Chapter 3: The State of Western North Carolina's Regional Economy

As shown in Table 3-1 and Figure 3-1, the national economy has been growing slowly since 2009. The economy of North Carolina grew faster than the U.S. economy in 2012. Nationally, North Carolina ranked ninth in gross domestic product and eleventh in gross state product growth rate in 2012 (See Appendix Table A-1 for details).

In millions of 2005 dollars
* 2011 and 2012 values are estimates from Woods & Poole.
Source: Bureau of Economic Analysis, US Department of Commerce, and Woods and Poole 2013

 

Western North Carolina’s economy was estimated to grow by 1.08 percent in 2011 and 1.26 percent in 2012, which is higher than the -0.73 percent growth that occurred in 2010. The WNC economy started expanding from a low point in 2010. Most key economic indicators predict a slow rebound after the recession.

The 2012 economic output of WNC, by industry, is shown in Table 3-2. In 2012, the top three industries in WNC were manufacturing (28 percent), finance/insurance/real estate (16 percent), and services (15 percent). Manufacturing accounted for more than one-quarter of total production. In contrast, mining and agriculture made a very small contribution to the regional economy, accounting for only 4 percent of total production in 2012.

Source: IMPLAN Data 2012

NORTH CAROLINA'S SEVEN ECONOMIC DEVELOPMENT REGIONS

North Carolina has designated seven regional development partnerships that capture all 100 of the state’s counties (see Map 3-1). The twenty-three westernmost counties are known as the AdvantageWest region, which covers approximately 10,000 square miles. This study focuses on the economy of this region.

 

As shown in Table 3-3, the population growth rate of the AdvantageWest region is declining. This trend is further demonstrated by longer-term data. In 1980, 13.7 percent of the state’s population resided in the western twenty-three counties. By 1990, this figure fell to 12.9 percent. Then, in 2000 and 2010, the population fell to 12.4 percent and 11.5 percent respectively.

Source: US Census and Woods & Poole 2013
* Average of counties in each region
** Per capita income in the past 12 months (in 2011 inflation-adjusted dollars), 2007-2011
*** Access NC, North Carolina Department of Commerce

Other demographic shifts have accompanied the region’s change in population. For example, the median age of the regional population was 44.3 years in 2010, which was the highest among the state’s seven economic development regions. In 2010, the white population in the region was 90.4 percent, again the highest in the state.

During 2007-2011, the per capita personal income in North Carolina was $25,256, which was 90.5 percent of the national average. Comparatively, the regional per capita personal income in the AdvantageWest region was $21,430, which was lower than the statewide average and only 76.8 percent of the national average.

During 2007-2011, median household income in the state of North Carolina was $46,291. In the AdvantageWest region, median household income during 2007-2011 was $38,149, which was 82.5 percent of the statewide average. It was the lowest in the seven regions of the state.

Income disparities across the state persist as poverty increases. In 2010, the average U.S. and state poverty rates were 15.1 percent. During 2007-2011, the percentage of people in the region living below the poverty level was 17.3 percent, slightly higher than the statewide average of 16.1 percent (See Appendix Table A-2 for details). Table 3-3 demonstrates these key indicators and economic variables to show the AdvantageWest region’s ranking in relation to the rest of the state .

 

EMPLOYMENT

A decline in farm employment since 1980 has had a significant negative effect on total regional employment. Between 1980 and 1990, farm employment declined 23.8 percent, followed by a decline of 20.9 percent between 2000 and 2010. The only exception was a small increase of 1.0 percent between 1990 and 2000. Nonfarm employment has not been able to fully absorb this shift, particularly in light of declines in other employment sectors.

In the private, nonfarm sector, the manufacturing industry lost a significant number of jobs between 1990 and 2010. Approximately 50.6 percent of the jobs in the manufacturing industry were lost between 2000 and 2010. The loss of jobs in the manufacturing industry is attributed to numerous factors, but is primarily the result of outsourcing goods overseas. Many layoffs occurred, leading to a tremendous loss of jobs in the furniture and textile industries. Then, several industries in other employment sectors experienced a decline in the number of jobs between 2000 and 2010. Affected industries include construction, wholesale trade, retail trade, and transportation. The utilities industry lost 12.7 percent of its employment between 2000 and 2010, while the information industry lost about 17.4 percent of its employment.

