The economy has a direct impact on state revenue collections. OSBM continuously monitors relevant economic indicators likely to affect state revenues in support of the Governor’s role as Director of the Budget.
The North Carolina constitution requires the Governor to continually survey state revenue collections to ensure that the State does not incur a fiscal deficit. The constitution also directs the Governor to include anticipated revenues as part of the Governor’s recommended budget.
Below are several key economic indicators OSBM monitors to inform projections of state revenue collections:
State gross domestic product (GDP) measures the monetary value of all goods and services produced within a state’s boundaries and is among the broadest measures of state economic activity. North Carolina’s GDP fared better than most of our neighboring states during the Great Recession, with growth accelerating after a period of slow growth during the early years of the recovery. Professional forecasters expect North Carolina GDP to continue expanding at a steady pace in the coming years.
State Leading Index
The state leading indexes, published monthly by the Federal Reserve Bank of Philadelphia, are designed to predict the path of state economic growth over the subsequent six months. North Carolina’s leading index has been consistently at or above the national index since the last months of 2011. The upward trend in North Carolina’s leading index suggests that the state should expect sustained growth in the months ahead.
Wage and Salary Income
Aggregate wage and salary income of North Carolina’s workers is among the primary determinants of state revenues. Changes to workers’ wage and salary incomes, which directly affect the amount of taxes withheld from paychecks and indirectly affect workers’ spending patterns, are quickly reflected in state revenue collections. After a multi-year period of modest growth after the end of the Great Recession, workers’ wage and salary growth has accelerated since the end of 2013.