Serving Up A Tasty ’17
Jan 01, 2017 06:20PM ● Published by Makayla Gay
By John Jeter
And now for dessert. With 2016 setting the state’s post-recession financial table, economists from the Upstate to the Lowcountry say that despite what might be cooking in Washington, South Carolinians will enjoy sweet goodness from baked-in growth in industry, employment, and international trade.
“Those cookies are in the oven,” says Bruce Yandle, dean emeritus of Clemson University’s College of Business and Behavior Science and former Federal Trade Commission executive director. “The next 12 months are suddenly no brighter or darker than they were before the election.”
Yandle joins three other doctoral-level economists across the state—Mark Witte, director of the College of Charleston MBA program; Joey Von Nessen, a University of South Carolina Darla Moore School economist; and Madelyn Young, associate professor of economics at Converse College in Spartanburg—in a generally upbeat forecast for the coming year. All have caveats.
“Probably, as we get closer to the end of 2017, as we get to the fourth quarter, some initiatives that might be put into place very early in the year could begin to have some impact that would be recorded in regular economic data,” Yandle says.
Palmetto State numbers from the U.S. Census Bureau and the state Department of Commerce, which declined comment for this story, looked comparatively strong at the end of 2016’s third quarter:
• Unemployment fell .2 percentage points to 4.9 percent, matching the national rate
• Jobless claims fell 13 percent from the previous year
• Two large job-creating sectors—Professional and Business Services, and Education and Health Services—grew by a total 11.5 percentage points from 2015; only a few hundredths of a percentage point shy of the combined growth in manufacturing, construction, mining and natural resources
• Private average hourly wages grew from below $21 in August 2014 to $22.29
• Exports rose more than 17 percent, topping $4 billion, from August to September, putting South Carolina No. 3 in the nation, behind Washington state and New York
If anything, campaign-trail rhetoric pushing protectionist trade policies generated some concern. Trade’s a big deal in a state where China’s its largest market, with exports exceeding $4 billion annually, or 14.2 percent of South Carolina’s total merchandise. Scrapping free-trade pacts could ding the state’s exports to 199 countries; the Palmetto State ranks No. 15 in exports nationwide, with $30-plus billion in 2015.
Then, of course, South Carolina enjoys gargantuan foreign investments from Germany’s BMW, France’s Michelin, and China’s Volvo, to reiterate the big names.
“South Carolina’s economy is more international than is the nation’s,” Yandle says. “China’s our major customer, and there’s been discussion about doing things to China to punish China about China’s trading policies. But, hey, that’s our biggest customer. Germany’s our biggest customer in terms of imports.”
His assessment essentially localizes a November report from Oxford Economics, a global forecasting and quantitative analytics organization affiliated with its namesake university in the U.K.
“The U.S. economy will benefit from lower taxes and increased infrastructure outlays, but offsetting government spending cuts, trade protectionism, and uncertainty will constrain growth,” the report predicts, alluding to the President-elect’s proposed trillion-dollar nation-building plan. “Real GDP growth will likely average 2 percent next year with the Fed raising rates at most once.” In fact, the nation’s third-quarter annualized GDP growth jumped to 2.9 percent.
Trade, Yandle says, is “something that would cause me to have a bit of concern, but exaggerated promises get made in a presidential campaign that actually turns out to be a bite not as severe as the bark.”
Swedish car maker Volvo, whose owner, Geely, a $3.3 billion Chinese conglomerate, invested $500 million in a plant near Charleston in 2015, declined comment for this article. Michelin and BMW spokespeople couldn’t be reached. But Boeing, the $96 billion Chicago-based jet builder with its massive Charleston plant, says, “Boeing as a company has not made any official statements regarding 2017.”
The plane manufacturer’s communications specialist Elizabeth Merida adds, “When it comes to Boeing South Carolina specifically, there are no changes to our previously announced plans for 2017. These included continuing to assemble and produce 787-8 and 789-9 Dreamliners.”
Which then begs the question: Will enough workers be available?
