North Carolina's Eastern RegionRegional Cluster Analysis

March 2012

Executive Summary ....................................................................................................................... i 

Clusters ...................................................................................................................................... i 

Regional Targets ....................................................................................................................... ii 

Issues for Consideration ........................................................................................................... iii 

Introduction ................................................................................................................................... 1 

Section 1. About the Region ......................................................................................................... 2 

Population trends ...................................................................................................................... 2 

Commuting patterns and sub-regions ....................................................................................... 3 

Regional economic trends ......................................................................................................... 5 

Section 2. Cluster Analysis ........................................................................................................... 8 

Cluster overview ...................................................................................................................... 10 

Section 3. Connecting Industry Clusters to Regional Targets .................................................... 17 

Biotechnology and pharmaceuticals ........................................................................................ 17 

Advanced manufacturing ......................................................................................................... 18 

Defense and aerospace .......................................................................................................... 19 

Value-added agriculture .......................................................................................................... 21 

Tourism ................................................................................................................................... 22 

Conclusions ................................................................................................................................ 24 

Appendix A: Methodology ........................................................................................................... 26 

Our approach .......................................................................................................................... 26 

Data Sources ........................................................................................................................... 27 

Appendix B: All value-chain clusters, 2006 and 2011 ................................................................. 28 

Appendix C: Sub-regional clusters .............................................................................................. 29 

i

Executive Summary The last extensive study of the economy of North Carolina’s Eastern Region was completed in 2005, well before the current recession. The purpose of this report is to update that research and identify any significant structural changes that may be occurring in the region. Our analysis shows that the region continues to have a strong economic foundation in spite of the job losses that occurred during the 2008-09 recession. The military and military-related activities continue to serve as pillars of the region’s economy. Moreover, industries related to education and healthcare, pharmaceuticals and food processing bucked the overall national economic trends by continuing to add employment during the recession, and gains in these industries helped to offset the losses in other manufacturing industries. However, regional unemployment exceeded 11 percent during the recession and remains persistently high, and at the end of 2011 was at 10.1 percent. Several of the region’s key industries were especially affected. For instance, employment in many building and housing related industries declined dramatically as a consequence of the bursting of the national housing bubble. Similarly, the region’s boat building industry was largely decimated due to a sharp and unexpected decline in consumer demand.

Clusters Updated employment data and analysis yielded a new set of industry clusters that serve as the basis for this report. NCER’s major stable, emerging and at-risk clusters are summarized in Figures (b) and (c) below. The table below lists the new key clusters that were identified based on available 2011 employment data and those that were deleted from the original 2005 bubble chart. Some of the changes are due to new ways of defining how the clusters are organized (reflecting

Figure A: Change in NCER Targets

Cluste rs Ad d e d in 2011 Cluste rs Go ne fro m 2005 Lis tIndustrial machinery manufacturing Construction machinery & distribution equipmentChemical products Rubber productsElectrical equipment Precision instrumentsMotor vehicle manufacturing Grain millingGreenhouses & nurseries Feed productsNonwoven goods Concrete & brick building productsLogging & wood milling Wood processingManufactured homes & buildingsHardwareMeat processingDistribution & logisticsAerospace & defense productsHospitality & travel

ii

improvements in our methods for evaluating existing clusters), but some reflect significant structural shifts in how the economy of North Carolina’s Eastern Region functions.

Regional Targets While the characteristics and components of some of the region’s main industry clusters have evolved over the past six years, NCER’s business cluster targets remain appropriate and focused on key regional economic drivers. Biotechnology and pharmaceuticals: This cluster is no longer “emerging,” but is now

transitioned into a more “stable” state poised for further growth.

Advanced manufacturing: The specific components of this cluster have and will continue to change over time, and more industries will become “advanced” regardless of their heritage. This analysis suggests household appliances, nonwoven goods, and motor vehicle manufacturing, rather than precision instruments or HVAC equipment are now more prominent. Within this category, boat building remains an important but much diminished cluster at this time.

Defense and aerospace: The region’s military and aerospace cluster continues to be the most important driver of the regional economy, with employment gains over the past six years further enhancing this role. Workforce development and new market opportunities for

Figure B: NCER Value-Chain Clusters (2011)

Nonwoven goods3,849 

Pharmaceuticals & biological products4,353 

Packaged foods3,377 

Motor vehicle MFG2,334 

Household appliances2,044 

Chemical products1,653 

Crop farming1,208 

Hospitality & travel3,802 

Building products622 

Distribution & Logistics3,763 

Meat processing6,859 

Fabricatedmetal products

2,166 

Tobacco product MFG2,249

Military#80,460 

Boat building770 

Aerospace & Defense products#11,815 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

Average

 Wage (2011)

Relative Concentration (2011)Source: FeserClusters, EMSI

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters*Aerospace and Defense products wage  is North Carolina Average Wage**Regional military numbers from bases; National numbers from US BEA (2009)#FRC East  employment  is included in both the Military and Aerospace & Defense products clusters

Clusters shown in next graphic

NCERAverage Wage=$41,949Source: EMSI

42.0

iii

the region’s companies will be ongoing issues for the aerospace segment of this cluster.

Value-added agriculture: This cluster remains critical, showing adaptability and resilience in certain component industries but losses in others. The meat processing cluster has experienced solid growth, while the packaged foods cluster, for example, now has fewer jobs. Services to help firms grow, diversify, reach new markets and innovate or implement new technologies could help firms in this cluster.

Tourism: This cluster continues to have a substantial impact on the regional economy and merits continued attention to further its development despite the challenges it faced during the recent recessionary period.

Issues for Consideration A few large firms dominate employment in several NCER clusters. This reliance on a small

number of major employers means that changes in any one of these companies could significantly change the trajectory of the cluster in the Eastern Region.

Several of the region’s major clusters are “at risk” and may experience slower growth or outright losses compared to national trends.

Figure C: NCER Value-Chain Clusters (2011)

Nonwoven goods3,849 

Pharmaceuticals & biological products4,353 

Packaged foods3,377 

Motor vehicleMFG2,334 

Household appliances2,044 

Textiles & apparel1,902 

Hardware1,679 

Chemical products1,653 

Logging & woodmilling1,392 

Crop farming1,208 

Greenhouses &nurseries

328 

Hospitality & travel3,802 

Building products622 

Distribution & Logistics3,763 

Meat processing6,859 

Fabricatedmetal products

2,166 

Ind. machineryMFG 1,432 

Manufactured homes & buildings

599 

Electricalequipment

891 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Average

 Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters*Boat Building=At‐risk*Tobacco Products=Stable*Aerospace & Defense Products=Stable

NCERAverageWage=$41,949Source: EMSI

iv

Workforce training programs are critical to several NCER clusters. Leveraging the region’s own education assets remains important, and collaboration with institutions in adjacent regions may become necessary as well.

Programs and services that can connect local firms to new market opportunities and help them pursue product or process innovations will be critical to NCER’s advanced manufacturing and value-added agriculture clusters.

Several of the emerging and stable clusters that comprise the regional targets should generate growth opportunities both from within the region and through marketing and business attraction programs.

NCER’s successes since 2005 in attracting investment, developing its regional assets and establishing stronger connections to other regions have put it in a better position in 2011 to generate job and income growth from within.

1

Introduction In 2005, the North Carolina Eastern Region (NCER) partnership completed a regional economic development visioning process as part of a state legislative mandate. That process led to the development of a collaborative plan that continues to guide the region in key aspects of its efforts to grow the economy. As part of that work, NCER sponsored the development of a cluster analysis to help inform the region’s industry target selection process and guide regional investments. However, that extensive economic study was completed in 2005, well before the current recession. The purpose of this report is to update that research and identify any significant structural changes that may have occurred or may be underway in the region. In addition to updating data from 2005, this report assesses the recent performance of the region’s key economic clusters and offers insights on the implications for the region’s economic development programs. The cluster analysis presented here is based on “value-chains” in which we group industries and firms according to their buying and selling relationships. The value-chain clusters are then analyzed through employment trends and future outlook, relative concentration in the region, and the quality of the opportunities they provide the region and its workers. The goal of this analysis is to better understand the activities that make up the region’s economic base and that may provide future sources of growth. The report is organized as follows: Section 1 provides some context about the region by discussing broad demographic and economic trends. Section 2 assesses over twenty of the region’s value-chain clusters. Section 3 discusses trends within the region’s current economic development targets. The report concludes with a summary of key points for the region’s economic development programs.

2

Section 1. About the Region

Population trends In 2010, the 13 counties of North Carolina’s Eastern Region had a combined population of 1.04 million people. The region is neither as large nor as fast-growing as the Research Triangle or Charlotte regions; nevertheless, it experienced modest population growth over the past decade (Figure 1). Between 2000 and 2010, the region’s population grew 1.2 percent annually and added over 120,000 net new residents. By contrast the state population grew 1.7 percent annually during the same period.