Between 2000 and 2010, most new job creation occurred in the real estate and education sectors. The real estate sector experienced about a 58.8 percent increase in new jobs, while the education sector experienced about a 66.6 percent increase. Business and health services are also growing rapidly in WNC. The growth in this category will bring additional jobs to the regional economy. Currently, the business management industry has experienced significant growth and presents a promising outlook for the future job market.

As depicted in Figure 3-2, total employment in WNC has fluctuated over the last two decades, even when controlling for seasonality, which more accurately reflects employment behavior.

Figure 3-3 shows unemployment rates for WNC and North Carolina since 1990. Historical data indicates that the unemployment rate decreased between 1991 and 2000 in both WNC and North Carolina. During this same period, total employment fluctuated significantly. In 2002, the state entered an expansion period. Total employment increased drastically while the unemployment rate decreased. The unemployment rate started to decrease in 2002 until the Great Recession started in 2007. During this economic recession, the unemployment rate of WNC was more than 11 percent but decreased to 9.6 percent in 2012.

 

In examining the local, regional, state, or national economy, it is important to identify the unique characteristics of an economy’s industrial structure because these characteristics provide an indication of each industry’s likely contribution to the overall economy. In North Carolina, for example, traditional manufacturing industries such as apparel, furniture, textiles, and tobacco have been shrinking for several years and could have a negative effect on an economic forecast.

In 2012, the top five employment industries in North Carolina were government and non-NAICs (that is, unclassified in by the North American Industry Classification System), health and social services, retail trade, manufacturing, and construction. In comparison, WNC’s top five industries in terms of employment are government and non-NAICs, health and social services, retail trade, manufacturing, and accommodation and food services. The government and non-NAICs account for 14.6 percent of employment in WNC.

Location quotients are frequently used when performing an economic analysis. They indicate the employment density of an economy by industry based on the overall state economy. In other words, location quotients are one way to measure an industry’s labor concentration in a specific region relative to the rest of the state by simply taking an industry’s share of regional employment and dividing it by the industry’s share of state employment. If the location quotient of an industry is 1, then the industry’s share of regional employment is the same as the industry’s share of employment in the state. For example, in Table 3-5, the employment shares for arts and recreation services in WNC and in North Carolina as a whole are 2.1 percent and 1.9 percent respectively, which equals a location quotient of 1.13 (the result of the regional percentage divided by the state percentage).

If the location quotient of an industry is greater than 1, it means the industry employs a larger share of the work force regionally than on a statewide basis. It is more likely that the region is a net exporter in an industry if the location quotient is greater than 1 because the region produces more goods or services than would be consumed regionally. In contrast, if the location quotient of an industry is less than 1, the region produces less than enough goods or services to meet area demand, and thus is typically an import industry. Investors and entrepreneurs may view areas with location quotients of less than 1 as opportunities to develop businesses in the local area.

A statistical confidence interval defines a range with a specified probability by creating an upper and lower limit for the mean. For location quotient analysis, the rule of thumb to understand the statistical confidence interval is ±0.15. This means that a location quotient between 0.85 and 1.15 is likely to be considered 1, which indicates that the difference between regional and statewide employment shares is not significant.

As shown in Table 3-5, in WNC, the top five employment-share industries are mining (LQ = 1.44), utilities (LQ = 1.39), construction (LQ = 1.33), real estate and rental (LQ = 1.23), and health and social services (LQ = 1.22).

Source: IMPLAN Data 2012
* NAICS stands for North American Indutry Classification System

In the service industry, WNC has relatively large employment shares in tourism and health services. Service industry employment includes all nonfarm, private industry employment. The location quotients are 1.08 for accommodations and food services, 1.13 for arts – entertainment and recreation, and 1.22 for health and social services. However, for finance and insurance (LQ = 0.67), professional – scientific and tech services (LQ = 0.76), and management of companies (LQ = 0.48), the region employs a lower percentage of the work force than the state employment percentage despite the positive employment outlook discussed in the previous section. A location quotient less than 0.75 may indicate the region is not self-sufficient in that industry. However, for location quotients greater than 0.75, there may be evidence that the local economy is self-sufficient in that industry.

Any initial spending has a ripple effect through the economy as successive rounds of re-spending enlarge its impact. For instance, a tourist spending at a restaurant stimulates related suppliers to provide ingredients and materials to produce more food. These effects can be captured by economic impact analysis using multipliers. The impact from a change in economic activity can be expressed in a concise form by examining a multiplier. The secondary impact of a dollar spent on primary activities varies from industry to industry. In general, manufacturing industries show larger secondary impacts than service industries. In terms of economic development issues, it is important to understand the difference in multiplier effects by industry.

