1. ECONOMIC OUTLOOK: AT LAST, MOVING AHEAD? Dr. Michael Walden Reynolds Distinguished Professor North Carolina State University 1

2. USEFUL TO THINK OF ECONOMIC ISSUES IN TWO PARTS 1. SHORT-RUN “CYCLICAL” ISSUE RELATED TO THE RECESSION AND RECOVERY 2. LONG-RUN “STRUCTURAL” ISSUES RELATED TO OUR ECONOMIC PATH FOR NEXT 50 TO 75 YEARS 2

3. FIRST – CYCLICAL ISSUES 3

4. AGGREGATE PRODUCTION HAS TOTALLY RECOVERED 4

5. THE JOB MARKET IS ALMOST HALF WAY BACK 5

6. MANUFACTURING HAS BEEN A BIG PLUS 6

7. ….. AS HAVE EXPORTS billions of real 2005 $ 7

8. THE DOLLAR HAS WEAKENED AGAINST FOREIGN CURRENCIES 8

9. BUT CONSUMER SPENDING GROWTH LAGS ( COMPARING 2001 AND 2007-09 RECESSIONS AND RECOVERIES) 9

10. MAINLY BECAUSE HOUSEHOLD WEALTH HAS NOT FULLY RECOVERED 10

11. HOME PRICES HAVE STILL NOT REBOUNDED 11

12. HOME INVENTORIES HAVE DROPPED (MONTHS TO SELL EXISTING INVENTORY) 12

13. AND SOME OPTIMISM FROM IMPROVED HOME SALES AND CONSTRUCTION IN 2011 (sales are of existing units) 13

14. TOTAL INFLATION HAS BEEN VOLATILE (CPI, total and core) 14

15. GAS PRICE TRENDS 15

16. THE “BITE” FROM GAS PRICES HAS BEEN INCREASING – BUT NOT YET A RECORD (GAS SPENDING AS A % OF TOTAL SPENDING) 16

17. FUNDAMENTAL ISSUE – OIL DEMAND INCREASING FASTER THAN OIL SUPPLY (WORLD CONDITIONS, MILLIONS OF BARRELS PER DAY) 17

18. COULD RISING GAS PRICES DERAIL THE RECOVERY? EVERY 10 CENT RISE IN GAS PRICE REDUCES GDP GROWTH RATE BY 0.2% GAS PRICE ABOVE $5/GALLON WOULD STALL THE RECOVERY 18

19. WHAT ARE INTEREST RATES SAYING? (YIELDS ON TREASURY SECURITIES) 19

20. NATIONAL FORECASTS BETTER GROWTH: 200,000-250,000 JOBS CREATED PER MONTH HEADLINE UNEMPLOYMENT RATE NEAR 8% AT YEAR’S END 2.5% TO 2.75% GDP GROWTH RT CONSUMERS SPENDING MORE WILDCARD – ENERGY PRICES AND POTENTIAL MIDEAST CONFLICT 20

21. GOVERNMENT POLICY 21

22. The Fed’s Monetary Policy 22

23. FISCAL POLICY (GOV’T PURCHASES OF GOODS AND SERVICES, 2005$) 23

24. STRUCTURAL ISSUES 24

25. FIVE BIG STRUCTURAL ISSUES GLOBALIZATION AND SKILLS DEMOGRAPHY AND PUBLIC SPENDING EFFICIENT PUBLIC REVENUE COLLECTION INFRASTRUCTURE UPGRADING ENERGY TRANSITION 25

26. NORTH CAROLINA ECONOMY 26

27. BY ONE MEASURE, NC’S ECONOMY HAS DONE AS WELL OR BETTER THAN THE NATIONAL ECONOMY IN RECENT YEARS 27

28. NC HAS MORE JOB GROUND TO MAKE UP (% CHANGE IN SEAS. ADJ. NON-FARM EMPLOYMENT) 28

29. THE NORTH CAROLINA FARM ECONOMY HAS GROWN FASTER IN RECENT YEARS FROM 2006-2010 NC AG SECTOR OUTPUT VALUE UP 29% TOTAL NC OUTPUT VALUE UP 0.1% 29

30. JOB GAINS (%) IN METRO AREAS SINCE BOTTOM OF JOB RECESSION (Feb. 2010) Raleigh-Cary5.2% Asheville4.7% Burlington 4.5% Charlotte 4.3% Fayetteville2.9% Greensboro-HP 2.9% Durham-CH 2.7% Goldsboro 1.9% Greenville 1.6% Hickory 1.5% Winston-Salem 1.0% Rocky Mount 0.7% Jacksonville -0.2% Wilmington -1.0% 30

31. 31

32. NC ECONOMIC FORECAST FOR 2012 BETTER GROWTH 75,000 – 80,000 JOBS CREATED 9% JOBLESS RATE BY YEAR’S END 32

33. PREPARING N.C. FOR THE FUTURE MORE TECH TRAINING IN HIGH SCHOOL MOVING STUDENTS THROUGH COLLEGE FASTER MORE $ FOR ROADS REVAMPING MEDICIAD TAX REFORM 33

34. WITH SOME EXCITING CHALLENGES Feeding a richer world Using, but preserving, our natural resources Harnessing technology to solve energy and medical issues 34