Economy will slow, but it's still on go.

• Position: Interview with John Connaughton - Interview

John Connaughton, who has master's and doctorate degrees from Northeastern University, has taught economics at UNC Charlotte since 1978. Since 1981, his quarterly forecast has predicted how the Tar Heel economy will fare over the next 18 months. He explains why the state is cooling down.

BNC: Does slower growth in the second half of 1997 and in 1998 spell trouble?

I don't read it that way. 1997 is our sixth year of economic growth. There's no longer any easy room to expand. You've used up the excess capacity of the economy. We're talking about slowing to 2.5%. That's not bad in an environment where unemployment is 3.5% and inflation is 2%, 2.5%.

BNC: Can the economy continue to grow?

I think it can. People talk about this as a new paradigm, with the possibility not of eliminating the cycle but certainly reducing peaks and valleys. If we get through 1998 as forecast, it'll be the longest, strongest post-war expansion.

BNC: What is pushing the state's growth?

No. 1, our economy has relied on incoming businesses, and we've had a successful policy for a long time. That has slowed a little bit, but we're still reasonably successful. We're one of the top five states year in and year out in plant relocations. Secondly, economies that grow tend to continue to grow, and economies that are depressed continue to be depressed. We're not Mississippi and we're not West Virginia, chronically depressed.

BNC: What could go wrong?

Obviously the No. 1 thing is that we're tied to the U.S. economy. When that is going along fine, we do a whole lot better. So if it starts to go down the drain, we're not far behind.

BNC: Nondurable-goods manufacturing such as textiles has had a bad time. That's more secular than cyclical. It's a long-term trend - a conversion to a more capital-intensive manufacturing. And it's an industry that is late in its life cycle. It's not expanding.

BNC: What is North Carolina's edge?

Right now, the No. 1 competitive advantage is banking. Between the three major banks, we've got financial capacity well beyond the needs of this state.

BNC: Even though people complain there isn't enough venture capital here?

It's certainly not California or Massachusetts. But it's also not Iowa. We've had a number of successful high-tech companies here that relied on venture capital. We're not just a relocation state.

BNC: But state government's bias has been toward recruiting factories?

Absolutely. That is something we need to look...