Commerce)
That pattern matters for the Foothills. Economic development is often presented publicly through competition for a new company choosing among states, yet 2017 demonstrated the importance of companies already embedded in a community deciding to invest again. Corning, Continental, Clearwater Paper and other established manufacturers expanded because the underlying system had proven usable. The value of workforce institutions, infrastructure and supplier relationships therefore accumulated over time rather than disappearing after the original recruitment announcement.
Statewide tourism added another dimension. Contemporary tourism estimates placed direct visitor spending near $24 billion in 2017, an increase of roughly 4.2 percent. That activity didn't substitute for manufacturing, but it broadened North Carolina's sources of outside revenue and mattered particularly in mountain and coastal communities whose economic structures differed from the industrial Piedmont. (Visit North Carolina)
By December, unemployment had declined to approximately 4.3 percent and manufacturing employment stood near 472,000 on the monthly unadjusted series. North Carolina was also attracting enough population to remain one of the country's fastest-growing large states. The aggregate condition was unquestionably stronger than the one inherited after the Great Recession. (FRED)
But growth increasingly created different problems depending upon location. In the major metros, development placed pressure on housing, roads and public infrastructure. In slower-growing industrial regions, employers and local governments worried about workforce depth and retaining younger residents. Tourism communities confronted seasonal labor and housing pressures. Rural areas without major employers or amenity economies remained much more vulnerable.
North Carolina ended 2017 with evidence that economic diversification and population growth were working. The next-stage challenge wasn't proving that the state could grow. It was determining whether the physical and human capacity supporting that growth could expand fast enough—and whether the resulting prosperity could extend beyond the metropolitan regions already possessing the greatest leverage.
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V. UNITED STATES
The United States entered 2017 with an economy strong enough that the central bank was no longer debating whether normalization should begin. It had begun. The federal funds target stood at 0.50 to 0.75 percent after the December 2016 increase, unemployment was below 5 percent, and the financial system had long since moved beyond the emergency conditions of the crisis. What remained uncertain was the speed at which monetary support could be removed without interrupting an expansion that still exhibited relatively weak inflation and limited labor-force participation.
The first half supplied stronger evidence than 2016 had. Consumer spending continued advancing, business investment recovered, exports improved, and the labor market tightened. The Federal Reserve raised rates in March and again in June, bringing the target range to 1.00–1.25 percent. More importantly, in June it published the mechanics for eventually reducing the enormous securities portfolio accumulated under quantitative easing. Treasury runoff would initially be capped at $6 billion per month and agency debt and mortgage-backed securities at $4 billion, with the caps rising gradually over time. Monetary normalization was moving beyond interest rates and toward the balance sheet itself. (Federal Reserve)
The pace of those decisions provides a useful comparison with 2016. An entire year had passed between the Fed's December 2015 and December 2016 rate increases because policymakers repeatedly confronted weak investment, low inflation and global instability. In 2017, the Fed raised rates twice before July. The difference was an institutional judgment about the durability of the expansion.
Trade policy moved in the opposite direction. In January, the United States formally withdrew from the Trans-Pacific Partnership, rejecting an agreement intended to integrate the United States more deeply with a large group of Pacific economies. In May, the administration formally notified Congress that it intended to renegotiate NAFTA, with negotiations scheduled to begin after the required consultation period. These actions carried forward the political-economic fracture visible in 2016. The American economy was strengthening at the same moment the country was reassessing some of the international arrangements that had shaped it for decades. (United States Trade Representative)
Around July 1, the domestic economy looked considerably more convincing than it had twelve months earlier. Unemployment was near 4.4 percent, the Fed had completed two increases during the first half, and its balance-sheet normalization plan was no longer theoretical. Business investment was improving, manufacturing conditions were firmer and global economic growth was becoming supportive rather than threatening. The concern was shifting. The question was no longer whether there was enough demand to keep the expansion going, but whether the economy was beginning to run short of workers and productive capacity.