Broadly speaking, there were three main drivers of population growth within the region. First, Greenville and Pitt County have strengthened their position as a regional center providing retail, education and health care services for all of Eastern North Carolina. Over the past decade, Pitt County grew faster (2.3 percent annually) than any other county in the Eastern Region and faster than the state overall. The presence of East Carolina University (ECU), as well as fast growing industries related to health care and pharmaceuticals have helped to fuel this increase. At its current pace, Pitt County will likely become the region’s most populous county by 2020. Second, the expansion of military activities around Camp Lejeune led to much greater development in Onslow County. Onslow County is currently the region’s most populous county, and it now has nearly 180,000 people after adding 29,000 net new residents between 2000 and 2010. The same factor appears to explain Duplin County’s population growth, as does the presence of more military retirees and growth in the Hispanic population (62 percent increase).

Figure 1: NCER Population Trends

County 2000 2010Change 00‐10

Annual growth rate

Onslow 150,678 179,471 28,793 1.8%Pitt 134,298 168,817 34,519 2.3%Wayne 113,648 122,907 9,259 0.8%Craven 91,954 103,908 11,954 1.2%Nash 87,696 95,938 8,242 0.9%Wilson 73,971 81,359 7,388 1.0%Carteret 59,406 66,685 7,279 1.2%Lenoir 59,556 59,439 ‐117 0.0%Duplin 49,236 58,728 9,492 1.8%Edgecombe 55,443 56,539 1,096 0.2%Greene 19,020 21,384 2,364 1.2%Pamlico 12,913 13,124 211 0.2%Jones 10,289 10,153 ‐136 ‐0.1%NCER 918,108 1,038,452 120,344 1.2%North Carolina 8,081,614 9,561,558 1,479,944 1.7%Source: US Census Bureau

3

The third factor driving growth in the region is the expansion of the Research Triangle region eastward along major transportation corridors. While not in the region, Wake County added 273,000 people between 2000 and 2010, growing at an annual pace of 3.7 percent. Johnston County, immediately to the east of the region grew nearly as fast, adding nearly 47,000 new residents during this century’s first decade. As this growth continues to spread, it has affected several counties in the Eastern Region. For instance, the three counties closest to Wake County—Nash, Wilson, and Wayne—added 25,000 net new residents during the 2000s. These various trends are important to consider because the Eastern Region is an economically diverse area. While Greenville is becoming more of an urban center, the region lacks a single major urban area around which economic activities are focused (e.g., Charlotte). Therefore it is important to highlight the region’s multiple population and employment centers that are emerging as important economic hubs, not only for the region, but also for the state as a whole.

Commuting patterns and sub-regions Figure 2 shows the commuting patterns for people who live in the region. Over half of workers in the region live and work in the same county. This proportion is greatest in Pitt County where 63 percent of people who live in Pitt County work in Pitt County. Moreover, Pitt County has established itself as a regional job center, as it draws a large number of commuters from other counties in the region. The importance of the region’s main transportation corridors—US 64, US

Figure 2: NCER Commuting Patterns

95

264

64

264

64

70

70

70

17

17

17

9540

40

0 40Miles

Percent of workers who liveand work in the same county

50% to 60%

40% to 50%

20% to 40%

Less than 20%

*NCER Average: 50.2%

Greater than 60%

5,000 Commuters

3,000 Commuters

2,000 Commuters

1,000 Commuters

*Commuters to Wake County not shown:Pitt-3,969; Onslow-3,342; Lenoir-2,437;Craven-1,934

Where Residents of North Carolina’s Eastern Region Go to Work(Flows greater than 1,000 Commuters)

Source: US Census Bureau, Local Employment Dynamics, 2009

4

264, US 70, US 17 and I-95—facilitate many of the inter-county commuting flows. Wake County remains a major source of jobs, particularly for the counties along these corridors and those in the western half of the Eastern Region. These commuting patterns help inform the sub-regional definitions used in this analysis (shown in Figure 3). As a result, we identify four different sub-regions—North (Edgecombe, Nash, Wilson), Central (Duplin, Lenoir, Wayne), Pitt (Jones, Pitt), and Coastal (Carteret, Craven, Jones, Onslow, Pamlico).1 The North sub-region includes those counties that are connected through I-95. The Central sub-region counties are connected by US-70. The Coastal sub-region is linked through US-17 and is focused around New Bern, Jacksonville and Havelock (and the

Cherry Point/Camp Lejeune installations). The Pitt County region, although connected to all the other sub-regions, is treated differently because East Carolina University and its associated medical complex make its economy clearly different from the activities that drive the economies of the North and Central sub-regions.

1 The only difference from the sub-regional definitions used in the 2005 report is the movement of Greene County from the Central sub-region to the Pitt sub-region. This was motivated by the 2009 commuting patterns which show that more residents of Greene County work in Pitt County than in Greene County.

Figure 3: NCER Sub-regions

95

264

64

264

64

70

70

70

17

17

17

9540

40

795

Jacksonville

Kinston

Wilson

Greenville

New Bern

Havelock

RockyMount

RALEIGH

Goldsboro

Nash

Edgecombe

Wilson

Wayne

Greene

Pitt

CravenPamlico

Carteret

Jones

Onslow

Duplin

Lenoir

0 40Miles

NCER sub-regions

Central sub-region

Pitt sub-region

Coastal sub-region

North sub-region

Sub-regions of North Carolina’s Eastern Region

5

Regional economic trends

Broad employment trends Like many places across the state and country, the recent recession had a significant impact on the region. Unemployment peaked in the region at 11.6 percent in January and February 2010, and the region still has a long way to go to full recovery as unemployment stood at 10.1 percent in December 2011. These numbers have tracked very closely to the state rate. In spite of this persistently high unemployment, there have been several bright spots in the region such as continued significant military employment and growth in service industries, like education and health care, as well as in manufacturing industries related to pharmaceuticals and meat processing. These economic drivers are leading the region’s recovery. Figure 4 indexes regional (and sub-regional) employment to the US and North Carolina, starting in January 2001. The Eastern Region did not have as great a drop in employment coming out of the 2008-09 recession as did the state or nation, and by the end of 2011, the Eastern Region had 3.4 percent more employment than it had at the beginning of 2001. By contrast, the US only had 1.8 percent more employment, and North Carolina only had 0.9 percent more. There was, however, significant variation throughout the region. The Central and the North sub-regions suffered much greater levels of employment loss primarily related to declines in traditional manufacturing sectors. Both of these sub-regions have yet to fully regain the employment levels they possessed at the beginning of 2001. Conversely, the Pitt County and

Figure 4: NCER employment trends (2001=100)

90

95

100

105

110

115

120

Total Employmen

t Ind

ex (January 2001=100)

USA

NC

NCER

North

Central

Pitt

Coastal

Source: US Bureau of Labor Statistics; NC ESC LMI

6

Coastal sub-regions have weathered the recession better than most areas in part because of gains in education, health services and pharmaceuticals. At the end of 2011, the Pitt County sub-region had 10.6 percent more employment than it had in January 2001. The Coastal sub-region, which given the large numbers of visitors and retirees has a great deal of seasonal employment, had 8.4 percent more employment than 2001.

Sector employment trends Figure 5 shows past trends and future employment projections for the region’s main economic sectors. Government (all levels) is far and away the region’s largest source of employment, reflecting the importance of the military and large public institutions like East Carolina University. Government employment accounts for approximately one out of every three jobs in the region. The military creates much of this government employment, as military personnel represent about 15 percent of all jobs in the region. To put this in context, military jobs alone account for a greater proportion of jobs than any other sector except for trade, transportation and utilities—the region’s second largest sector. The forecast calls for modest growth in most sectors over the next decade. Sectors expected to generate the greatest rates of employment growth are education and health services and professional and business services, though the latter will remain only the region’s sixth largest.

