Cautiously Optimistic with a Chance for Change

By Allison Caldwell
December 31, 2012
Fiscal cliff notwithstanding — and by now we know whether the U.S. market is enjoying the view from the summit, or has fallen off the edge into what may be another recession — some of South Carolina’s leading economists and business leaders say they are cautiously optimistic about the state of state’s economy in 2013. Jobs and housing are coming back, and outside investments in S.C.’s ever-widening knowledge-based economy are growing steadily.

“2012 has been an interesting year in South Carolina. We’ve seen growth overall, but it’s been highly variable,” says Dr. Joseph Von Nessen, a research economist at USC’s Darla Moore School of Business and a key presenter at the school’s Annual Economic Outlook Conference, held each December. This marked the 32nd annual event, with forecast presentations by Von Nessen, USC economist Doug Woodward, and economist John Connaughton of UNC-Charlotte.

“The resolution of the fiscal cliff is a major piece of the puzzle,” said Von Nessen. “We will definitely feel the effects of any increases in marginal tax rates, payroll taxes or reductions in federal funding through measures such as military sequestration or the elimination of extended unemployment benefits. South Carolina’s economy is healthy enough to absorb some of these shocks, but not all of them.”

2013 Economic Outlook Conference
The theme for this year’s conference was Upside Potential, Downside Risk; and there seems to be plenty of both. Job creation — the most important measure of economic progress in South Carolina — is expected to grow 1.2 percent in 2013. Compare that to last year: Woodward and Von Nessen’s prediction of a two percent growth in employment came close to the actual 1.8 percent increase from 2011 to 2012.

“Employment rates went up, down, and up again in 2012, affected by an election year and the fact that many employers were hiring only temporary positions,” said Von Nessen. “Employment overall was stronger this year than in 2010 and 2011, but still highly variable.”

The state’s current unemployment rate is at 8.6 percent, the 12th highest in the nation. Projected gains in 2013 should continue to reduce that rate, with most positions expected to come from temporary hiring and contract labor. Thirty-nine of the state’s 46 counties saw job growth in 2012. Manufacturing has played a key role in employment gains across the country, especially in the southeast.

“Manufacturing has been largely responsible for our economic recovery, but we’ve started to see other industries expand, and expect more diverse growth in 2013,” said Von Nessen. Gains are expected in transportation and warehousing, health care, education and even construction.

“Residential construction turned a corner in 2012. House price appreciation was up for the first time since 2007, which shows that the real estate market is continuing to stabilize. We’ve seen increased residential sales activity in all major markets this year, particularly in the Charleston area. Hopefully this news will get some people off the fence about buying a home in 2013.”

“The housing market is doing a lot better than in the past,” said Woodward. “Resales are up 15 percent. Charleston has been carrying the market, but Greenville turned up in the third quarter [of 2012], and Columbia is moving closer to a gain as well.”

Despite the “good” news in job growth and the housing market, there is much in the future to be concerned about, and maybe even alarmed. The U.S. debt and deficit still adds up to trillions and billions of dollars; as Connaughton said during the conference, “We can’t handle the truth about the fiscal cliff.” Although most economists, business leaders and pundits seem to think a deal in Washington will be made — and again, by now we know “the rest of the story” — very slow growth is expected in 2013.

“There are some serious long-term risks to our economy,” said Woodward. “Despite employment growth, we continue to see stagnant income rates in South Carolina. Our state ranks high in overall business climate, but we don’t see the rising income that should naturally follow. We need to strengthen our economy in that area. The only county holding up per capita income right now is Charleston. Richland County is one of the few areas poised to take a big hit in 2013, with a larger concentration of military personnel, state employees, and long-term unemployed workers than most areas.”

“If Congress and the president don’t reach a deal by January 1, the U.S. economy will enter into a mild recession during the first half of the year,” said Connaughton, Babson Capital Professor of Financial Economics. “Nationally, unemployment could reach nine percent by the fall of 2013. If they do reach a deal, the most likely scenario is that the combined tax increases and spending cuts will be enough to slow the economy to a one percent or less growth rate during 2013. There’s just no good economic outcome to these talks. 2013 will be a year where we pay for our borrow-and-spend past.”

“If you want a preview, just study what has happened and is happening in Europe,” said Connaughton. “The bottom line? It’s highly likely that consumption, investments and exports will all go down in 2013. I think we’ll avoid a double dip recession, but it will still be painful. We’ve had five years of recession and weak recovery. The keys to watch now include consumer confidence, consumer debt, excess reserves, monthly job growth, and gasoline prices.”