An economic impact analysis normally differentiates three effects: the direct, the indirect, and the induced effects. Understanding all three levels of effects is essential because they represent and display how the initial expenditures create economic activity that goes beyond the initial investment. The direct effect is the original impact of new spending on the first tier of suppliers. For example, $20 spent by a visitor at a local restaurant (first tier) counts as a direct effect of $20. However, this share of spending indicates only a portion of the total economic activity that takes place.

In order to produce the $20 meal, the local restaurant has to purchase inputs from second-tier suppliers. Suppose the restaurant purchases $7 worth of agricultural products from a wholesale dealer (the second-tier supplier). The wholesale dealer then buys $4 worth of products from local farmers (the third-tier supplier). To the extent that these transactions occur locally, these purchases represent additional local spending, which are called indirect effects. In this example, the indirect effects would be $11. Various sectors of the economy are highly affected by an increase in visitor spending.

The third type of effect, induced, can be derived from wages paid by employers involved directly and indirectly in producing the meal. The part of the wages spent locally by households that received wage income associated with this meal from either the first, second, or third-tier suppliers would be induced effects. Suppose the household of a restaurant worker spends $6 in the local grocery and department store. The total effects – the sum of direct ($20), indirect ($11), and induced ($6) effects – would be $37. In this case, the multiplier will be 1.85. This means that every dollar spent on a certain industry eventually has a total impact of $1.85 on the local economy.

 

Source: IMPLAN Data 2012

The multiplier effect also can be estimated in the number of jobs created by an external shock or extra spending, such as new company or visitor spending. Table 3-6 shows employment and output multipliers by industry. Note that induced effects are not included in the estimation because no transactions have actually yet occurred. As a result, the total effects will change significantly when we consider real impacts. However, it still can provide baseline information on the magnitude of indirect effects of each industry.

As shown in Table 3-6, the information industry (whose employment multiplier – direct + indirect – is 2.24) has the largest indirect effects on the economy, followed by utilities (2.18) and the finance and insurance industry (2.15). For the information industry, there will be 2.24 jobs created or maintained in WNC for every one job resulting from the initial spending.

Table 3-7a shows the changes in these five indicators from 2000-2012. All five indicators show a percentage decrease in WNC between 2001 and 2003, most likely the result of the 2001 terrorist attacks and the impact on travel. From 2003 to 2006, there is an increase in percentage in all five indicators, with a decrease in percentage between 2006 and 2009. This directly coincides with the Great Recession that started in 2007. From 2009 to 2010, most indicators see a percentage increase, then a decrease between 2010 and 2012. The tendency for all five indicators to follow the same pattern changes between 2009 and 2012 when payroll and employment experienced an increase in percentage.

Overall, the biggest change in percentage was between 2001 and 2003. During these years, payroll decreased from 16.1 percent to -0.8 percent, employment decreased from 10.9 percent, and state tax receipts decreased from 12.5 percent to 0.6 percent. Exceptions were expenditures and local tax receipts, which had the biggest change in percentage between 2006 and 2009. During these years, expenditures decreased from 9.0 percent to -6.0 percent, while local tax receipts decreased from 8.1 percent to -5.0 percent. If we compare this information with the increase in percentage in payroll and employment between 2009 and 2012, we can infer that the spike in expenditures and local tax receipts in 2010 led to an increase in the workforce.

 

Source: Travel Economic Impact Model (TEIM), North Carolina Department of Commerce

Source: North Carolina Department of Commerce
* January through July only

Year-to-year changes in tourists at welcome centers on North Carolina’s interstates are depicted in Table 3-7b. Welcome centers are located on all major interstates and focus on providing visitors with in-depth information. Between 2006 and 2013, there was a negative change in tourists at visitor centers located on many interstates, including I-26 West, I-26 East, I-40 West, I-85 North, I-95 North, and I-77 North. In 2010, I-85 South, I-95 South, and I-77 South experienced an increase in the percentage of visitors traveling interstates. Interstate 95 South experienced the largest increase with an approximate change of 30.5 percent. In WNC, Interstate 40 West attracts the most tourists; approximately 75,435 as of 2013. On the other hand, I-85 North experienced the largest decrease in travelers in 2013, an approximate drop of 8.7 percent. Furthermore, there are few tourists who visit welcome centers on I-26 West. Overall, it appears that tourism in WNC is declining slightly.