Figure 5: NCER sector trends and projections

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Empl

oym

ent

Government

Trade, Transportation & Utilities

Education & Health Services

Manufacturing

Leisure & Hospitality

Professional & Business Services

Construction

Financial Activities

Other Services

Information

Agriculture & Mining

Source: EMSI 2011Q4, Covered Employment

Projected Employment Trends

7

The trade, transportation and utilities sector includes retail and wholesale activities, which tend to dominate this sector’s employment figures in most regions. These activities are not generally economic drivers, but are more likely to reflect the region’s population mix, and growth depends on an increasing number of consumers. Employment in this sector declined over the past five years due to the recession, but like the region as a whole, it is expected to return to modest growth over the next decade. The education and health services sector is the region’s third largest sector with a little over 45,000 jobs.2 It is also one of the fastest growing. Between 2006 and 2011, this sector grew 2.5 percent annually. The vast majority of jobs and employment gains were in the region’s health care providers, such as vocational rehabilitation centers, hospitals, and community care facilities for the elderly. These services are often growing to meet the needs of an aging population. Manufacturing is the region’s fourth largest sector, and with almost 45,000 jobs it accounts for approximately ten percent of the region’s employment. However, manufacturing is an important sector, as it contributes to the region’s economic base, unlike most retail or health care, which are usually local-serving and grow or decline based on population trends. Local-serving activities tend to recycle money within a region, while manufacturing and other export-oriented activities bring new money into the community. For example, most of the pharmaceuticals manufactured in the Eastern Region are sold and consumed elsewhere, attracting new money to the region when they are sold to wholesalers, distributors, or retailers. The manufacturing sector has sustained heavy job losses, and the Eastern Region’s manufacturing employment in 2011 was only 74 percent as big as it was in 2001. The Eastern Region has actually fared better than other areas due to growth in industries such as pharmaceuticals and meat processing. Manufacturing employment in North Carolina in 2011 was only 62 percent of what it was in 2001; the comparable figure for the US in 2011 was around 71 percent. Many of the region’s most significant manufacturing losses resulted from industries that laid off workers during the recession. For instance, companies in the region’s boat building industry lost more than 1,600 jobs over the past five years as more people opted not to own or operate recreational boats and other vehicles. Similarly, industries related to housing and home construction also lost significant employment; wood kitchen cabinet manufacturing lost about 500 jobs between 2006 and 2011. In spite of these losses, the Eastern Region’s manufacturing sector survived better than most other regions due to success in several key industries. At a time when manufacturing was declining nationwide, three industries—engine, turbine, and power transmission equipment manufacturing; pharmaceutical and medicine manufacturing; and animal slaughtering and processing—each added over 500 net new jobs between 2006 and 2011.

2 It is important to note that large state institutions like ECU are classified as state government rather than education services. However, private colleges like Mount Olive are classified as education.

8

Section 2. Cluster Analysis The first regional cluster analysis in 2005 helped to identify the current set of industry cluster targets considered the best prospects for future economic growth. These clusters included not only the core industry of the cluster but also linked supplier sectors that would benefit from the core industry’s growth. This analysis helped refine the region’s business attraction, retention and expansion targets by widening attention beyond a few key sectors to their linked industries. The cluster targets identified in that study included:

• Marine trades/boat building and automotive components industries; • Pharmaceuticals and medicine manufacturing; • Wood products and furniture (e.g., kitchen cabinet and countertop manufacturing); • Hotels and accommodations as part of travel and tourism; • Meat products and baked goods manufacturing; • Heating equipment and appliances manufacturing; • Electrical and signal testing equipment and other precision instruments; • Engines, motors and generators, and vehicle parts and supplies; and  • Military procurement related to logistics and construction.

Since the economic environment has changed dramatically during the past few years, it is vital to revisit cluster performance and key targets. While several of these clusters—pharmaceuticals, food, and the military—remain important drivers of regional employment and growth, others are less likely to grow in the current economic environment. Consequently there is a need to update the 2005 analysis to reflect current conditions and take into account projected future opportunities.  Furthermore, our understanding of how certain cluster industries are linked has changed and improved since that initial analysis in 2005. Using a slightly modified methodology that builds on lessons learned from numerous studies completed since 2005, we have incorporated more current information about inter-industry buying and selling relationships. As a result, we have identified a somewhat different but more refined set of benchmark industry clusters. A more detailed description of our approach can be found in Appendix A. A full list of all the clusters and their employment, average wage, and relative concentration is provided in the table in Appendix B. This table also includes data for both 2006 and 2011 to illustrate the changes that have taken place over the past five years in the region with a common industry clustering methodology applied in both time periods. Our analysis shows more than 50 different value-chain clusters nationwide, but not all of these clusters are present in the region. As a result, we have focused our attention on the 22 value-chains that are most relevant to NC’s Eastern Region. In selecting the clusters for greater attention, we considered several factors:

9

• Employment growth: The employment patterns in each cluster were considered in terms of overall size, past trends and future projections. We also considered their growth patterns relative to the US overall. For instance, one sign of regional competitiveness might be regional cluster employment growing faster than national employment in that cluster.

• Average wages: Average wages provide an indication of the quality of opportunities available in the industries that make up that cluster.

• Relative concentration: We measure relative concentration using location quotients3 (LQ), which measure the relative percentage of the region’s cluster employment, as compared with the cluster’s national employment share. An LQ greater than 1.0 means that one might assume the region has more workers in the region than are required to make the product or service that supplies the region. The excess employment would presumably be used to produce extra products or services for export from the region, thus indicating a potential regional advantage. Furthermore, if the cluster’s LQ is growing over time, then total national cluster employment is concentrating in the region, also suggesting improvements in the region’s relative competitiveness.

The next section provides a brief overview of the clusters that are of greatest interest to the Eastern Region. It describes the clusters’ growth trends and estimated future employment. A more detailed discussion of cluster developments that most relate to the region’s economic development targets will be presented in a later section of the report.

3 If 2,000 of a region’s 100,000 workers (or 2 percent) were employed in an industry cluster and if 2 percent all US workers were also employed in that cluster, then the location quotient for the region is said to be 1.0. The LQ is calculated by dividing the regional employment percentage by the national employment percentage (e.g., 2 percent divided by 2 percent which equals 1.0).

10

Cluster overview We have identified 22 value-chain clusters out of 55 that are worthy of further analysis within the Eastern Region. The remaining clusters are too small to serve as driving forces in the regional economy. These clusters are divided and displayed in Figure 6 and Figure 7, with the clusters with the highest location quotients emphasized in Figure 6.

To better assess these clusters, we have further categorized them into three types—stable, emerging, and at-risk. We did not employ hard-and-fast rules for this categorization, but relied on a combination of employment characteristics and trends plus professional judgment for each cluster’s placement. The clusters in each category are discussed below. A more detailed examination of the clusters that directly relate to the region’s economic development targets will be addressed in Section 3. Cluster charts for each of the sub-regions are located in Appendix C.

Stable clusters Stable clusters are those that tend to employ larger numbers of workers in a wide array of firms. These clusters tend to represent the region’s traditional sources of employment and economic growth and have not been subjected to extreme trends in either growth or decline. Many of these clusters are aligned with the region’s identified economic development targets, but, more

Figure 6: NCER Value-Chain Clusters (2011)

Nonwoven goods3,849 

Pharmaceuticals & biological products4,353 

Packaged foods3,377 

Motor vehicle MFG2,334 

Household appliances2,044 

Chemical products1,653 

Crop farming1,208 

Hospitality & travel3,802 

Building products622 

Distribution & Logistics3,763 

Meat processing6,859 

Fabricatedmetal products

2,166 

Tobacco product MFG2,249

Military#80,460 

Boat building770 

Aerospace & Defense products#11,815 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

Average

 Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters*Aerospace and Defense products wage  is North Carolina Average Wage**Regional military numbers from bases; National numbers from US BEA (2009)#FRC East  employment  is included in both the Military and Aerospace & Defense products clusters

Clusters shown in next graphic

NCERAverage Wage=$41,949Source: EMSI

42.0

11

importantly, are foundational to the region’s economic base. Figure 8 lists the employment and LQ for each of the stable clusters.

• As noted earlier, Military activities form one of the key pillars of the region’s economy. Overall there are 80,460 people working at the region’s military installations—Camp Lejeune Marine Corps Base (MCB), Seymour Johnson Air Force Base (AFB), and Fleet Readiness Center East (FRC East). This includes not only military personnel but contractors and reservists as well. This number has grown since 2006 mainly because Camp Lejeune gained personnel in the recent Department of Defense Grow the Force initiative. Over 70,000 people are based at Camp Lejeune, which is one of the country’s largest installations. Not only are these installations a major direct employer, but they create significant demand for retail, construction, catering, cleaning services, and machined products.

• Employment in the region’s Aerospace and defense products cluster is also largely comprised of military-related activities. However, this employment is beginning to diversify as commercial aerospace firms such as Spirit Aerosystems (Kinston), AAR

Figure 7: NCER Value-Chain Clusters (2011)

Nonwoven goods3,849 

Pharmaceuticals & biological products4,353 

Packaged foods3,377 

Motor vehicleMFG2,334 

Household appliances2,044 

Textiles & apparel1,902 

Hardware1,679 

Chemical products1,653 

Logging & woodmilling1,392 

Crop farming1,208 

Greenhouses &nurseries

328 

Hospitality & travel3,802 

Building products622 

Distribution & Logistics3,763 

Meat processing6,859 

Fabricatedmetal products

2,166 

Ind. machineryMFG 1,432 

Manufactured homes & buildings

599 

Electricalequipment

891 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Average Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters*Boat Building=At‐risk*Tobacco Products=Stable*Aerospace & Defense Products=Stable

NCERAverageWage=$41,949Source: EMSI

12

(Goldsboro) and Kidde Aerospace (Wilson) have invested in the region.4 This cluster also tends to create very good jobs, as the average wage for the cluster statewide is $75,500.

