UNC Charlotte: State's economy steady, but uncertainty persists

CHARLOTTE — North Carolina's economy is closing out the year with steady momentum, driven by solid numbers in nine of the state's 15 economic sectors. The state's outlook for 2026 also looks positive, with the state's Gross Domestic Product projected to increase by 3% and employment to grow by 1.6%.

This assessment comes from the latest North Carolina Economic Forecast published by the UNC Charlotte Belk College of Business. The trusted report provides practical insights as Charlotte and North Carolina businesses strategically adapt to economic conditions.

Despite an overall positive outlook for the coming year, complicating concerns continue, said UNC Charlotte economist John Connaughton, director of the state forecast for nearly 45 years.

Federal Reserve actions key

In 2026, a primary risk for the economy will be the uncertainty surrounding Federal Reserve interest rate policy. The Fed cut rates on Dec. 10, the third such move since September, trimming the fed funds rate by 25 basis points. As with the two previous rate cuts in 2025, however, the decision was divided. The division highlights competing pressures and adds to uncertainty.

"The U.S. economy has demonstrated resilience during 2025 despite a number of threats to economic growth," Connaughton said. "Tariff fears of an economic drag have not materialized; the government shutdown hasn't caused significant disruptions; and international issues seem to have flown under the radar."

AI brings new dynamics to economic picture

Connaughton points to the impact of AI as a factor to watch. An economic boom brought about by the efficiency benefits of AI and the resulting productivity gains could occur in 2026 but is more likely in 2027, he said. "Will we see an AI bubble?" he asked. "Will runaway capital investment in AI technology lead to a stock market sell-off of tech stocks and slow consumer spending?"

Connaughton warned that if Congress does not control fiscal spending, there is a 60/40 chance of inflation returning in 2026, which could disrupt the Fed's strategy.

Year ends on positive, despite lingering issues

North Carolina's economy is projected to close out 2025 with a record of sustained growth for the fifth consecutive year since COVID-19. Real GDP is expected to increase by 2.6% over the 2024 level.

Leading the output growth rates in 2025 are agriculture at 8.6%, information at 7.2%, business and professional services at 4.5% and construction at 3.9%. Other growth sectors include wholesale trade at 3.8%, educational and health services at 3.7% and finance, insurance and real estate at 3.6%.

The state is expected to have added 72,300 net jobs in 2025, representing a 1.4% increase in establishment employment. Twelve of the 14 nonagricultural sectors are projected to have increased jobs by the close of 2025. The strongest employment increases are in construction at 3.0%, education and health services at 2.6% and other services at 2.6%.

Coming year shows job growth

Looking ahead to 2026, the state is forecast to add 80,800 net jobs, with all of the 14 nonagricultural sectors to see job growth. Top areas for growth are expected to be information, education and health services and business and professional services. Despite this anticipated growth, the state's unemployment rate, which was 3.7% in August 2025, is likely to increase to 4.1% by December 2026.

Meanwhile, the state's economy continues to be negatively impacted by the slow recovery from Hurricane Helene in Western North Carolina. The rebuilding stimulus usually seen after natural disasters has been delayed because most businesses and households in the affected areas lacked flood insurance, placing a burden on them. This drag on overall state GDP is expected to persist into early 2026.