Special Report: USC Economists Forecast Continued Growth Despite Uncertainty
Thursday, December 6th, 2018
As the U.S. economy pushes toward a record, South Carolinians should expect continued job creation and growth in personal income in 2019, according to experts at the University of South Carolina.
Doug Woodward, director of research at the Darla Moore School of Business, and research economist Joseph Von Nessen spoke at the school’s 38th Annual Economic Outlook Conference on Dec. 4. They looked back on a year of increased economic uncertainty that is expected to continue.
“We’re in a much more volatile environment,” Von Nessen said, but he felt it shouldn’t completely derail the Palmetto State economy. “We’re expecting either a good year or a great year in 2019.”
Officially, they predicted job creation to grow at 1.8 percent in South Carolina in 2019. The statewide unemployment rate is expected to fall to 3.1 percent from the current 3.3 percent.
“We have actually seen some regions of the state drop below 3 percent,” Von Nessen said. “There’s not a whole lot of room for it to drop, given the tightness of the labor market.”
Von Nessen and Woodward had predicted an unemployment rate of 3.6 percent for 2018. They said the tax cut package passed by Congress at the end of 2017 encouraged consumer spending that helped spur additional job creation.
The tightness in the labor market should help personal income grow by an estimated 4.4 percent in 2019. USC had predicted 4.3 percent for 2018, but growth matched 2017’s rate of 3.9 percent.
“That was mostly because we saw inflation begin to pick up,” Von Nessen said.
The economists pointed at four key factors creating uncertainty for South Carolina’s economy in 2019. First is the tussle between the U.S. and other nations over tariffs.
“Right now, we’re seeing a retreat from globalization,” Woodward said.
South Carolina’s exports are down after years of record shipments overseas. Woodward and Von Nessen pointed to factors such as China’s retaliatory 40 percent tariff on U.S. automobile exports (the U.S. had put a 10 percent tariff on Chinese imports).
An economic truce between the countries could be in the offing. Von Nessen said removing the tariffs could boost South Carolina job creation by an additional 0.4 percent in 2019.
“That translates into another 6,000 jobs per year,” he said. “That reflects job creation that we’re not seeing.”
The second uncertainty is interest rates. The Federal Reserve has hiked its benchmark rate three times this year, which typically boosts inflation.
“If you raise interest rates too quickly, it throws everything off,” Woodward said. “But I think the Federal Reserve knows that and they are going to be moderate.”
Mortgage rates have also risen. Combined with builder cost inflation, it has caused a slowing in the South Carolina construction sector.
The third uncertainty is slowing global markets, which lessens demand for South Carolina exports.
“We are a state that is highly globalized,” Woodward said.
The final factor is the ongoing economic expansion itself.
“If we get to July without a recession, this will be the longest expansion in U.S. history,” Woodward said.
But while expansions don’t die of old age, perhaps they can be talked to death.
“We get more speculation abut the end of the economic expansion and that generates uncertainty,” Von Nessen said.
Von Nessen and Woodward expect South Carolina’s wholesale/retail, health care and tourism sectors to do well in 2019.
The event, which took place at the USC Alumni Center in downtown Columbia, also featured a discussion on Opportunity Zones that included comments by Columbia Mayor Steve Benjamin, Jeanne Milliken Bonds of the Federal Reserve Bank of Richmond, former Gov. Jim Hodges and state Treasurer Curtis Loftis.
The zones are part of a provision in the tax cut package passed by Congress in 2017 and will allow investors to defer capital gains by supporting development in low-income communities.
“The rules have just been set,” Woodward said. “Now we’ll see how the investment community responds. It will take some time for these investments to really bear fruit.”