• Four clusters related to food and agriculture are among the region’s stable clusters. These clusters include crop production, meat processing, packaged food and tobacco products. Combined, these clusters employ approximately 13,700 people in the Eastern region, an increase of almost 300 since 2006. All of these clusters, with the exception of crop production are projected to add employment between 2011 and 2016. It should also be noted that these clusters tend to pay relatively lower average wages, relying on a large concentration of low skill workers. All four of these clusters have average wages around $30,000 per year, or about 75 percent of the regional average. The Central sub-region has the greatest share of meat processing and packaged foods, while tobacco products are most concentrated in the North and Pitt County sub-regions.

• Hospitality and tourism is another stable cluster that employs significant numbers of people (3,800) but pays relatively lower average wages ($22,500 per year). Most of the employment in this industry can be found in hotels and motels and transportation services. The cluster is also not terribly concentrated in the region. Several factors can explain this lack of concentration. For instance, the region does not attract the number of business travelers that might be found in more urban areas such as Raleigh or Charlotte. Moreover, the region lacks large resort-style developments that might attract vacationers elsewhere, but instead relies much more on single-family residential beach rentals that have a much more limited economic spin-off effect.

4 Due to data suppression issues, the employment numbers in this cluster are based largely on information provided directly by the company or installation, or are the numbers made available through ReferenceUSA.

Figure 8: Stable Clusters Cluste rs 2006 Emp. 2011 Emp. 2011 LQMilitary*# 59,075 80,460 11.55Aircraft and Defense Products*# 11,815 6.15Meat processing 6,318 6,859 4.24Nonwoven goods 3,529 3,849 2.40Hospitality and tourism 4,421 3,802 0.33Distribution and logistics** 4,747 3,763 0.46Pharmaceuticals and biological products 3,071 4,353 4.75Packaged foods 3,839 3,377 1.27Tobacco products 2,014 2,249 42.32Household appliances 2,104 2,044 3.54Crop farming 1,230 1,208 0.95Source: EMSI, Clusters developed by Dr. Edward Feser, University of Manchester (UK)*Employment data provided by area bases**Not a value-chain cluster##FRC East employmnet included in both Military and Aircraft and Defense Products

13

• Much like hospitality and tourism, distribution and logistics is another cluster that employs a significant number of people (3,763 in 2011), but is not highly concentrated in the region as evidenced by its LQ of only 0.46. General freight trucking and warehousing and storage are the cluster’s largest industries. This cluster tends to follow economic cycles, and as a result it lost almost 1,000 jobs between 2006 and 2011. However, as the economy recovers it is projected to add almost 200 jobs over the next five years. The North sub-region, which includes the I-95 corridor, accounts for 44 percent of the cluster’s total employment in the Eastern region. Therefore any efforts to target this cluster for development should most likely focus on this part of the Eastern region.

• Two clusters—household appliances and nonwoven goods—have been key contributors to the region’s advanced manufacturing landscape. The household appliances cluster employs over 2,000 people and lost only 60 net jobs between 2006 and 2011. The nonwoven goods cluster draws employment from several industries including tire manufacturing and urethane and other foam product manufacturing. Region-wide this cluster employed about 3,850 people in 2011, up over 300 net new jobs since 2006. What both of these clusters have in common is that much of this employment is concentrated in a relatively small number of firms. Within the household appliances cluster, for instance, major employers include BSH in New Bern and Electrolux in Kinston, while much of the employment within the nonwoven goods cluster is attributable to the Bridgestone Firestone tire manufacturing plant in Wilson County. While employment in these clusters has proved stable, employment changes in any of these companies could significantly change the trajectory of this cluster.

• The continued growth of the region’s pharmaceutical and biological products has moved it from being an emerging cluster in 2005 to a more stable, but growing cluster today. The cluster has been a strong source of new employment, adding almost 1,300 net new jobs since 2006. This growth occurred at a time when employment in the cluster nationally was declining. The cluster now employs 3,900 people in the region, and at $68,160 per year the average wages in the cluster are well above the regional average. Most of this employment can be found in the North and Pitt County sub-regions.

Emerging clusters Emerging clusters are those that appear to be showing signs of creating a critical mass of activity. Once passed a “tipping point,” the growth patterns in these industries will become much more discernible. In looking forward, projections regarding future changes in these

Figure 9: Emerging Clusters

Cluster 2006 Emp. 2011 Emp. 2011 LQChemical products 1,322 1,653 0.91Fabricated metal products 2,170 2,166 0.48Motor vehicle manufacturing 1,259 2,334 1.00Building products 935 622 0.41Source: EMSI, Clusters developed by Dr. Edward Feser, University of Manchester (UK)

14

emerging clusters should be taken cautiously as much of this employment is based on a relatively small number of firms so that individual firm choices can very unexpectedly impact the cluster’s performance significantly. In most cases, these emerging clusters in NC’s Eastern Region are not very concentrated locally as measured by their location quotient, but they do show signs of growing when the national cluster is declining or not growing as quickly. Figure 9 lists the employment and LQ for each of the emerging clusters.

• The region’s chemical products cluster is not highly concentrated in the region, but between 2006 and 2011, the cluster grew by 4.6 percent annually and added 330 net new jobs. This all occurred during a period when employment in the cluster nationally declined. Moreover, these tend to be good jobs as the average wage for the cluster is over $60,000 per year. There are now 1,600 people working in the region’s chemical products cluster, with most of this employment located in the Pitt County sub-region and a third of the cluster’s employment in the Coastal sub-region.

• Employment in the region’s fabricated metal products cluster remained steady over the past five years, while it declined nationally. The cluster currently employs over 2,200 people in the region, with an average annual wage of $46,365, a figure just above the regional average. The cluster has a relatively low concentration in the region, but employment is growing. The cluster is projected to add approximately 370 net new jobs over the next five years even though nationally, the cluster is expected to continue losing employment. Almost 40 percent of the fabricated metal products cluster is located in the Pitt County sub-region.

• The region’s motor vehicle manufacturing cluster has also shown the potential for increased growth. Between 2006 and 2011, this cluster added almost 1,100 jobs. It grew at a rate of 13 percent annually, when nationally the cluster declined by almost 8 percent annually. The region’s growth in this sector appears to be connected to expansions among automotive suppliers as well as engine manufacturing at the Cummins, Inc. diesel engine plant.

• Given the national housing market crash and the burst bubble in the Research Triangle area, it should come as little surprise that the Building Products cluster lost employment over the past five years. However, employment within the region is projected to grow between 2011 and 2016, adding almost 150 jobs. Moreover, these projected employment gains will occur during a period when employment in the cluster nationally is expected to continue declining. Much of this employment is focused in the North sub-region in industries related to wood products such as wood window and door manufacturing and wood containers and pallets manufacturing.

15

At-risk clusters At-risk clusters are those that have sustained recent employment decline and lost a significant amount of their overall employment. Moreover, the declines that they have experienced typically occurred at a rate faster than the cluster nationwide. As a result, these clusters may be those that, in the face of growing price competition or decreasing demand, likely will suffer most. The firms in these industries may require assistance in identifying new product ideas or retraining, and their workforce may need help in up-skilling to prepare for a possible career transition in the future. Figure 10 lists the employment and LQ for each of the at-risk clusters.

• Among the clusters most affected by the recession was the region’s boat building cluster. Between 2006 and 2011, the industry lost two-thirds of its employment, declining from 2,400 jobs in 2006 to 770 in 2011. The biggest losses were the result of downsizing at firms like Hatteras Yachts in New Bern. The cluster remains highly concentrated in the region, but continued employment declines are projected in the future. Nationally, the boat building cluster lost over half of its employment between 2006 and 2011, and substantial losses have been seen in other regions in Northeastern and Western North Carolina as well as in Eastern Tennessee where boatbuilding has been traditionally stronger. Like many other recreational vehicles, boats are expensive for consumers to buy and operate, and they represent a truly discretionary purpose if bought for recreational purposes. The recession significantly reduced the demand for new boats, and the supply of used boats grew quickly, creating a glut of inventory on the market.

• Given the burst of the housing bubble nationwide, it is not surprising that the manufactured homes cluster is another greatly affected by the recession. Between 2006 and 2011, the cluster lost roughly 800 net jobs. Employment in the region (600) is now 40 percent of what it is in 2006 (1,400). Within the cluster, the two industries most affected were manufactured homes in Nash County and wood kitchen cabinet manufacturing in Lenoir County. These jobs, however, offer relatively low wages as the cluster has an average wage of $27,600. Another cluster that feeds into the manufactured home cluster is logging and wood milling. That cluster declined from 1,900 to 1,400 jobs between 2006 and 2011. However, unlike manufactured homes, employment in the logging and wood milling cluster is projected to stabilize over the next five years.

