Payroll employment in North Carolina declined in July, according to the state's Employment Security Commission, as gains in the private sector were not enough to offset significant losses in the public sector. At the same time, the state's unemployment rate ticked up from June. The weakness in employment comes at a time when our own Carolinas Business Activity Index has declined notably from earlier in the year, suggesting a loss of momentum in the region.

North Carolina lost 4,100 jobs over the month (seasonally adjusted), although the losses were heavily concentrated in a few industries. Most notably, the government sector shed a net of 11,000 jobs as North Carolina's new fiscal year got under way. The vast majority of government jobs were lost at the local level (−11,800). State government was down slightly while federal employment was up a bit. The private sector managed to create 6,900 net new jobs in July with gains widespread across industry segments. Professional and business services firms added 4,600 to their payrolls during the month while trade, transportation and utilities grew by 1,900 jobs. The hard hit manufacturing industry saw job gains of 1,300 while construction, leisure and hospitality, education and health services, and information experienced slight growth month over month. By contrast, the financial activities industry lost 1,500 jobs.

Compared to a year earlier, total payroll employment in North Carolina was up by 11,200 in July. Private sector employment rose a healthier 36,200 jobs. The biggest contributing sectors were leisure and hospitality (+15,500) and professional and business services (+14,500) followed by trade, transportation and utilities (+9,300) and financial services (+4,500). The important, and battered, manufacturing industry added back 2,300 jobs over the year while information eked out a small increase. The slight increase in construction jobs in July still left industry employment down roughly 7,100 from last July. Growth in education and health services, a pillar of employment strength during the downturn, softened considerably in recent months with payrolls effectively flat over the year. Much like the rest of the country, North Carolina saw significant losses in government employment since last July. Roughly 75 percent of the 25,000 jobs lost over the last year came at the expense of state government workers. However, recent trends show that losses at the local level have accelerated and are likely to drive the broader trends in coming months.

After declining through May, North Carolina's unemployment rate in July edged up to 10.1 percent from 9.9 percent in June. The recent rise left the state's unemployment rate just two-tenths of a percentage point below last July. Our Carolinas Business Activity Index was soft in July but fell into negative territory in August — the first negative reading since October 2010. The two current labor demand indicators (number of workers and hours) were in positive territory in August but were modestly lower than in July. This would suggest that private sector employment growth eased during the summer months in line with the more general slowdown in economic activity, both regionally and nationally. Looking forward, most respondents to our survey anticipate an increased pace of expansion and hiring in the coming six months. The improvements, however, are likely to be modest.