The political argument surrounding trade nevertheless continued. Public hearings on NAFTA renegotiation took place June 27–29, literally surrounding the July checkpoint, and formal negotiations began in August. The timing is instructive. International trade was beginning one of its strongest cyclical recoveries in years precisely as the United States was reconsidering the terms under which it participated in that system. (United States Trade Representative)
The second half strengthened the macroeconomic case. Real GDP ultimately increased 2.3 percent for the full year, compared with 1.5 percent in 2016, with consumer spending, nonresidential fixed investment and exports making positive contributions. Growth was widespread across industries: 20 of 22 major industry groups contributed, with real estate, health care and durable-goods manufacturing among the leading contributors. This was a more balanced expansion than one driven predominantly by household consumption or financial activity. (Bureau of Economic Analysis)
The Federal Reserve moved farther in September by announcing that balance-sheet normalization would begin in October. For the first time since quantitative easing had dramatically expanded the central bank's holdings, securities would begin running off systematically rather than being fully reinvested. The process was deliberately slow, but the direction was unmistakable: the central bank was attempting to make itself less central to the functioning of financial markets. (Federal Reserve)
The labor market remained strong enough to absorb major disruptions. Hurricanes Harvey and Irma affected energy infrastructure, regional employment and economic activity during late summer and early autumn, yet the national expansion continued. By December, unemployment was 4.1 percent, hourly earnings were 2.5 percent higher than a year earlier and payroll employment had increased approximately 2.1 million during 2017. (Bureau of Labor Statistics)
The Fed responded with a third rate increase in December, bringing the target to 1.25–1.50 percent. Three increases and the beginning of balance-sheet reduction represented a degree of policy normalization that would have been difficult to imagine only a few years earlier. Yet inflation remained comparatively subdued, demonstrating that low unemployment had not yet produced the strong price acceleration conventional models might have predicted. (Federal Reserve)
Then, on December 22, Public Law 115-97—the tax legislation commonly known as the Tax Cuts and Jobs Act—was signed into law. It substantially altered individual and business taxation, including a permanent reduction in the statutory corporate tax rate and major changes to the international taxation of American businesses. Because most of its economic effects would occur after 2017, the legislation belongs less to the year's measured performance than to the condition handed forward into 2018. The year ended with monetary policy becoming less stimulative while fiscal and tax policy was preparing to become significantly more supportive of business cash flow and investment. (Congress.gov)
That combination set up an important tension. The Federal Reserve was removing accommodation because it judged the economy increasingly capable of standing on its own. Congress and the administration were simultaneously enacting a large structural tax change intended in part to encourage investment and growth. At the same time, the United States was renegotiating the international trade rules under which many manufacturers and supply chains operated.
The American economy therefore closed 2017 stronger, but also positioned for greater policy experimentation. Recovery had become expansion. What happened next would increasingly depend upon how a tightening labor market, tax changes, monetary normalization and a more confrontational trade policy interacted with one another.
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VI. INTERNATIONAL
The international economy entered 2017 from a surprisingly favorable position considering the anxiety that had characterized the beginning of 2016. China's feared hard landing had not occurred. Commodity markets had stabilized. Oil-producing economies received some relief. European growth had improved. The immediate financial consequences of Brexit had been far less severe than initially feared. The larger political challenge to globalization remained, but the economic system itself was beginning to strengthen.
That distinction became increasingly visible during the first half. Industrial production and trade accelerated across several major economies, while activity in China, Europe and parts of the emerging world exceeded earlier expectations. The global environment that had repeatedly complicated Federal Reserve policy during 2015 and 2016 was becoming a source of support to the American expansion instead.
The Chinese economy was particularly important. The financial instability and slowing growth that had generated global concern two years earlier gave way to a more stable performance. Later official estimates placed 2017 GDP growth at 6.9 percent, with manufacturing output increasing 7 percent and the much larger tertiary sector expanding 8 percent. China's longer-term debt, property and rebalancing problems had not disappeared, but the immediate fear that its transition would destabilize the global economy had substantially receded. (National Bureau of Statistics of China)
Europe likewise surprised to the upside. Economic activity across France, Germany, Italy, Spain and other euro-area economies strengthened enough that the IMF repeatedly revised the region's outlook upward. Japan and emerging Asia also improved. The global expansion was becoming unusual not because any individual economy was experiencing extraordinary growth, but because relatively few large economies were moving in the opposite direction at the same time.
