Professor: Labor market strong; inflation persists into 2023

Published 6:53 pm Wednesday, December 7, 2022

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The gap between the consumer price index for all urban consumers (CPI-U) and the Fed Funds Rate remains too wide to reflect progress toward inflation reduction, according to John Connaughton, director of the North Carolina Economic Forecast.

The Federal Reserve, which meets again in December, is expected to roll out smaller interest rate increases, but the pace of inflation likely won’t slow until well into 2023.

“Until the Fed Funds Rate gets closer to CPI-U, we won’t see a significant change in inflation,” Connaughton said.

According to Connaughton, CPI has increased more than 15% since August 2020, while wages have only increased 11%.

“Even when we start slowing price increases, the wages will ultimately need to catch up and may catch up by the end of 2023,” Connaughton said. “There will be wage inflationary pressure for most of 2023.”

Previous concerns over a recession appear to have dwindled going into 2023. Key indicators, such as consumer behavior and labor market trends, simply aren’t pointing toward an economic downturn, according to Connaughton.

“So far, we haven’t seen a significant weakness in the job market,” he said. “The unemployment rate would need to rise before people begin changing the way they spend their money.”

The Belk College released the Fourth Quarter North Carolina Economic Forecast Report Dec. 7 with Connaughton’s virtual presentation.

Gross Domestic Product Analysis

For 2023, North Carolina’s real (inflation-adjusted) GDP is expected to increase by 1.2% over the 2022 level, according to the report. This growth will represent the third full year of growth since the COVID-19 pandemic.

For the first quarter of 2023, GDP is expected to grow by an annualized rate of 1.1%.

Connaughton forecasts an output increase for 12 of the state’s 15 economic sectors during 2023. The sectors with the strongest expected growth rates include:

• Agriculture: 3.1%;

• Mining: 3.1%;

• Hospitality and Leisure Services: 2.1%;

• Other: 2.6%;

• Business and professional services: 2.5%;

• Information: 1.9%;

Three sectors are expected to experience growth rates below the overall state growth rate of 1.2%:

• Transportation, warehousing and utilities: 1%;

• Durable goods manufacturing: 0.8%;

• Retail trade: 0.5%.


According to the report, all 14 of the state’s nonagricultural sectors are expected to experience employment increases during 2023. The sectors with the strongest expected employment increases are:

• Information: 5.7%; and

• Other services: 3.6%.

North Carolina employment is expected to reach 4,910,200 persons by December 2023, a 1.5% increase over the December 2022 employment level. The state is expected to add 72,800 net jobs in 2023.

North Carolina’s unemployment rate, which started 2022 at 3.9%, should close the year at 3.6%. Connaughton expects the state unemployment rate to increase slightly during 2023, to 3.9%.

2022: A look back

North Carolina GDP defied the national trend during the first two quarters of 2022, according to Connaughton. At the emergence of the Omicron variant of COVID-19, U.S. GDP declined 1.6% in the first quarter and 0.6% in the second quarter, while North Carolina GDP increased 2.8% in the first quarter and only decreased 0.4% in the second quarter.

According to the report, nine of the state’s 15 economic sectors are expected to experience output increases during 2022, a change from the September 2022 report. The sectors with the strongest expected real increases are:

• Mining: 30.1%;

• Agriculture: 26.1%;

• Business and professional services: 11.2%;

• Information: 10.4%; and

• Hospitality and leisure services: 8.8%.

Six sectors are expected to decline in 2022:

• Construction: 7.4% decrease;

• Durable goods manufacturing: 4.4% decrease;

• Nondurable goods manufacturing: 2.4% decrease; and

• Retail trade: 2.2% decrease.

UNC Charlotte’s Belk College of Business publishes the North Carolina Economic Forecast, which debuted in 1982, quarterly. The full report and a recording of the presentation will be available at