• Unlike the at-risk clusters noted above, the textiles and apparel cluster has been in a prolonged state of decline. This decline is more the result of declining cost competitiveness than decreased demand. This cluster lost over 1,000 jobs in the region, with the biggest losses in the Central and North sub-regions. There are now 1,900 textiles and apparel jobs in the region, and the cluster is projected to lose an additional 350 jobs between 2011 and 2016.

• Hardware is a manufacturing industry that is almost four times more concentrated in the region than it is nationally. However, it lost almost 20 percent of its employment (400 net

16

jobs lost) over the past five years and these trends are projected to continue. This cluster is most concentrated in the North and Coastal sub-regions.

• Two other clusters—industrial machinery manufacturing and electrical equipment—are relatively less concentrated in the region than many of the clusters mentioned previously. Industrial machinery manufacturing employs around 1,400 people in the region. Most of the employment in this cluster is in two companies that manufacture forklifts—NAACO Material Handling in Greenville and Kinston Neuse Corportation in Kinston. Between 2006 and 2011, this cluster lost over 600 net jobs, a quicker pace of job loss than in the cluster nationwide. Over the next five years, these jobs losses are expected to continue. Similarly, the region’s electrical equipment cluster shed workers at a quicker rate than the nation over the past five years. Moreover, it is projected to continue losing employment at a time when the cluster nationally will see marginal growth. Most of the employment in these two clusters is in the central sub-region. These patterns suggest that the clusters are not particularly competitive in the region and will not become so without significant changes in the marketplace or the companies.

Section 3 will build on these findings and descriptions of the Eastern region’s main clusters and connect them to the region’s economic development target industries.

Figure 10: At-Risk Clusters

Cluste r 2006 Emp. 2011 Emp. 2011 LQBoat building 2,410 770 8.43Manufactured homes 2,404 599 0.99Logging and wood milling 1,921 1,392 2.45Textiles and apparel 3,022 1,902 1.76Hardware 2,081 1,679 3.92Industrial machinery 2,060 1,432 0.70Electrical equipment 1,229 891 0.77Source: EMSI, Clusters developed by Dr. Edward Feser, University of Manchester (UK)

17

Section 3. Connecting Industry Clusters to Regional Targets In order for value chain clusters to grow and prosper, they must be aligned with regional assets and priorities. Therefore the continued development of these clusters will require the region to leverage many of its keys assets, including the region’s significant military presence, East Carolina University, proximity to Research Triangle Park and the ocean, and the availability of land. These factors play a vital role in the region’s current and future economic development prospects. These assets are necessary; however, they are not sufficient for regional cluster growth and success. The region’s targeted clusters must also be supported by medium- and longer-term planning that can create the conditions for these activities to thrive. For instance, companies in those clusters will need a continuous pipeline of talent—from middle school through postsecondary education—to provide the needed workforce to grow and develop. Growth in these clusters might also rely on proactive efforts to connect firms in these clusters to new potential customers or resources that will help firms innovate new processes or products for those markets. This section attempts to connect the analysis offered above with more detailed consideration of some of the issues affecting the region’s primary economic development targets. Understanding these issues can help inform the way economic developers can best target economic development efforts, including approaches that will work best in marketing the region.

Biotechnology and pharmaceuticals Biotechnology and pharmaceuticals have been a significant driver not only for the region’s manufacturing sector, but also for the region overall. Building on a relatively large critical mass of pharmaceutical and biological products cluster activity, the Eastern Region has been able to further leverage its proximity to the Research Triangle and East Carolina University in order to bring an increasing number of contract pharmaceutical manufacturers to the area. Those companies are particularly interested in being located near Research Triangle Park (RTP) because R&D and prototype product manufacturers can easily leverage both the research assets available in the Triangle area and the relative cost benefits from less expensive space and available talent located in the Eastern Region. Becton, for instance, has an R&D facility in RTP and a manufacturing facility in Wilson County. The BioEast Alliance (a partnership that includes the Eastern Region and the counties of Nash, Edgecombe, Wilson, Wayne and Pitt) partnered with the North Carolina Biotechnology Center to produce a BioPharma Manufacturing Labor Market Study that has been instrumental in convincing Biotechnology Companies that region is a viable and competitive location for medium sized biopharma manufacturing operations.5 NCER also is seeking to build on its own regional assets, such as East Carolina University’s (ECU) Brody School of Medicine and companies like Metrics, Inc., Merck, Hospira and DSM Pharmaceuticals.

5 For more information, see: http://bioeastalliance.org/

18

It has long been well understood that the biosciences industry’s growth depends on North Carolina’s efforts to develop a workforce capable of supporting a variety of life science R&D and manufacturing activities. The BioWorks program, which is run through the North Carolina Community College System, is intended to prepare high school graduates and displaced workers for entry-level positions in bioprocessing as well as pharmaceutical and chemical manufacturing. The Eastern Region’s postsecondary institutions have played a key role in supporting BioWorks and other bio-related programs. For instance, Pitt Community College is one of the state centers for bioprocessing, and Lenoir Community College offers an agriculture biotechnology program in the ten-week BioWorks format, as part of a 1+1 program in partnership with Pitt Community College and as part of a 2+2 program in partnership with East Carolina University. Overall, the region has about 200 people completing bio-related degree programs each year. The majority of these are students completing Biology or Biochemistry degrees at ECU. However, since 2007, Pitt Community College has had roughly 20 graduates per year in its Biotechnology Laboratory Technician program. Continuing to ensure this strong pipeline of highly skilled workers and continued economic development focus will be an important factor in maintaining the Eastern Region’s competitive edge in biotechnology.

Advanced manufacturing Over the past two decades employment in many of the region’s traditional manufacturing activities—particularly textiles and tobacco—has declined precipitously. For instance, many of the losses in textiles took place well before the 2008-09 recession. Employment in this cluster now is only about a quarter of what it was ten years ago. Those firms that have survived have done so by finding new products and markets or by making their processes more efficient through automation. In short, if firms are not implementing ‘advanced’ manufacturing techniques, then they likely are no longer manufacturing anything at all. While there are some areas displaying strength (e.g., pharmaceuticals, food processing) and promise (e.g., aerospace, chemicals, fabricated metals), it is more likely that success in developing the region’s advanced manufacturing cluster will come from one of two sources. First, it will require identifying innovative small and medium-sized enterprises (SMEs) and connecting them to the resources (financial, technical, etc.) that will help them grow. For instance, this may involve connecting local companies to potential customers in the state, the nation and internationally. It might also involve helping them make use of the resources such as those offered by the North Carolina State’s Industrial Extension Service, which can help SMEs find ways to become more efficient or identify new product opportunities. Second, this type of assistance could prove useful to struggling large firms, like those in the region’s boat building cluster. Boat building represents one of NC Eastern Region’s unique industries, but lost two-thirds of its employment during the Great Recession. Until the economy fully recovers, it will be difficult for many recreational boat builders to regain much if any of its lost employment.

19

As with most manufacturers (and companies in general), the success of boat builders will depend on continually developing product and process innovations as well as expanding their customer base. With regards to the latter, Hatteras Yachts—one of the region’s hardest hit boat builders—recently sold its first boat in China with help from the North Carolina Department of Commerce and is also exploring opportunities in the Brazilian market.6 With depressed levels of demand in the US and Europe, many of the region’s manufacturers are going to need to explore ways to access emerging markets to supplement their current customer base.

Defense and aerospace Defense and aerospace are linked, but not completely overlapping, targets. The activities related to defense often focus on supporting the region’s major military installations. As a result, the region’s large military presence has the greatest impact on industries such as construction and local services related to retail, food services, accommodation, other personal services (e.g., dry cleaning), and light manufacturing. Meanwhile, the aerospace industry has a combination of defense related activities plus commercial aircraft construction and commercial air freight and passenger services. The aviation construction industry is a relatively new and emerging opportunity that builds on the availability of the Global TransPark as well as (to a lesser degree) the availability of skilled workers from area military installations.

