Midyear economic forecast: Job growth exceeds expectations
By Scott Miller
smiller@scbiznews.com
Published July 17, 2014
The S.C. economy is outpacing the prediction University of South Carolina economists made at the beginning of the year.
In the USC Moore School of Business’ annual economic forecast released at the end of 2013, economists predicted job growth of 1.7% for 2014. So far, job growth has been 2%, a rate USC economist Joey Von Nessen expects to continue.
“One of the most encouraging signs we’ve seen is that we are seeing growth across industries,” he said, recognizing that the manufacturing sector has had to carry much of South Carolina’s economic growth in recent years. “There have been high levels of growth in retail-trade and in the leisure and hospitality industry. This is very positive because these industries respond to consumer demand. If consumers are willing to spend more money, it should build more confidence.”
Others aren’t as optimistic as growth in gross domestic product slowed to 1.2% in South Carolina last year, unusual given the uptick in employment.
“Recent GDP revisions altered the trajectory of South Carolina’s recovery from steady and robust to steadily decelerating,” according to a forecast from TD Bank.
The bank, which said the Southeast economy will outpace national economic growth, predicts South Carolina is likely to underperform its neighbors because of 2013 job and funding cuts to education and health care. There are reasons for optimism, however, as cuts to those same sectors have waned in 2014, the bank’s economists said.
“In fact, S.C. education and health firms have been hiring faster than the nation since late 2013,” TD Bank said.
The education and health services sector posted 2.2% job growth so far this year, according to the S.C. Department of Employment and Workforce.
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| SOURCE: U.S. Bureau of Economic Analysis |
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The manufacturing sector is expanding, the housing market is on the mend and job gains are driving growth in the construction industry, the bank reported.
“Overall, the S.C. economy should accelerate to a still moderate 1.6% pace this year before growing by 2.8% in 2015,” TD Bank predicted.
By comparison, the lower-Atlantic region should post GDP growth of 2.4% this year and 3.6% in 2015, the bank said.
TD Bank expects job growth to reach 1.9% in South Carolina this year and accelerate to 2.3% in 2015 with unemployment falling from 5.3% to 4.4%. Nationally, job growth is expected to be 1.9% in 2015, with unemployment at 5.7%, TD Bank said.
The unusually snowy winter brought GDP growth to a halt in South Carolina, Clemson University economist Bruce Yandle said in his latest economic situation report released in June.
“It will take some very strong late-year quarters to generate a 2.3% to 2.5% annual growth,” he said.
Slow GDP growth and higher federal taxes have dipped into consumer spending, Yandle said.
Still, Yandle points to a steady increase in truck sales as a sign of increased construction activity and better days for the manufacturing sector. Housing starts are also positive. In South Carolina, housing permits issued through May are up 21% from a year ago at 11,707, according to U.S. Census data. At the current annual growth rate, the nation’s residential construction industry will return to prerecession levels in 2018, Yandle predicted.
“Getting back to where we were almost seven years ago is not exactly the same as boom times,” he said.
Business uncertainty tied to the federal government is still concerning, and inflation and higher interest rates should be monitored, Yandle said.
“Will that put the economy in the cooler? Hardly. Real GDP growth should be moving at a 3% pace in early 2015,” he said.
Von Nessen said job growth is the best indicator of economic health.
South Carolina’s economic recovery over the past two years has been fueled by manufacturing, specifically the automotive and aerospace sectors led by BMW Manufacturing Co. and Boeing Co., respectively, he said. More sectors are getting into the growth act now, however, Von Nessen said.
“In 2012 and ‘13 and ‘14 we have seen much more broad-based growth. Manufacturing certainly is a key player in that, but other industries are coming along, and that is really important,” he said.
Employment in the construction industry is up 2.8% through May this year, according to the S.C. Department of Employment and Workforce. The manufacturing sector is up 3.5%; the professional and business services sector is up 3.5%; and the leisure and hospitality sector is up 3.4%.
Concerning, however, is that a high level of South Carolinians are working part time because they can’t find full-time work, Von Nessen said, and wage growth has been flat.
“If you look across the country, areas that are seeing significant wage growth are areas that have a large knowledge-economy sector, jobs that involve innovation and commercialization. Engineering is the textbook industry that represents knowledge-economy jobs,” Von Nessen said.
Per capita personal income in South Carolina was $35,453 last year, up 1.1% from the year before, according to data from the U.S. Bureau of Economic Analysis. The U.S. average was $44,543, up 1.8%.
“Wage growth has been relatively stagnant. That’s an area that needs to move in the right direction,” Von Nessen said.