Around July 1, this represented one of the most dramatic changes from the preceding year. The IMF's July World Economic Outlook update would describe the recovery as “firming,” projecting 3.5 percent global growth for 2017 and noting that first-quarter performance had exceeded expectations across several advanced and emerging economies. Global trade and industrial production were expanding at rates well above those seen during 2015 and 2016. The United States was no longer carrying the expansion while waiting for weaker regions to catch up; the world economy was beginning to move more synchronously. (IMF)
This created a contradiction for a manufacturing region such as the Foothills Corridor. Global trade was producing stronger demand for manufacturers just as American policymakers were becoming more skeptical of the trade system producing that demand. Stronger overseas growth could support orders for American manufacturers and their suppliers, while trade renegotiation created uncertainty over the future structure of those supply chains.
The second half strengthened the global picture. By October the IMF had raised its 2017 global growth projection to 3.6 percent and described the upswing as broad based, with investment, trade, industrial production and confidence all contributing. The organization still warned that the recovery remained incomplete and that long-term problems involving productivity, debt and unevenly shared gains had not disappeared. The stronger cyclical environment was being treated as an opportunity to address structural weaknesses rather than evidence that those weaknesses had somehow solved themselves. (IMF)
World trade became the clearest numerical representation of the shift. Merchandise trade volume ultimately increased 4.7 percent during 2017, compared with only 1.8 percent in 2016, producing the strongest annual trade growth since 2011. The value of merchandise exports rose even more sharply as commodity prices recovered. Increased investment spending, particularly in the United States, and stronger consumption across several major economies contributed to the rebound. (World Trade Organization)
For the Foothills, these statistics weren't remote abstractions. Corning, Continental, Albemarle, Baxter and other companies operating within the broader region were parts of international corporate and supply-chain systems. Foreign companies continued investing in North Carolina, while North Carolina manufacturers purchased materials, machinery and components from overseas and sold into markets whose demand depended upon economic conditions far beyond the state. The same global integration that had devastated portions of the region's old industrial economy was increasingly supporting the newer one.
That doesn't make the earlier losses irrelevant or prove that globalization's gains were evenly distributed. It demonstrates something more complicated. By 2017, the Foothills had become integrated into globalization through a different set of industries and competitive advantages than those that existed before the furniture and textile collapse. Advanced manufacturing, engineered materials, automotive systems, fiber optics and specialty chemicals could benefit from international markets while employing fewer and more technically skilled workers.
The political consensus around international integration remained far weaker than the economic performance itself. The United States had abandoned TPP and was renegotiating NAFTA. Brexit negotiations continued. International institutions repeatedly warned that the benefits of growth and trade needed to reach broader populations if support for an open economic system was to remain durable. The global economy had recovered faster than public confidence in the system of trade agreements and institutions supporting it.
By December, however, the international economic condition was difficult to describe as anything other than expansion. China had stabilized. Europe had accelerated. Japan was growing. Emerging economies were improving. Industrial production and trade were rising together.
The world economy had become synchronized again.
The unanswered question was whether the politics of globalization would allow that synchronization to continue.
THE SYNTHESIS — THE WRAP
The economic landscape at the end of 2017 was stronger than the one that entered the year, but the significance lies in the nature of the change. The preceding years had been dominated by the long process of repairing what the Great Recession and the deeper industrial restructuring had damaged. By 2017, enough of that repair had occurred that different constraints were beginning to emerge.
At Ground Level, unemployment fell to 4.1 percent, median household income increased for a third consecutive year and poverty declined again. Those weren't merely financial-market achievements or improvements visible only in national aggregates. More households were participating in the expansion.
Yet the household economy also demonstrated how recovery could create new forms of pressure. Home prices increased 6.7 percent nationally. Household debt reached $13.15 trillion. Gasoline was no longer becoming cheaper. Labor-force participation remained essentially unchanged. For a homeowner with employment, rising wages and appreciating property, the economy could feel increasingly secure. For a younger worker attempting to buy that property while carrying student or automobile debt, the same expansion could make entry into stability progressively more expensive.
Hickory and Catawba County presented the regional version of the same transition. Manufacturing employment continued rising, Corning announced another major fiber-optic facility, investment broadened and unemployment moved near 4 percent. But the strongest evidence that the economic condition had changed may have been institutional rather than statistical. Catawba County launched K-64 because local leaders were no longer planning only around insufficient employment. They were planning around the possibility of insufficient workers.
That is a significant historical reversal.
The community that had spent much of the previous fifteen years absorbing industrial job destruction was beginning to organize education, workforce development and even quality-of-place investments around attracting and retaining working-age people.