Military While there are large defense contractors in the region (for instance, DSM Dyneema employs roughly 350 people in Greenville and makes ballistic-tolerant fiber), the biggest economic impact for the region comes from its three military installations—Camp Lejeune, Seymour Johnson AFB, and the Fleet Readiness Center East at Cherry Point (FRC East). As noted earlier, the military and military-related activities are a major source of regional employment as military personnel, civilians and contractors account for over 80,000 jobs. According to a 2007 study from the North Carolina Department of Commerce,7 the military contributed $7.9 billion to the Eastern Region’s gross regional product. As a result, the Eastern Region accounted for one third of the military’s $23.42 billion contribution to state GDP. Since the release of the state’s 2007 military impact study, the region has grown its military presence due to the Department of Defense Grow the Force Initiative. Most of this growth in the Eastern Region occurred at Camp Lejeune. The North Carolina Department of Commerce estimated that growth in the region’s employment would eventually lead to an increase of $183 per person in disposable income. In addition to activities directly related to the region’s bases, the presence of large numbers of military families and retirees further benefit the region. In addition to military personnel and contractors, the area around Camp Lejeune is also home to almost 75,000 military family members. These families create demand for retail and in some instances have also been an important source of workers. For instance, telephone call centers have added 260 net new jobs over the past year in Onslow County by tapping into available military spouses as a source of 6 http://www.newbernsj.com/articles/first-103950-hatteras-new.html 7 http://www.nccommerce.com/Portals/0/Research/Industry%20Reports/North%20Carolinas%20Military%20Footprint.pdf

20

workers. The area around Camp Lejeune is also home to 31,000 military retirees. The aforementioned report from the North Carolina Department of Commerce indicated that in 2007, the Eastern Region received $439 million in veteran’s compensation. Veterans therefore represent an important source of spending power, labor and potential entrepreneurs.

Aircraft and aerospace Seymour Johnson AFB and FRC East are major components of the region’s military footprint that have helped create opportunities in the aerospace industry. FRC East alone employs over 3,400 workers, the majority of which are highly skilled technicians and 500 engineers. The presence of a skilled and experienced workforce allows the region to attract and support more aviation and aerospace activities. There has also been an effort to grow this workforce by working closely with Craven Community College to prepare students for the Federal Aviation Administration’s (FAA) Airframe and Power plant (A&P) certification. Craven and Wayne Community College are two of only three North Carolina community colleges that offer this certification.8 FRC East has also worked with Craven Community College to develop customized training and adapt courses in real time to respond to workplace needs. Beyond the activities associated with FRC East, aircraft and aerospace cluster companies include Kidde Aerospace and Defense (approximately 350 employees), which makes aviation-related fire protection and safety equipment and is located in Wilson County, AAR Cargo/Defense Systems (approximately 660 employees), which manufactures cargo handling systems and transportable shelters and is located in Goldsboro. Another recent investment has further raised the Eastern Region’s international profile for aviation and aerospace activities. Spirit Aerosystems, which recently constructed a new facility at Kinston’s Global TransPark, will make will make the carbon graphite center fuselage section and forward wing spar for the Airbus A-350XWB and will also produce metal wings for the Gulfstream G-250. Spirit Aerosystems employed 200 people at the end of 2011, but as production ramps up, overall employment at the Kinston facility is expected to grow to nearly 1,000 workers by 2015. To ensure that it has an appropriately trained pipeline of skilled worker, Spirit Aerosystems partnered with Lenoir Community College to develop Carbon Graphite focused Aerostructure Manufacturing and Repair Program which is housed in Spirits Composite Center of Excellence. Looking ahead in this sector, area leaders anticipate more opportunities (and training requirements) for people with specialized skills in both advanced composites and logistics. In addition, there may be emerging supply chain opportunities resulting from the Boeing Dreamliner‘s fuselage assembly facilities in Charleston, SC. One ongoing challenge for this cluster and for many of the other manufacturing companies in the Eastern part of the state is the ability to find or recruit engineers to support these operations. This may offer some unique 8 Guilford Technical Community College is the other, and the College of the Albemarle is in the process of developing this coursework.

21

internship and co-op opportunities for engineering programs at NC State University or East Carolina University, engineering technology programs at Elizabeth City State University, or pre-engineering programs at UNC Wilmington, as well as the potential need for aerospace engineering coursework delivered at the Global TransPark.

Value-added agriculture The region’s value-added agricultural activities center around several key areas—crop farming and food products; tobacco; and meat processing. As noted earlier, these four clusters all tend to pay average wages around $30,000 per year, which is relatively low for the region. Nevertheless they remain an important source of employment for many people in the region, accounting for almost 14,000 jobs. Agriculture and crop production is an important activity in the Eastern Region as well as throughout the rest of eastern North Carolina. The region is home to crop producers growing sweet potatoes, peanuts, cucumbers, cotton and tobacco as well as livestock producers, especially poultry and pork. Crop producers are increasing their output and productivity as greater use of technology and improved yields result in more efficient farms that need fewer workers. Employment in the region’s crop farming cluster held relatively steady between 2006 and 2011 at around 1,200 jobs. However, the region is expected to lose about 150 jobs over the next five years. Greenhouses and nurseries, which account for a much smaller component of the region’s agricultural sector, also lost about 260 jobs between 2006 and 2011, now employing about 330 people. The region is best known for its prominent position within the tobacco industry. Nationwide, tobacco processing lost half of its employment between 2001 and 2011. However, due to increased use of automation, tobacco processing in the Eastern Region has actually grown over the past ten years. There are about 2,250 people working at a small number of companies, including Alliance One International in Pitt County and Universal Leaf in Nash County, that are involved in activities such as buying, selling and processing tobacco. The Eastern Region is now one of the few places in the U.S. where the tobacco industry has consolidated its production. We estimate that 14 percent of national employment in this cluster is concentrated in the Eastern Region. Within the Eastern Region, most of this employment is in tobacco stemming and redrying rather than actual cigarette production. Meat processing is one of the region’s largest clusters, and is focused primarily around companies involved in poultry processing, including Butterball and House of Raeford Farms in Duplin and Wayne counties. Much like pharmaceuticals, meat processing was a manufacturing cluster that actually added employment over the past five years. It currently employs almost 6,900 workers in the region, an increase of 550 since 2006. Moreover it is projected to increase in the future. In 2011, the average wage in the region’s meat processing cluster was $29,323 per year, less than the regional average. These large food processors employ many relatively low-skill workers. Hispanic workers account for 29 percent of the meat processing workforce

22

within the Eastern Carolina Job Training Consortium Workforce Board area,9 far exceeding their proportion of the area’s overall workforce.10 Of the four main clusters related to value-added agriculture, packaged foods lost the most employment over the past five years. Between 2006 and 2011, the cluster lost almost 500 jobs. Nevertheless, the cluster currently accounts for almost 3,400 jobs in the region. Much of this employment is in fruit and vegetable canning, pickling and drying (e.g., Mt. Olive Pickles) and commercial bakeries (e.g., Hostess). The region could consider several ways to help further grow and diversify its food and agricultural cluster. For instance, food incubators like the Eastern Carolina Food Ventures Incubator Kitchen at James Sprunt Community College can provide relatively inexpensive facilities for entrepreneurial food processing companies in the very early stages of commercialization. Incubators with commercial kitchens can also provide important development facilities for smaller, existing food processing companies to develop and test new products. The region might also help smaller agricultural producers find new markets and customers by connecting them to hotels and restaurants in the Research Triangle Region. Similar efforts have been successful in the western part of the state, as the Farmer’s Fresh Market initiative has helped connect growers in the North Carolina Foothills to restaurants in Charlotte.11 Larger food manufacturers might benefit from further developing innovations in areas like sensor technology that can improve quality control.

Tourism As noted above, tourism is not the same kind of jobs generator for the Eastern Region as it might be in other coastal locations. In contrast to places like Myrtle Beach or Daytona Beach, which are typified by large resort-type developments, vacationers to the Crystal Coast beaches are more likely to make use of rental homes. Moreover, the region does not attract business travelers in the same way that places like Charlotte or Raleigh do. As a result, tourism’s direct impact on the region’s employment is comparatively less than it might be in other places. Even so, tourism has a substantial impact on the region’s economy. According to the North Carolina Department of Commerce, tourist expenditures totaled $1.4 billion in the Eastern Region in 2010.12 This represented about 8 percent of total expenditures in the state. The impact of this spending is important for retailers, restaurants and hotels throughout the region, but particularly in places like Carteret County which attracts beachgoers, and Nash County, which benefits most from through traffic along the I-95 Corridor.

