Economy Looking Good, But Challenges Loom
Feb 02, 2018 10:00AM
By Emily Stevenson
By David Dykes
Expectations are that South Carolina’s economy this year should be one that hums along nicely, growing slowly but steadily. But economists say challenges remain in filling many jobs with qualified workers and bolstering rural areas, where economic gains can be elusive.
“It’s been so long since the (national) recovery started, no one even remembers that it’s been a recovery for, what, eight years?” says Frank Hefner, director of economic analysis and a professor at the College of Charleston. “At some point do we actually just say that we’ve recovered from the financial disaster that precipitated the recession?”
For Hefner, and other economists, that translates into a brightened growth forecast for South Carolina. Hefner expects the state’s economy to remain strong this year, with broad-based growth across most industries, but not necessarily across all geographic areas. Rural counties will continue to struggle with challenges they’ve always had, he says.
But the state’s standard growth poles—the Greenville-Spartanburg area and the Upstate, Charleston metropolitan area, Myrtle Beach, coastal regions, and the Rock Hill vicinity near Charlotte—should see continued, widespread growth, Hefner says.
Part of his optimism is based on tax-law changes that should encourage foreign firms to locate in the United States and possibly add to South Carolina’s registry of Michelin, BMW, Mercedes, Volvo, Fujifilm, and Giti Tire, among others. The South Carolina Department of Commerce has a long and successful track record of helping international companies establish, relocate, and expand business operations in the U.S. and North American markets.
If there is a storm cloud on the horizon, it’s the impact of the Trump administration’s attack on trade agreements, Hefner says.
“We are such a state that relies on international activities, both for firms locating here, a vibrant export market, a vibrant import market to import things that we use to make other things. I would worry about that. But there’s no way to predict that political uncertainty.”
Still, many economists see at least slight improvement in South Carolina’s recent growth patterns.
“The big story for South Carolina coming through in 2018 is that the economy seems to still be more vibrant than the nation as a whole, but probably isn’t growing quite as fast in terms of jobs as it was a year and a half, two years ago,” says Richard Kaglic, senior regional economist at the Charlotte branch of the Richmond Federal Reserve Bank.
The jobs are there, but a common refrain from employers is that they are having “a great deal of difficulty” finding qualified applicants for open positions, says Kaglic, who analyzes regional economic conditions and developments.
“And that makes sense when you take a look at the unemployment rate in South Carolina,” he says. “It is as low as it’s been in several years. It’s at or below the nationwide average.”
Doug Woodward, director of research at the University of South Carolina’s Darla Moore School of Business, and Joseph Von Nessen, a university research economist, say the state should see broad-based growth continue across most industries with accompanying gains in employment and income for South Carolinians.
The economists told nearly 250 state business and community leaders at a conference in December that the single best indicator of economic performance – job creation – is expected to grow at 2.1 percent in 2018.
“Although our current economic expansion is now in its ninth year, it’s important to remember that economic expansions don’t die of old age,” Von Nessen said. “Market fundamentals are strong, and the state’s economy is in a very good position as we head toward 2018.”
Those fundamentals include low unemployment, higher wage growth, and stronger global demand.
While almost all South Carolina counties saw economic growth in 2017, not every business type benefited equally, the economists said.
“Historically, the majority of job gains during economic expansions have come from small businesses, but this current expansion is different,” Von Nessen said. “Larger businesses – those with more than 100 employees – are now generating a much greater share of total employment.”
Specifically, the Moore School forecasts that the state’s unemployment rate over the next 12 months will drop slightly to about 3.6 percent. Total personal income is expected to grow at 4.3 percent in 2018, which would be an increase from its growth rate of 3.8 percent in 2017.
Despite a positive outlook for 2018, Von Nessen said addressing workforce challenges in South Carolina will be vital. “Labor availability will be the bottleneck of economic growth in 2018,” he said.
Meanwhile, Bruce Yandle, dean emeritus of Clemson University’s College of Business and Behavioral Science, says he also sees a growth picture this year.
Driven by a slow U.S. economy that will continue to experience 2.3 to 2.5 percent real GDP growth, a stronger world economy with a GDP growth of 3.5 percent, but with some expected weaknesses in U.S. world trade activity, South Carolina should see a repeat, if not some slight improvement, in 2017’s basic growth patterns, Yandle says.
State employment growth should average 1.9 percent, and personal income growth, still driven by transfer payments, should hit 3.75 percent, which is above the most recent 2017 estimate but slightly below the 3.9 percent 2006-2016 compounded annual growth rate computed by the U.S. Department of Commerce, Yandle says.
Yandle says professional and business services will again be the top employment growth sector, followed by manufacturing.
Across South Carolina, counties near Charlotte and along the Interstate 85 corridor —York, Cherokee, Union, Lancaster, and Spartanburg — and a network of coastal counties — Jasper, Beaufort, Charleston, Berkeley, Dorchester, and Horry — will continue to have stronger employment growth, he says.
“Because of federal policy changes, South Carolina’s strong export industries, which historically played an important positive factor in economic growth projections, will become a somewhat riskier but still positive factor,” Yandle says.
At Wells Fargo, there is a cautious tale for an optimistic U.S. outlook.
Economists John Silvia, Mark Vitner, and Jay Bryson told journalists during a recent webcast they are calling for real GDP growth of at least 2.5 percent in 2018 and 2019.
“We are approaching the new year with more promise than any time since the Great Recession,” Wells Fargo’s Securities Economics Group said in its U.S. outlook. “Improvement is evident across nearly all sectors and regions of the country.”
That, economists said, includes South Carolina.