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2021 Economic Outlook From North Carolina Bankers Association Economist Dr. Harry Davis

After the longest expansion in history, the economy slammed into a wall and a recession in March 2020. The carnage was immediate, with the unemployment rate rising from the lowest level in 50 years to nearly 15 percent. Over 22 million people lost their jobs in March and April, compared to 11 million who lost their jobs during the Great Recession of 2008/2009. Wages and salaries, along with consumer spending, plunged as the economy was shut down. For the year 2020, GDP fell by 3-5 percent.  

For 2021, expect GDP growth to come in around a robust five percent. At the same time, expect the unemployment rate to fall to 5.5 percent by year-end. The Fed will not change the Fed funds rate, but the 10-year treasury bond rate may rise to 1.5 percent by year-end.

Several sectors of the economy will do very well in 2021. Residential construction and home sales were very strong in the third and fourth quarters of 2020. Housing starts rebounded to pre-pandemic levels by the fall and home sales were at the highest level in over 12 years. With interest rates at historically low levels, housing will continue to be a growth sector for the economy in 2021.

This economic downturn was a service sector rather than a goods sector recession. The manufacturing and agricultural sectors also did extremely well.  Factory output expanded at double-digit rates during the last two quarters of last year.  Electronics, home appliances and vehicle sales led factory output. Agricultural sales were robust due to the easing of trade tensions and additional purchases by China.

Loan growth will exceed five percent this year because of the Paycheck Protection Program and the overall strong economic growth. Rising interest rates later in the year will cause some steepening in the yield curve, improving net interest margins (NIMs).

As the vaccine becomes widespread, hospitality, tourism and restaurants will show very strong growth in the second half of the year. People are tired of eating meals out of cardboard and styrofoam boxes. Cruise lines, resort hotels, and airlines will also experience rocket-like growth later this year.

Normal will be very different for how some people work. For millions of people, working from home all or part of the week will be the new normal. Business travel on planes will never return to pre-pandemic levels.

The recession fallout has been uneven across the economy, with the rich getting richer and the poor getting poorer. This trend started over 30 years ago, but the pandemic has accelerated this separation. Some economists have characterized the recovery as having a K-shape.

The North Carolina economy more and more mirrors the national economy.  Our state economy has become more diversified over time and the population has grown to approximately 11 million. The drop in our gross state product was in line with that of the nation. Our state lost about 600,000 jobs last March and April, but we have regained a little over 400,000 new jobs.  Indeed, our state’s unemployment rate has remained under the national rate throughout the pandemic. Revenue growth for the state has been better than expected, and we have a large rainy-day fund. With stimulus money for state and local governments coming soon, the year 2021 should be a good one. Look for our state economy to continue to outperform the U.S. economy.   

Monetary and fiscal policy will provide unprecedented support for the economy this year. The pandemic’s grip on our lives will loosen dramatically after the second quarter. Hopefully, by the fall much of our life will be back to a new normal with which we are comfortable.


Dr. Harry M. Davis is the professor of banking and economist for the North Carolina Bankers Association and serves as the dean for the North Carolina School of Banking. He is professor of finance and past chair of the Department of Finance, Banking and Insurance at Appalachian State University. Dr. Davis received his undergraduate degree in economics from the University of North Carolina at Chapel Hill, a master’s degree in economics from Vanderbilt University and a Ph.D. in finance from the University of Georgia.

The North Carolina Bankers Association brings together all categories of banking institutions that best represent the interests of our rapidly changing state. Proudly serving North Carolina’s banking industry since 1897, the NCBA is the professional trade organization providing advocacy, leadership and support for its dynamic membership base. The Association has two subsidiaries, Centrant Community Capital and Community Bank Services (CBS). Centrant Community Capital provides permanent debt financing for workforce apartment communities and housing in a number of states. CBS offers insurance and employee benefit products, as well as other to the Association’s members and publishes a quarterly magazine, Carolina Banker. For more information, visit at www.ncbankers.org.