Gross rent is estimated to be contract rent plus the estimated average monthly cost of utilities (to the extent that the renter also pays these). WNC’s percentage change in median gross rent from 2000 to 2010 is about the same as the percentage change for the state during this same period, an approximate increase of 32 percent. Between 2000 and 2010, approximately $141 was added to WNC’s gross monthly rent payment. Between 2000 and 2010, approximately $170 was added to North Carolina’s monthly gross rent payment. Thus, during this time, the state increase in terms of dollars was greater but the percentage increase was virtually equal.

The median value owner refers to the total dollar value of a residential property. The median value of property in the western region was $10,748 in 1970 and $150,350 in 2010. Between 1970 and 1980, the average total value of a residential unit rose 206.3 percent in WNC and 181.3 percent in North Carolina as a whole. Between 1980 and 2000, the median value of property in WNC remained fairly stable at approximately 71 percent. Between 2000 and 2010, the median value of property in WNC dropped 55.2 percent.

 

Source: Log Into North Carolina (LINC)


Owner-occupied housing units are those in which the owner or co-owner lives in the unit, even if the unit is mortgaged or not fully paid. In 1970, the number of owner occupied units in North Carolina was 987,079 but steadily increased to 2,497,900 in 2010. In the western region, the number of owner-occupied housing units was 159,450 in 1970 and 329,664 in 2010. Between 1990 and 2000, WNC experienced a 21 percent increase in owner occupied units. Between 2000 and 2010, owner occupied units in WNC increased 6.9 percent.

Housing units that are occupied only during certain seasons are referred to as seasonal housing units and include winter cabins or beach cottages. The percentage change in seasonal housing units in WNC from 1990 to 2000 was approximately 28 percent, approximately the same as the percentage change for North Carolina during the same time period. In 2010, the number of seasonal housing units in WNC was 74,453, an approximate increase of 60 percent since 2000. In 2010, the number of seasonal housing units in the state was 191,508, an increase of 42 percent since 2000.

Overall, the largest percentage change for all the housing data previously discussed occurred between 1970 and 1980. The in-depth economic analysis revealed that over a forty-year span, the number of housing units for both the state and the region steadily increased.

Healthcare facilities in WNC strive to meet patient needs by providing an array of services. Table 3-9 displays health care data on hospital discharges and hospital and nursing facility beds for the twenty-three westernmost counties in North Carolina.

General hospital discharge refers to the “discharge of residents of the county in all short stay, acute care general hospitals in the state during the federal fiscal year.” [11] General hospital discharges do not include federal and state hospitals and psychiatric and rehabilitation care facilities. In 2009, patients released from health care facilities in WNC totaled 117,497. Buncombe County alone discharged 23,472 patients, which was more than any of the other twenty-two counties. At the other extreme, Clay County, with a population of 10,370 people, discharged approximately 878 patients, which is 0.79 percent of total regional patients.

Nursing facilities in the region provide less care than that offered by acute care hospitals. Thus, the above figures include only beds that are licensed as nursing facility beds. Approximately 17.24 percent of nursing facility beds statewide are located in WNC. According to a Log Into North Carolina report, this figure also includes “licensed long-term nursing care beds in non-federal, non-state general hospital.” [12] Log Into North Carolina is a valuable database for gathering statistical data for North Carolina, as it provides both historical data and future projections.

 

Source: Log Into North Carolina (LINC)


As the most populous county in the western region, Buncombe County houses the most people in nursing facilities in WNC, approximately 22 percent, as shown in Table 3-9. Thus, Buncombe County nursing facilities have a large number of beds. Comparatively, Buncombe County nursing facilities house approximately 3.76 percent of all nursing patients in the state of North Carolina. The least populated counties – Alleghany, Clay, Graham, and Swain – have the fewest number of beds, each with approximately 1 percent of WNC’s beds. Graham County houses the fewest people in WNC, approximately 80 out of the 7,641 total.

Beds in general hospitals are limited to beds that are for short-stay use only, “as licensed at the end of the third calendar quarter of the year.” [13] As with general hospital discharges, figures for beds in general hospitals exclude those used for psychiatry, hospice, and rehabilitation care. Clay, Graham, and Madison counties’ health care facilities do not provide acute care (in other words, they do not offer beds for short-stay use). In contrast, Buncombe, Burke and Henderson counties have many general hospital beds. Buncombe County alone houses approximately 27 percent of acute care patients in the region, while Burke and Henderson counties house approximately 11.7 percent and 10.5 percent of acute care patients respectively. Further, WNC provides approximately 12.13 percent of all acute care in the state.