COVER STORY

More than 75,000 manufacturing jobs lost in two years, with more to come.

Rising unemployment.

Tightfisted consumers and businesses.

Rising vacancy rates, personal bankruptcies and foreclosures.

The threat of another terrorist attack.

It hardly sounds like a recipe for economic recovery, but that's what lies ahead in 2001, according to most economic forecasts.

The consensus among economists is that gross domestic product - a broad measure of U.S. economic activity - will resume growing in the second quarter. By the fourth quarter, the nation's economy could be back on track for 5.4 percent annual growth, according to DRI-WEFA, an economic forecasting firm in Boston. Some economists think the recession is already over, thanks to a powerful combination of low interest rates, falling energy prices and a rising supply of cash.

The torrent of negative news from Carolinas manufacturers over the last two years has obscured a significant fact: Although the two states lost 69,500 manufacturing jobs in the year ended Oct. 31, about 3,100 more people were working in both states than were working a year earlier.

That number illustrates just how much the area's economy is changing.

Despite the continued decline of the apparel, textile and furniture industries and a deep contraction in the technology sector, growth in the services industry in Charlotte and the Triangle and the tourism industry in South Carolina have put the regional economy on a solid footing for a second-quarter rebound.

The key to the pace of that recovery will be consumer confidence, which is higher than during either the 1981-82 or 1990-91 recessions. Americans who still have jobs seem to have moved past the paralyzing fear caused by the events of Sept. 11, although it's anyone's guess what will happen if there is another terrorist attack.

Americans seem more guided by their own financial outlook. Many know someone who has lost a job or closed a business. Others have had their salaries frozen or their bonuses cut. More are still waiting for the ax to fall at work.

If prior recessions are any guide, many Americans will deal with the anxiety by hunkering down and paying off credit-card debt, eschewing borrowing until their prospects improve.

Typical is Bonnie Green. The lowest mortgage rates since the 1960s persuaded the mother of two and her husband to buy a house this year, but she vowed not to use her credit cards to finance holiday shopping.

"I'm mostly paying cash," said Green, who drove from her home in Concord this month to snap up deeply discounted clothing at a JC Penney Outlet store in Charlotte. "I don't want to have bills after Christmas."

Like many Americans, she is willing to spend money improving her home. She has taken advantage of no-interest loans at Best Buy and Home Depot.

"That's a gift to myself," she said of some window shades she bought for her home. "It's rough everywhere, but you can't stop living."

Sociologists have speculated that many Americans, in the wake of the terrorist attacks, are shifting their focus to the home as part of what they term the "nesting effect." As a result, Best Buy and Home Depot and Lowe's are among the only nationwide retailers to report healthy sales gains in November.

But like politics, all economics is local. The outlook is grim for hundreds of workers laid off from apparel or furniture jobs in Gaston or Davidson counties. As of November, the number of people who had exhausted their unemployment benefits in North Carolina had swelled nearly 94 percent from a year earlier to 20,422, according to the Center for Budget Priorities and Policy, a Washington, D.C., think tank. Only Oregon and South Dakota reported higher jumps. South Carolina saw an 84 percent increase.

Layoffs, particularly in manufacturing, will likely increase in the coming quarter even if the economy rebounds. Between March and November, the number of jobs lost nationwide was less than one percent, far less than the levels of 1.4 to 3 percent in prior recessions. That suggests the United States could lose another 600,000 jobs next year after losing 2.6 million from October 2000 through Nov. 30.

Then again, this recession has been unlike prior downturns in so many ways, particularly in the Carolinas.

It is the first recession in recent memory triggered by a manufacturing decline rather than a housing and real estate slowdown. And although manufacturing led the Carolinas into recession, it is unlikely it will lead them out.

Even more than consumers, manufacturers are cutting back, despite low interest rates. Many borrowed heavily in the 1990s to expand capacity, only to mothball equipment when the economy declined.

Moreover, many of their customers have planned to cut back spending next year. For instance, BellSouth and most other telephone companies have shaved their capital budgets by 15 to 20 percent, which amounts to billions of dollars not spent on network upgrades next year.

As a result, many technology industries are making fewer products, relative to the amount of machinery they own, than they have at any time since the government began keeping capacity statistics in the 1940s. In Catawba County, fiber optics manufacturers have idled 1,800 workers this year and are not sure if or when they will call them back. While inventories have declined significantly, manufacturers will continue cutting jobs and will be less likely to refill them when the economy does rebound because of gains in productivity.

The good news is that the Carolinas are much less dependent on manufacturing than they were during the last recession. Also, interest rates are much lower and consumer confidence is much higher.

In rapidly growing markets such as Charlotte and the Triangle, it's hard to find a businessperson who is not convinced the economy will come roaring back in the next few quarters. Charlotte is expected to grow by another 193,000 people this decade, or slightly more than it did in the '90s. Roughly 70 percent of them will be relocating from outside the county.

"We just don't believe in recessions," said Allen Tate, chairman of Allen Tate Realtors, which is building four offices to keep up with growth in downtown Charlotte and its increasingly far-flung suburbs. "National statistics don't mean too much to us."

Consumer pessimism has been tempered by the lowest interest rates in 40 years and the growing realization that the frantic bull market and economic growth in recent years were an aberration.

For those who feel secure in their jobs, times could not be better to buy a car or home. Even those who stay put are benefiting by refinancing their mortgages.

New-home starts accelerated in November, rising 5 percent above their year-ago level. In Charlotte and the Triangle, expect housing starts and values to remain strong in the $80,000 to $300,000 price range, even as commercial developers pull back to let millions of square feet of retail and office space be absorbed.

In the Triad and smaller towns, where many of the nearly 70,000 manufacturing jobs were lost, the economy will get worse before it gets better. Economic forecasters at DRI-WEFA don't see the unemployment rate peaking until the second quarter in North Carolina and the third quarter in South Carolina.

In the Hickory-Morganton-Lenoir metropolitan area, where unemployment more than doubled this year to 7.1 percent following several plant closings, city leaders are anxiously recruiting new employers. The 13-county region that includes Charlotte had a 5.7 percent unemployment rate.

"Now the big water and sewer users are gone," said Barry Stock, a commercial real estate broker on Morganton's redevelopment commission. "Somebody has got to pay those bills."