How is Greenville’s economy shaping up for 2012? According to several Upstate economics professors, looking ahead is a lesson in patience. Recovery is coming, but it’s a slow process, and when our economy does recover, it shouldn’t look the way it once did.
Recently in South Carolina, there have been several announcements of companies coming to the area or expanding existing operations. GKN Aerospace, for example, is expected to generate 250 jobs over the next six years through an Orangeburg County facility, and a new manufacturing facility for Global Energy Franchise in Cherokee County may mean 200 new jobs over the next five years.
These announcements are welcome, but they’re not going to have an enormous impact. “Relative to the size of the labor market, they are likely to have little impact on the overall employment rate,” says Scott Baier, an associate professor of economics at Clemson University who served as an economic adviser to the Bush administration. “With that being said, we can hope these announcements portend to a general increase in employment and business activity.”
The unemployment rate itself can appear to be better than the reality if not put into context, says M. Lance Vischer, assistant professor of economics at Greenville Technical College. “Even though employment conditions in the Greenville area have been improving in recent months based on decreases in unemployment rates, this can be somewhat misleading,” he says. “When individuals give up looking for work they are no longer counted as unemployed so the labor force and the unemployment rate can show more improvement than actually exists. According to the latest numbers from Bureau of Labor Statistics, the unemployment rate decreased from 8.8 percent in September to 8.4 in October of this year, but the total number of people employed actually decreased.”
Announcements that relate to aerospace and green energy, both dependent upon government funding, aren’t as indicative of a recovering economy as an announcement from a company driven by consumer demand, says Furman University Economics Professor Jason Jones. “What you want to see is consumer companies expanding across the United States and in South Carolina,” Jones says. “That would be an indication of a changing view of the economy.”
Right now, Jones says, we’re stuck in an uncertainty trap. Businesses won’t expand because they’re not certain there will be demand for their products. Consumers won’t buy because they’re not certain about the stability of their jobs. Uncertainty has created a vicious cycle where things aren’t moving, and until we find a way out of that, our economy isn’t going to move forward. The 2011 holiday season saw some pent up consumer demand, Jones says. People were tired of waiting to spend and they came back a little. At some point if you take an optimistic view, he explains, businesses will likely get tired of playing the waiting game, and if they feel confident in a rise in consumption, they may expand to meet that demand.
Right now, however, uncertainty is also coming from Europe where the economy may be heading into crisis. If conditions continue to deteriorate, the U.S. economy won’t be able to withstand that kind of shock, Jones says, and we’ll probably move back into a recession. With many companies in the Upstate having European headquarters, this area may be more directly affected by turmoil abroad than some other locations.
Those slowing economies in Europe and China are one of the headwinds we face in moving toward recovery, Clemson’s Baier says. These downturns mean we’re unlikely to have much of a boost in economic growth from exports.
Even with job announcements and ribbon cuttings, many people have been unemployed or underemployed for an extended period of time. Some of the long-term unemployed will benefit as companies increase hiring, says Dr. Charles Reback, assistant professor of economics and finance at University of South Carolina Upstate, but some of the old jobs will not return mostly due to improvements in automation, and workers need to constantly improve their skills and remain flexible in order to adapt. “The days of the assembly line worker who performs the same task every day are over,” Reback says. “Robots are becoming better and cheaper, reducing the need for these workers. Compare the level of automation in the BMW plant today to what it was 10 years ago.” Some job losses have been in industries that may be slow to recover, Professor Baier of Clemson says. “For those workers in the construction industry it will take some time for employment to reach the pre-recession levels, and these individuals will likely need to seek employment in other industries. This will require these workers to obtain additional job training and/or for these workers willing to accept a job that pays a lower wage rate,” he says. The financial industry will be slow to rebound as well, he predicts, but manufacturing in this area has not been as negatively impacted by the recession as it has in many other parts of the country, so it will rebound faster.
Baier says we can move forward if the government creates an environment that encourages investment and research and development. “While demand is weak, supply side factors are at least equally important. Typically, economic booms result from a handful of industries experiencing fast growth and this growth impacts other industries as well,” he says. In his view, an environment that promotes growth could be created by reconsidering some of the newly implemented and pending regulations that have raised the cost of hiring workers and business investment. In addition, he says, a golden opportunity to rewrite the tax code by broadening the base and lowering the rates was missed because of partisan politics.
The experts see 2012 as slighter better but not really a banner year for economic improvement. “I believe the economic picture will demonstrate some slight improvement but remain relatively stagnant,” Professor Vischer of Greenville Tech says. Overall national economic conditions and the lack of any substantial improvements in aggregate demand for goods and services due to persistent uncertainty will restrict recovery, he predicts. What’s going to hold us back as we move down the path toward recovery? Reback says it’s the lack of skilled workers. “We need a more educated workforce. Not necessarily formal education, but people need to think more, innovate and adapt,” he says. If we can improve the skill of the workforce while maintaining South Carolina’s relatively low cost of doing business, we can move forward, he adds.
When the economy does recover, we shouldn’t expect it to look like it once did. “I hope we don’t have an economy like we did in the pre ’08, the pre-crisis days,” says Professor Jones of Furman. “A lot of that economy was driven by speculation and wealth that wasn’t necessarily real.” People thought they were wealthier because the value of their home and other investments were artificially high. This led many individuals to take on large amounts of debt. These conditions made us vulnerable to the economic downturn. Jones hopes that if there’s a lesson learned, we’ll reduce debt so that we won’t be as vulnerable as we were during the 2008 turmoil. He also hopes that Americans won’t go back to being a low saving society. That tendency to spend, spend, spend, restricts long-term growth in an economy and makes it difficult to sustain good growth and expansion in the future, he says.
How can we prepare for the economy ahead? By constantly improving skills, says USC Upstate’s Professor Reback. “I don’t know where the new jobs will come from, what industries will grow, or when they will appear, but I have confidence in America’s entrepreneurial spirit and capacity,” he says.
Succeeding in the new economy will require flexibility, says Professor Jones of Furman. “The best way to prepare is to be flexible. Be ready to change your skills and shift from one sector of the economy to another,” he says. “One good way to be flexible is to demonstrate the ability to think, the ability to learn.”