I. North Carolina Forecast

The first section of the North Carolina Economic Forecast 1999 appropriately focuses on the economic conditions of North and South Carolina. The first of the two articles presented in this section forecasts North Carolina gross state product for 1999 and 2000. The second article forecasts unemployment for both North and South Carolina, also for 1999 and 2000.

McManus and Barnwell forecast North Carolina gross state product two years into the future using a Keynesian aggregate expenditures approach. They find North Carolina economic growth will continue for the next two years at moderate rates of one to two percent.

Guidos and Wall forecast state unemployment two years into the future for both North and South Carolina. Their analysis highlights the significantly greater resistance to protracted recession provided by North Carolina's greater economic diversity. South Carolina did not emerge from the most recent recession until 1994. In contrast, North Carolina's unemployment rate has not been above the consensus natural rate of six percent any time in the last ten years. Guidos and Wall employ an inverted short-run Phillips curve to predict continued low unemployment, between three and four percent, for both states, for the next two years.

Taken together, the prospect of a growing economy and continued low unemployment is especially favorable. The low unemployment rate is often cited by Federal Reserve System officials as a potential source of inflation which might justify higher interest rates. Higher interest rates would discourage capital investment, lowering real output. The forecast suggests no such monetary tightening is likely to be justified.