9 Which includes Wayne, Duplin, Lenoir, Greene, Onslow, Jones, Craven, Carteret and Pamlico Counties. 10 These data are available from the Local Employment Dynamics—a collaboration between the US Census Bureau and the North Carolina Employment Security Commission. They are available at the level of metro areas, and Workforce Development Board regions. 11 http://www.farmersfreshmarket.org/rutherford/ 12 According to the NC Dept. of Commerce, “Travel expenditures are assumed to take place whenever travelers exchange money for activities considered part of their trips.” For more on the methodology used to assemble these data, see: http://www.nccommerce.com/tourism/research/economic-impact/teim

23

The region’s local governments also benefit, as tourism in the Eastern Region generated almost $125 million in state and local tax receipts. As a result, the region accounted for 8.4 percent of North Carolina’s tourism-related state and local tax receipts. Carteret County generated almost 25 percent of the Eastern Region’s total tax receipts ($31.1 million), and Nash County brought in an additional 16 percent ($19.9 million). Onslow, Pitt and Wayne Counties were the other counties that brought in more than $10 million in 2010, as Camp Lejeune, ECU and Seymour Johnson AFB all drew travelers to the region. On a per capita basis, Carteret, Nash and Pamlico counties brought in the most per capita tax receipts. Regional trends have generally mirrored the state trends. Figure 11 shows both tourism expenditures and state and local tax receipts relative to 2000 and adjusted for inflation over the past decade. During the first half of 2000s, both expenditures and tax receipts lagged behind their 2000 levels. In 2004 and 2005, tax receipts and especially expenditures began to increase significantly. The recent recession led to declines, particularly in tourist expenditures, but 2010 data reflect a big increase in tax receipts for both the state and the region, returning travel-related spending to near-peak levels that North Carolina enjoyed immediately before the recession.

Figure 11: Trends in Tourist Expenditures and Tourism-related State and Local Tax Receipts (2000=100)

90

95

100

105

110

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Inde

x (20

00=1

00)

NCER Tourism‐related State and Local Tax Receipts

NCER Tourist Expenditures

North Carolina Tourism‐related State and Local Tax Receipts

North Carolina Tourist Expenditures

Source: NC Department of Commerce, Adjusted to 2010 ConstantDollars

24

Conclusions The NCER economy has changed since the 2005 cluster analysis was completed, but for the most part, the region’s core business clusters remain appropriate and focused on the region’s economic drivers. However, this analysis has also highlighted some issues for NCER’s consideration: A few large firms dominate employment numbers in many of NCER’s regional targets or

major clusters, including engine manufacturing, food processing, household appliances and nonwoven goods. This reliance on small number of major employers means that changes in any of these companies could significantly change the trajectory of the cluster in the Eastern Region.

Several of the region’s major clusters are “at risk” and may experience slower growth or outright losses compared to expected national trends. These include boat building, several industries related to housing and household goods, industrial machinery manufacturing, and electrical equipment. Some “at risk” clusters may be poised for recovery, while others are experiencing structural decline. Businesses in “at risk” clusters may require retention visits, assistance accessing relevant services from other economic development partners, and, in some cases, developing transition plans for workers.

In light of potential cuts in the Defense Department budget, NCER should closely monitor the military sector to understand the potential impact that national policy and budget changes could have on the Eastern Region. Changes in spending patterns and priorities could affect the entire military community, but especially contractors and procurement.

Workforce training programs are critical to NCER’s aerospace & defense and biotechnology & pharmaceutical clusters and must continue to be a focus of regional economic development efforts. Efforts to leverage the region’s educational assets must continue, but these approaches also reinforce the importance of collaborating with institutions in adjacent regions as well.

Programs and services that can connect local firms to new market opportunities and help them pursue product or process innovations are critical to NCER’s advanced manufacturing and value-added agricultural clusters. NCER has undertaken several initiatives in these areas in support of local firms, as described in this report, and they should continue to be a focus of the region’s capacity building efforts.

In terms of marketing efforts, several of the emerging and stable clusters that comprise the regional targets should generate opportunities both from within the region and by attracting new firms to the region. Pharmaceuticals, value-added agriculture, and aerospace are the major clusters that should be the focus of marketing programs, with distribution & logistics, motor vehicle manufacturing, and, possibly, fabricated metal products

25

meriting greater future attention.

The actual volume and type of investment opportunities depend on the factors driving growth and change in each cluster, a topic beyond the scope of this report. However, this analysis suggests that several clusters are established enough in the region to merit a focus on “internal” marketing or lead generation in addition to external business recruitment. In other words, NCER’s successes since 2005 have put it in a better position in 2011 to generate job and income growth by building on its own regional assets and in strengthening its connections to other regions.

26

Appendix A: Methodology

Our approach CREC has analyzed the region’s value-chain clusters using a similar but somewhat modified method compared to that used for the 2005 report.13 One way to understand a regional economy is to look not just at growth trends in specific industries, but how those industries interact with one another. More specifically, companies have different purchasing and sales patterns depending on the type of industry and the location of their vendors and customers. Those buying and selling relationships can be modeled into “value chains” that describe which industries purchase from which other industries. These value chain patterns can help to cluster companies together into meaningful groupings. By studying industries in groups (or clusters), it is possible to better assess where to promote investments. The data available to map these clusters is from the quinquennial U.S. economic census (last completed in 2007) in which companies report their purchasing and sales activity. Furthermore, this focus on buying and selling relationships can help to narrow policy makers’ attention to a few key “driver industries” that represent the core of important industry clusters. As a result, small impacts on these driver industries potentially could have broader consequences for the regional economy. The goal of this analysis is to identify potential sources of growth, particularly those activities that make up the region’s economic base. For economic development purposes, the analysis focuses on those core industry clusters that bring new money into the community (e.g., manufacturing, high value-added professional services), and less upon those industries (e.g., retail trade, basic health services) that rely on population growth for success and recycle existing money in the region. At this point, it is notable that industry cluster research typically assumes that the linked or related industries locate geographically near one another. In practice, these linkages are just as likely to be national or global, meaning that companies in the same core cluster industries are not necessarily part of the same value chains. These local companies may not necessarily buy and sell directly from one another even though they may buy from companies in similar industries in other parts of the country. In this analysis, the clusters are first examined based on their national structure, and then key local industries found in those national benchmark clusters are included in the regional cluster. Academic research has identified 55 benchmark industry clusters across the U.S. Not all of these clusters are present in the region, so the focus is on those that show particular regional strengths in North Carolina’s Eastern Region – in terms of size or growth patterns. This allows policy makers and practitioners to understand not only the overall size of a cluster but also its

13 The 2005 report was based upon a model that used the 2002 Economic Census to identify 45 benchmark clusters, and this report taps data generated from the 2007 Economic Census and identifies 55 benchmark clusters.

27

industrial components – seeking to find those industries that are missing from the cluster or that are not as greatly represented as might be expected, given the cluster’s size. The clusters here contain the industries that have the closest buying and selling relationships. They are also discreet clusters where no two clusters contain the same industry.14

Data Sources For the cluster analysis, CREC obtained wage and employment data for 2006 and projections for year-end 2011 and 2021 at the county and industry level from Economic Modeling Specialists Inc. (EMSI). We then combined the industry data into the appropriate cluster categories based on a top-down cluster aggregation model developed by Dr. Edward Feser, enhanced and expanded since the 2005 study. The data source, EMSI, creates its estimated county and industry employment numbers by using several data sources, starting with the Quarterly Census of Employment and Wages (QCEW) data produced for the U.S. Bureau of Labor Statistics by the North Carolina Division of Employment Security. Those data are combined with U.S. Bureau of Economic Analysis statistics from that agency’s Regional Economic Information System, as well as data from the U.S. Census Bureau County Business Patterns and the American Community Survey. In this case, EMSI data are approximately equivalent to QCEW, which include only employment covered under the unemployment compensation system. Thus, self-employed workers and temporary workers not reported as part of quarterly company payroll records are not counted in this analysis. Forecasts are based on current industry data, a 15-year trend within each industry, and growth rate projections from both state and federal sources. To supplement this information, CREC obtained data directly from variety of state and federal sources, which are cited in the report. These sources include the US Census, US Bureau of Labor Statistics, and North Carolina Employment Security Commission Labor Market Information. In addition, special local knowledge was necessary to adjust the data to reflect military employment and acknowledge recent project announcements that might not be included in EMSI estimates and projections.

14 The exception to this is with the Military and Aircraft and Aerospace clusters. The employment at Seymour Johnson AFB and FRC East is included in each cluster. Similarly the Distribution and Logistics cluster was constructed by combining employment in those NAICS codes most representative of these kinds of activities, namely those pertaining to trucking and warehousing.