“That’s one of my concerns, too,” says USC’s Von Nessen. His numbers show hiring “consistently ahead of the national average. For example, the most recent employment data shows 2.3 percent annual growth for S.C., compared to 1.7 percent for the U.S. as a whole over the same time period.”
He adds, “If we want to get to a new high in 2017, is there going to be a steady supply of workers ready for new jobs to come into the state? That’s especially notable because we’re approaching full employment.”
On the flipside, tighter employment pushes up paychecks. “Wages increase as workers become more scarce. As that happens, we’re also at the same time hearing anecdotally about significant skills gaps in hard and soft skills.”
In an email, he adds: “We have to make sure we are preparing a workforce that can satisfy the demand of expanding employers. For a variety of reasons, the skills gap increased significantly following the Great Recession and has not returned to its previous levels. Thus, even though South Carolina’s economy is well-positioned for 2017, failure to address this skills gap can potentially limit our ability to improve our rate of growth going forward.”
While more pay means more consumer spending and more housing construction, underemployment could stir inflation.
“South Carolina has a high proportion of our population making money at the very low end,” says Witte, at the College of Charleston. “They’re going to see their wages grow dramatically, from $9 an hour to $10 an hour. Anecdotally, the signs are everywhere, hiring everywhere: Sonic, Target, Chick-fil-A. Anytime I see those places having open job fairs, you can see the pressure is really high at the low end, you can see they can’t get people for $7 an hour anymore.”
Which means, he says, “There is a big underemployment problem which cropped up really as the economy was starting to grow.”
If the number dips too much, he says, “There’s all kinds of problems having an unemployment rate that low. That’s when businesses have a problem growing.”
Nevertheless, “I would daresay we’re better than the national economy. I think we’re well-situated in that we’re not in a position where some growth states are—Nebraska has grown pretty well, a lot of the Midwestern states have grown pretty well—but they have that 3.9 unemployment rate, and they can’t get people to move in.”
Not so here. “We show people from New Jersey or Ohio pictures of our palm trees, and it’s a lot easier to get people to move into our state.”
Yandle agrees. “The planets have aligned sort of nicely for our economy in the last few years. We happen to be located in the second strongest region in the nation—the West is stronger—but looking at different data, South Carolina’s kind of shining and looking good.”
If things go south, though, the Fed can jump in—and likely already has—with the central bank expected to raise interest rates at its mid-December meeting just before press time.
In terms of inflation, the Fed targets 2 percent. In terms of jobs, if unemployment falls to, say, 3.7 percent, Witte says, “I have every reason to believe the Federal Reserve would have stepped in by that time and would have taken away the punchbowl from the party.”
One oft-overlooked—and crucial—demographic guest at the party: women.
“Women serve as the primary or co-breadwinner in two-thirds of South Carolina’s families, yet women are more likely to live in poverty, are not paid wages equal to men, and many women face discrimination in the workplace,” says Young, the economist at Converse, one of only two all-women’s colleges in the state.
“Fewer opportunities and lower pay undermine women’s lifetime income, which not only affects her own life, but also her children and family members,” she says. “Helping South Carolina women attain and keep good-paying jobs, complete with benefits, would help lessen the gender wage gap in South Carolina.”
Overall, the economists interviewed see strong growth in the sectors that have shown strength through 2016.
Says Von Nessen, “South Carolina represents one of the fastest-growing states during this seven-year expansion because of advanced manufacturing, such as automotive, tires, and aerospace manufacturing, and has been consistently ahead of the national average.”
• Manufacturing: up 7.1 percent
• Construction: up 4.3 percent, especially in coastal markets such as Charleston and Hilton Head
• Professional services: up 5.2 percent; “The professional services sector includes a number of high-wage industries, meaning that growth in this sector is leading to high-wage job creation,” Von Nessen notes
Economists’ tasty treat for the New Year? A warm crystal ball.
“The nation’s going to be better than it was in 2016,” says Yandle, the elder statesmen of the experts here, “and so South Carolina’s going to be better, too. We’re getting pretty close to as good as it gets.”