The New Normal: Opportunities and Challenges

By Ted Abernathy, Managing Partner, Economic Leadership, LLC

Last year at this time, America’s metros were trying to make sense of the emerging post-pandemic economy. In North Carolina daily life was returning to a new normal with strong job growth, persistent talent shortages, and an expanding economy buffeted by painful inflation. Polls showed pessimism and most experts were predicting a 2023 recession.

But a funny thing happened on the way to a recession, despite the Federal Reserve continuing to raise rates to dampen growth, consumers pushed the economy to a stronger recovery, spending the extra savings they accumulated during the pandemic. Reshoring and foreign direct investment (FDI) remained strong. The government stimulus and new industrial policies fueled explosive growth in semiconductors, electric vehicles, batteries, and life sciences. The U.S. set new records for energy production leading to lower gas prices. Jobs remained plentiful and real incomes grew. A mild recession in 2024 is still possible, but the odds of achieving a soft landing continue to improve.

Despite a better than anticipated economy, challenges remain. Real estate markets, especially office, retail and housing, have been depressed by high interest rates, remote or hybrid work, online shopping growth, and workforce issues. Supply chains are still experiencing negative impacts from the Russian invasion of Ukraine, the recent Middle East conflict, drought in Panama, and the decoupling of the U.S. and China economies. Critical occupation shortages have not improved. We have national shortages for teachers, nurses, public safety officers, and craftspeople. Places are still competing for talent. Childcare availability, and affordability, is now a recognized crisis. National elected officials, entrenched in win/lose politics, are a persistent risk to the economy.

These are the thorny issues most places share, creating opportunities and threats. In our region, 2024 is not the time for either complacency or fatalism. It is the time for innovative thinking and strategic actions. It is the year where our leaders, and regional stewards, practice foresight and aggressively position our region for future success.

Few states navigated the pandemic’s economic challenges better than North Carolina. From early 2020, just before the pandemic, to today, North Carolina jobs have grown seven percent, the sixth fastest in the country and more than twice the national growth average. During the same period, the Raleigh MSA has increased jobs by 11.4 percent, stronger growth than any state. From 2019 to 2022, North Carolina has also experienced growth in personal incomes and gross domestic product (GDP) faster than the nation. The state continues to be ranked near the very top as a place for businesses to succeed, and a trove of major announcements in 2023 bear witness that our economy has benefited.

Some of North Carolina’s rankings are especially important. North Carolina places among the leaders in worker training. The training and retraining of workers will be even more important as Generative Artificial Intelligence begins to impact work. High rankings for Life Sciences, Semiconductors, the EV Industry AgTech, and Cyber Security should place the state to grow the jobs of the future. A top 10 rating for FDI positions the state to benefit from changing geopolitics. If North Carolina can continue to be a place where young talent wants to be, then our state is well positioned for the next decade.

I do not believe any American region is better situated for the future than the Research Triangle. The Raleigh-Cary Metropolitan Statistical Area (MSA) continues to receive numerous accolades and enjoys one of the country’s most successful economies. Talent remains the top factor for business investment. Our firm’s assessment of technology talent places both the Raleigh-Cary metro, and the Durham-Chapel Hill metro among the top 10 nationally. Being among the best places for millennials, Gen Zers, young professionals, families, and veterans adds up to a demonstrated talent advantage. RDU’s amazing growth and recent ranking as one of the country’s top large airports is enabling increased worldwide connectivity. New investments in mobility, parks, and broadband are helping to maintain a quality-of-life advantage. The region has always had a higher education advantage, and our community colleges and universities remain critical to our success.

Looking into 2024, in the first half of the year, the national economy will still face the headwinds of high interest rates, tighter bank lending practices, the resumption of student loan payments, and the lack of excess savings to support consumer spending. It is also a presidential election year, and the flood of negative and divisive messaging targeted at voters is likely to sour consumer and corporate thinking and spending. If you are optimistic, the second half of 2024 could see inflation drop closer to the Federal Reserve target of two percent and result in modest rate cuts.

Closer to home, our region should not be complacent. Ensuring future affordability should be a priority. The balance between a great quality-of-life and affordability (when compared to other highly educated technology-rich regions) has always been a competitive strength for Raleigh and the Research Triangle. In recent years, widely reported out-migration from expensive regions of the country provides a lesson to be heeded.

In economics the relationship between supply, demand and price is fundamental. We expect that our region will continue to be a place where people want to live, and businesses want to grow. Demand will be strong. The supply of places to live, and locations to work, needs to grow equivalently or prices will increase and eventually become unaffordable. Labor sheds and housing sheds tend to be regional and strategic approaches require collaboration among our counties and municipalities. Another priority should be the continued engagement and collaboration of our public and private leaders.

I often ask groups whether anyone expects the pace of change to slow, or the complexity of our challenges to lessen. No one ever says they expect either. I am sure that they are right. Our regional leaders will all need to keep our eyes forward as we navigate what may come. As Jimmy Buffett said, “breath in, breath out, move on.”

For a detailed look at our local economy, download the 2024 Economy & Business Report.