Knowledge and Experience: Growing, but Room for Improvement
When it comes to improving the state’s economy, knowledge-based development clusters and a skilled, experienced workforce are key. Although South Carolina has been moving in the right direction in recent years, there’s still ample room for improvement.

“I can only react to the world I live in, but it seems like things are getting better. There’s a lot of opportunity coming in the short term,” said John Warner, CEO of InnoVenture, a global social business development and networking platform, and publisher of the Swamp Fox website, covering news of the Southeastern Innovation Corridor.

“South Carolina has made some amazing changes in our culture of entrepreneurship in the past 30 years,” said Warner. “There are startup incubator programs in Greenville and Columbia. Charleston is building a strong digital corridor. High-impact companies like Michelin, GE, BMW, Cisco, and others are making solid investments here, and we’re building a good reputation as thought leaders in several key areas. Spartanburg has recently launched its Entrepreneurial Resource Network, and there’s a Center for Entrepreneurial Development at Presbyterian College School of Pharmacy.” To make the most of this progress, Warners says a paradigm shift is still desperately needed.

“First of all, we need to change the way we think about economic development. It has to be more than just industrial recruiting. This ‘find it, shoot it, and drag it home’ concept is a key part of economic development on a global scale, but we must also commit to growing the activity that’s already here.

“The second transformation must be in how we approach public education,” says Warner. “Our current system was designed for the 19th century industrial revolution, not for 21st century innovation. Fifty years ago, people couldn’t possibly imagine what things would look like in 2013. In the same way, we can’t anticipate what facts or skills this current generation needs to be successful in the marketplace, because we don’t know what that future will look like.

“What we do know is that we’ll need innovative, creative, thoughtful, and passionate leaders. Unfortunately, we also know that one out of every four high school students won’t graduate on time, if at all, and 50 percent of high school graduates have to take remedial courses to enter our technical colleges. This is unacceptable. We can’t be what we need to be [economically] without reimagining what public education looks like in South Carolina.”

Jerry Howard, president and CEO of the Greenville Area Develop Corporation, agrees with others that 2012 was a good year overall.

“Unemployment is tracking south, slowly but surely. Retail seems to be picking up. Commercial occupancy rates are still not as high as we would like, but have realty improved. Throughout the state, we’ve seen more new business than expansions, and we’re benefiting from targeted clusters in the auto, advanced materials, aerospace, and green technology industries.”

Although he’s encouraged by the support of Gov. Nikki Haley and a “better than ever” partnership with the state Department of Commerce, Howard says changes must continue to be made for economic success in 2013 and beyond.

“We must improve our ability to close development projects. We must improve incentives, especially for non-traditional manufacturing and smaller companies. We must continue to find the missing component of capital, which is always a challenge. Statewide and across the country, our biggest challenge to a stable economy is the quality of our workforce. We must continue to improve our ability to fill the skilled positions that are and will be in demand.”

***For objective, up-to-date information about South Carolina’s economy —  including information shared at the 2012 Economic Outlook Conference — visit SCDash.com, a web-based economic data clearninghouse and a free resource from the Darla Moore School of Business.


South Carolina: Communities at a Glance
2012 Gains and Losses

Employment Growth
·   Biggest gain: Spartanburg (+3.3 percent)
·   Sizeable gains: Florence/Darlington (+2.8 percent); Rock Hill (+2.6 percent); Myrtle Beach (+2.2 percent); Charleston (+1.9 percent)
·   Mild gains: Columbia (+1.6 percent); Sumter (+1 percent); Greenville (+0.1 percent)
·   Small losses: Anderson

Retail Trade
·   Gains: Charleston (+4.5 percent); Anderson (+1.2 percent); Spartanburg (+0.8 percent); Myrtle Beach (+0.6 percent)
·   Declines: Augusta (-4.1 percent); Columbia (-1.1 percent); Greenville (-0.3 percent)

Residential Building Permits
·   Gains: Anderson (+47.5 percent); Charleston (+46.4 percent); Spartanburg (+33.4 percent); Greenville (+32.2 percent); Columbia (+27.4 percent); Myrtle Beach (+9.6 percent)
·   Decline: Augusta (-3.3 percent)

Unemployment Rates
·   Biggest declines: Spartanburg and Florence (-1.9 percent each); Sumter and Myrtle Beach (-1.8 percent each)
·   Moderate declines: Charleston (-1.6 percent); Anderson and Greenville (-1.4 percent each); Columbia (-1.3 percent); Augusta (-0.7 percent)

Source: 2012 Economic Outlook Conference, Darla Moore School of Business


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