Across the Foothills Corridor, that shift occurred at a broader scale. Clearwater Paper in Shelby, Baxter in Marion, Ryan-AL in Lenoir, Continental and later VEKA and Greenworks in Morganton, Albemarle in Kings Mountain, industrial reuse in Rutherford County and a growing university-tourism economy around Boone demonstrated that economic activity wasn't confined to one Hickory-centered cluster. Different nodes were beginning to find different paths through the post-restructuring economy.
The Corridor was becoming economically more diverse even as it remained geographically fragmented.
That fragmentation was the next problem.
The region possessed manufacturing capacity, industrial buildings, highways, colleges, universities, tourism assets and a growing collection of specialized employers, but those assets were generally developed and governed as county or municipal resources. The economy itself operated across those boundaries through commuting, suppliers, capital and consumer movement. Regional economic capacity was growing faster than regional economic coordination.
North Carolina showed the same issue one level higher. The state added more than 116,000 residents, unemployment declined, manufacturing employment increased and economic-development announcements reached $4.86 billion. Its larger metropolitan regions continued attracting population and professional employment, while manufacturing investment demonstrated that smaller industrial communities could still compete.
The statewide problem was increasingly not a lack of growth, but the fact that growth was occurring very differently from one part of North Carolina to another.
Charlotte could need more roads and housing because too many people were arriving while a Foothills community might need workforce and housing precisely because too few working-age people had been arriving. Both were capacity problems, but they pointed in opposite directions.
Nationally, the transition was even clearer. GDP growth accelerated from 1.5 percent in 2016 to 2.3 percent in 2017. Business investment strengthened. Manufacturing contributed materially to growth. Payroll employment added another 2.1 million jobs. The Federal Reserve raised interest rates three times and, more consequentially, began shrinking the balance sheet accumulated during the crisis.
The institution that had spent years attempting to create enough economic demand was now deliberately withdrawing stimulus because the economy no longer required the same level of support.
That is probably the cleanest national marker separating recovery from expansion.
At the same time, American policy was preparing to test the expansion from several directions. The United States withdrew from TPP, began renegotiating NAFTA and enacted the largest structural revision of the federal tax system in decades. The effects of those decisions largely belonged to the years ahead, but the direction entering 2018 was clear: monetary support was being reduced while tax and trade policy were being reconfigured.
Internationally, 2017 supplied a development that few observers standing amid the instability of early 2016 could have confidently predicted. The world economy synchronized.
China grew 6.9 percent. Europe strengthened. Emerging markets recovered. World merchandise trade increased 4.7 percent, its strongest pace in six years. The global economy was functioning better just as political skepticism about globalization was becoming institutionalized in some of its largest member states.
Taken together, those developments change where 2017 belongs in the ESR chronology.
2015 represented normalization without restoration.
2016 represented recovery without reassurance.
2017 was the year recovery broadened into expansion—and the dominant constraint began moving from insufficient demand toward insufficient capacity.
That capacity took different forms at different Levels.
For households, it involved income sufficient to keep pace with housing, debt and the cost of building a stable life.
For Hickory, it involved enough workers with the technical skills demanded by the emerging industrial economy.
For the Foothills Corridor, it involved transportation, housing, workforce systems, infrastructure and enough regional coordination to connect separate economic nodes.
For North Carolina, it involved managing the uneven geography of population and investment.
For the United States, it involved determining how far unemployment could fall and investment could expand without generating inflation or financial instability.
Internationally, it involved sustaining a synchronized expansion inside a political system increasingly skeptical about the distribution of globalization's gains.
This didn't mean the era of economic weakness had ended permanently. It meant the machine was beginning to encounter limits somewhere else.
For most of the post-recession period, policymakers and communities had worried about empty factories, unemployed workers, weak consumption and capital unwilling to move.
By the end of 2017, more of the economic conversation concerned workers who had to be found, skills that had to be developed, housing that had to be built, infrastructure that had to be expanded, and capital that had to be converted into something broader than an announcement.
That is the transition 2017 handed into 2018.
The economy was no longer primarily asking whether it could generate momentum.
The next question was what would happen when expanding demand, tightening capacity, tax stimulus, monetary normalization and a changing trade regime all began pressing against the system at the same time.