28

Appendix B: All value-chain clusters, 2006 and 2011

Emp LQ Avg Wage^ Emp LQ Avg Wage Emp LQMilitary*# 59,075 8.59 $57,682 80,460 11.55 $52,770 21,385 2.96Health care 33,850 0.75 $31,673 37,908 0.72 $35,341 4,058 (0.02)Construction & utilities 26,195 0.95 $33,251 19,552 0.93 $37,103 (6,643) (0.03)Basic business services 14,501 0.75 $23,790 14,192 0.80 $26,545 (309) 0.05Advanced business services 12,903 0.55 $48,542 14,062 0.56 $54,164 1,159 0.01Aircraft & aerospace*## 11,815 6.15 $75,502Finance & insurance 8,590 0.41 $41,464 9,310 0.47 $46,267 720 0.06Meat processing* 6,318 3.88 $26,279 6,859 4.24 $29,323 541 0.36Pharmaceuticals & biological products* 3,071 3.27 $61,085 4,353 4.75 $68,160 1,282 1.48Nonwoven goods* 3,529 1.78 $48,065 3,849 2.40 $53,632 320 0.62Hospitality & travel* 4,421 0.39 $20,172 3,802 0.33 $22,508 (619) (0.06)Distribution & Logistics 4,747 0.57 $44,016 3,763 0.46 $49,114 (984) (0.11)Packaged foods* 3,839 1.47 $27,862 3,377 1.27 $31,089 (462) (0.20)Shipping 4,190 0.61 $32,633 3,279 0.50 $36,413 (911) (0.11)Publishing 3,762 0.58 $28,228 2,655 0.46 $31,497 (1,107) (0.12)Motor vehicle MFG* 1,259 0.37 $44,586 2,334 1.00 $49,750 1,075 0.62Tobacco product MFG* 2,014 27.40 $27,608 2,249 42.32 $30,806 235 14.92Fabricated metal products* 2,170 0.42 $41,553 2,166 0.48 $46,365 (4) 0.06Household appliances* 2,104 2.95 $48,090 2,044 3.54 $53,660 (60) 0.59Textiles & apparel* 3,022 1.85 $30,443 1,902 1.76 $33,970 (1,120) (0.09)Hardware* 2,081 4.26 $40,093 1,679 3.92 $44,737 (402) (0.34)Chemical products* 1,322 0.65 $54,179 1,653 0.91 $60,454 331 0.26Arts & media 1,269 0.41 $15,041 1,451 0.44 $16,783 182 0.04Industrial machinery MFG* 2,060 0.92 $42,722 1,432 0.70 $47,670 (628) (0.22)Logging & wood milling* 1,921 2.46 $31,779 1,392 2.45 $35,460 (529) (0.02)Electronics MFG 1,711 0.42 $39,993 1,355 0.37 $44,625 (356) (0.04)Crop farming* 1,230 1.00 $25,398 1,208 0.95 $28,340 (22) (0.05)Paper product MFG 957 0.64 $43,012 920 0.71 $47,994 (37) 0.07Higher education 695 0.20 $31,435 906 0.23 $35,076 211 0.03Electrical equipment* 1,229 0.98 $46,878 891 0.77 $52,307 (338) (0.20)Plastics MFG 1,449 1.16 $26,187 830 0.75 $29,221 (619) (0.42)Boat building* 2,410 11.97 $39,498 770 8.43 $44,073 (1,640) (3.54)Building products* 935 0.46 $28,139 622 0.41 $31,398 (313) (0.05)Manufactured homes & buildings* 1,404 1.28 $24,748 599 0.99 $27,615 (805) (0.29)Medical & dental instruments & supplies 475 0.58 $39,733 562 0.64 $44,335 87 0.06Software & programming 362 0.14 $47,471 508 0.17 $52,969 146 0.03Concrete & brick 1,103 0.90 $30,005 380 0.43 $33,480 (723) (0.46)Printing 429 0.21 $27,869 370 0.24 $31,096 (59) 0.03Coal, oil & gas mining 420 0.15 $65,738 347 0.11 $73,352 (73) (0.04)Nonferrous metals 227 0.37 $48,889 337 0.69 $54,552 110 0.32Greenhouses & nurseries 592 2.86 $40,846 328 1.54 $45,577 (264) (1.32)Glass MFG 286 1.25 $60,903 306 1.47 $67,957 20 0.22R&D services 545 0.28 $50,123 298 0.14 $55,928 (247) (0.14)Furniture MFG 611 0.55 $29,499 218 0.29 $32,916 (393) (0.26)Wiring devices 98 0.57 $36,467 208 1.48 $40,691 110 0.91Seafood 216 1.40 $16,024 139 0.97 $17,880 (77) (0.43)Nonmetallic minerals mining & quarrying 173 0.39 $39,019 115 0.28 $43,538 (58) (0.11)Wine making 30 0.26 $34,777 86 0.62 $38,805 56 0.37Lighting fixtures 106 0.55 $53,242 58 0.38 $59,409 (48) (0.17)Breweries & Distilleries - 0.00 $36,841 25 0.14 $41,108 25 0.14Motorcyles, bicycles, & specialty vehicles - 0.00 $36,808 18 0.44 $41,071 18 0.44Grain milling 29 0.16 $0 - 0.00 $0 (29) (0.16)Petroleum refining - 0.00 $0 - 0.00 $0 0 0.00Iron & steel production - 0.00 $0 - 0.00 $0 0 0.00Ship building - 0.00 $0 - 0.00 $0 0 0.00Source:Clusters developed by Dr. Edward Feser, University of Manchester (UK); Employment data from EMSI^Average wagesa for 2006 djusted to 2011 dollars, based on US BLS CPI*Cluster identified for further analysis#Military employment numbers provided from regional bases; overall military employment from US BEA##Military employment provided from regional bases; Average Wage is the NC State average

2006 2011 Change 06-11Va lue Cha in Cluste r

29

Appendix C: Sub-regional clusters

Figure C1: 2011 North Sub-regional Value-Chain Clusters (Edgecombe, Nash, Wilson)

Crop farming346 

Greenhouses & nurseries290 

Packaged foods1,349 

Meat processing702 

Buildingproducts505 

Manufacturedhomes & buildings

223 Textiles & apparel

589 

Nonwoven goods2,778 

Hardware1,042 

Motor vehicle MFG1,680 

Pharmaceuticals & biological products3,052 

Hospitality & travel763 

Distribution& Logistics1,655 

Aerospace & Defense products**

782 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

Average Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters*Tobacco Products=Stable; Rel. Conc. of 116.56; Emp=1,385**Aero/Def employment drawn from ReferenceUSA of Key companies

NCERAverageWage=$41,949Source: EMSI

North sub‐region counties:Edgecombe, Nash, Wilson

30

Figure C2: 2011 Pitt County Sub-regional Value-Chain Clusters (Pitt, Greene)

Chemical products789 

Textiles & apparel539 

Nonwoven goods421 

Fabricated metal  products836 

Industrial machinery MFG516 

Pharmaceuticals & biological products1,290 

Hospitality & travel622 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

Average Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters*Tobacco Products=Stable; Rel. Conc. of 90.72; Emp=835

NCERAverageWage=$41,949Source: EMSI

Pitt sub‐region counties:Pitt, Greene

31

Figure C3: 2011 Central Sub-regional Value-Chain Clusters (Duplin, Lenoir, Wayne)

Packaged foods1,698 

Crop farming693 

Meat processing6,157 

Logging & wood milling656 

Textiles & apparel683 

Nonwoven goods595 

Industrialmachinery

MFG625 

Electricalequipment

445 

Household appliances960 

Manufactured homes & buildings348 

Hospitality& travel699 

Aerospace & defense products7,484 

Military6,482 

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

0.0 5.0 10.0 15.0 20.0

Average Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI, Military numbers from US BEA and area bases

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging ClustersOrange=Potential Clusters

NCERAverageWage=$41,949Source: EMSI

Central sub‐region counties:Duplin, Lenoir, Wayne

32

Figure C4: 2011 Coastal Sub-regional Value-Chain Clusters (Carteret, Craven, Jones, Onslow, Pamlico)

Hospitality & travel1,718 

Packaged foods286 

Logging & wood milling524 

Chemical products575 

Hardware637 

Household appliances1,084 

Aerospace & defense products#3,527 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.00 1.00 2.00 3.00 4.00 5.00 6.00

Average Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI, Military numbers from US BEA and area bases

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters#FRC East  employment counted in both 

NCERAverage Wage=$41,949Source: EMSI

Coastal sub‐region counties:Carteret, Craven, Jones, Onslow and Pamlico

*Military Employment too large and too concentrated to display (Military emp.=73,978; Avg. wage=$51,691; Rel. Conc.=27.03)

33

Figure C4: 2011 Coastal Sub-regional Value-Chain Clusters (with Military) (Carteret, Craven, Jones, Onslow, Pamlico)

Hospitality & travel1,718 

Packaged foods286 

Logging & wood milling524 

Chemical products575 

Hardware637 

Household appliances1,084 

Aerospace & defense products#3,527 

Military73,978 

$0 

$10,000 

$20,000 

$30,000 

$40,000 

$50,000 

$60,000 

$70,000 

$80,000 

0.00 5.00 10.00 15.00 20.00 25.00 30.00

Average Wage (2011)

Relative Concentration (2011)Source: Feser Clusters, EMSI, Military numbers from US BEA and area bases

Red=At‐Risk ClustersGreen=Stable ClustersBlue=Emerging Clusters#FRC East  employment counted in both 

NCERAverage Wage=$41,949Source: EMSI

Coastal sub‐region counties:Carteret, Craven, Jones, Onslow and Pamlico