♪ This Week in South Carolina opening music ♪ Welcome to This Week in South Carolina.

I'm Gavin Jackson.

In 2021, South Carolina's economy navigated a global pandemic, low unemployment, labor shortages, a booming stock market and ongoing supply chain issues.

We look back at the year and learn what 2022 will have in store, right now with Dr. Joey von Nessen, a research economist at the Darla Moore School of Business.

Joey, thanks for joining us.

<Joey von Nessen> Thank you, Gavin.

It's always a pleasure.

<Gavin> So Joey, you had a busy week, this week talking about the economic outlook for the state.

I want to look at what we saw this past year as the economy in the state.

How are we doing right now and what was your like?

<Joey> South Carolina's economy is actually looking very good right now, one of the things I like to say is that we're coming out of this great expansion, that the pandemic recession basically ended and we were seeing 128 months of consecutive job growth across the US and in South Carolina, basically, from the summer of 2009 to February of 2020, and throughout 2021, South Carolina has now recovered to the point where we can basically resume that great expansion that we were experiencing up through early 2020 and most economic metrics this year have recovered or have gotten very close to recovery, meaning back to pre-pandemic levels.

So, it's been a good year of recovery for South Carolina.

<Gavin> ...Joey, when you talk about that being a good year.

It's interesting when we compare it with some polling we've seen at least nationally, A recent Wall Street Journal poll found that 65 of respondents said that the country's economy is heading in the wrong direction.

How do you mesh that with, you know, higher wages, low unemployment, plentiful jobs, everyone's 401k is looking pretty good.

Is it just simply people being mad at Amazon for not getting their package on time?

Or how do you mesh this?

<Joey> Yeah, that's a great question.

There are certainly problems that we're still seeing throughout the economy.

and in 2021, that includes the supply chain shortages, and it includes the higher inflation rates and that has practical implications for individuals and for South Carolinians.

So to give you an example, with inflation, inflation is at 6% currently, and that we estimate has eroded basically 40% of the workforce in South Carolina in terms of their purchasing power, so 40% of South Carolina workers have less purchasing power now than they did a year ago.

So, that is a reality that South Carolinian face, and that's something that we're going to be dealing with going into 2022.

So when you look at the challenges with inflation, along with the supply chain bottlenecks, where consumers are having trouble with the store, getting the goods they need, there are still some challenges, even though we have seen a good year of recovery.

<Gavin> So it's kind of hard to balance both when you see maybe like the bad is a bit more prominent for people versus, you know, some of these other factors that are good.

<Joey> Yes, and it depends on the individual, because if we look at again, getting back to wages, if you look at wage growth overall for specific sectors, in some cases, it's been very strong, because demand is so high.

So in the leisure and hospitality sector, for example, wage growth has been 12%, year over year, and in the education and healthcare sectors, it's been 16%, year over year, so great wage growth, resulting from high levels of demand and the need for more workers, but that's still a subset of the workforce as a whole.

So even though certain segments in certain industries are doing very well, there are still others that have not seen that level of wage growth and again, have seen their purchasing power erode.

So it really depends on the industry, and the individual, even though on average, our state is looking very good right now.

<Gavin>So Joe, when you talk about that, when you talk about different sectors that haven't fully recovered yet, do you expect that to happen in 2022?

What...do you think... will we be sorry, fully back to our pre-pandemic levels, when we look at the economy in 2022, in your opinion?

<Joey> Yes.

So in 2022, we expect for all industry sectors to be fully recovered.

Right now we've seen most that are within about a percentage point or two of their pre recession employment levels, which is really the gauge that we typically use to measure how close we are to pre pandemic levels of activity, just looking at that employment, overall, leisure and hospitality is the sector that has the farthest to go it's still down between about eight and 10%, depending on how we specifically measure it, but part of that is the fact that it fell so far.

So, leisure and hospitality lost about 50%, literally half of the jobs in that industry were wiped out between February and April of 2020.

So that's just a big hole that they've had to climb out of.

So, they're still down significantly, but even having said that tourism had a great year, one of its best years ever in South Carolina in 2021.

So, it's recovering nicely, too, and looking more broadly, we expect most industry sectors to see full recovery next year.

<Gavin> Joey, when you talk about those hospitality jobs, do you think that's a matter of people, maybe finding different opportunities, new opportunities?

I mean, we see, you know, scholarships available now at these technical colleges across the state for people to get these certificates for high in-demand jobs.

Do you think that's part of the problem as well, people just shifting and, ...maybe they were laid off, and they got some extra money from the federal government with their unemployment check, and realized, hey, this is what it's like to make X amount of dollars versus what I was making before.

<Joey> Yes, there are several reasons why that's why we're seeing this labor shortage.

That's certainly one, where there are more job opportunities for individuals and this is the best job market that we've seen in a generation.

So that's true in the...tourism and leisure and hospitality, but across the board and that's one of the reasons why many have called this year, the year of the great resignation, where we see more and more people quitting their jobs.

I think it's that's a, that's a bit misleading, that implies or can imply that people are just quitting and not going to work elsewhere.

I think the great reshuffling might be a better term, because what's happening is that workers are quitting, but they're quitting to move to other opportunities, whether it's higher wages or more flexibility, or more job training provided by employers as you allude to.

So that's...one element, and yes, we also see a scenario in 2021, where disposable income and savings rates are still above their historic norms and that's mainly the result of the stimulus that came through in 2020, and 2021.

The stimulus checks, for example, that provided more cash for Americans and so what that allows individuals to do is to take their time going back to work, it can be a bit more choosy, because they have that extra cash in the bank.

...so they may be able to look at three, four or five different job opportunities before they pick something.

So that certainly creates a lack effect.

So both of those are happening simultaneously and are making it more challenging for employers to hire and especially in the tourism sector.

<Gavin> So if we switch from tourism and hospitality to maybe some other sectors, where are we seeing the most growth in our state when it comes to jobs and maybe parts of the state geographically?

<Joey> So...the sectors that have either fully recovered or mostly recovered are construction.

So housing is doing very well, the logistic sector, which is a shorthand term that we use for everything related to transportation, distribution and warehousing.

So think about all the Amazon distribution centers and Walmart distribution centers.

So that sector is doing very well, because people have been staying home and have been ordering more products online.

So employment there, doing very well, and that industry has been growing rapidly in South Carolina, and in manufacturing another sector that has recovered very well, because manufacturers are supplying this demand that consumers have with consumer goods demand being so high in 2021.

So, if we look at those sectors, what that basically shows is that the upstate is doing the best overall in terms of recovery, because they're so concentrated within the manufacturing sector, and then secondly, the coastal regions of South Carolina.

So, that includes Charleston, and Myrtle Beach and Hilton Head, because we're seeing more people move into the state and they're moving primarily to the coastal areas..that's creating a greater market for consumer goods, as well as for housing and construction.

So, the upstate and coastal South Carolina by far doing the best this year, <Gavin> Yeah, and two big areas that we saw our biggest growth over the past decade as well.

Do you think that the two are connected in that way?

<Joey> Well, yes, I think that we're likely to see that to continue going forward into the end of the 2020s.

If we look at industries that are going to really drive our growth for the next decade, it really does come down to manufacturing and also to the logistics sector as a result of population growth that we're expecting.

One of the things that South Carolina will need to be more proactive about focusing on over the next decade, is responding to this increase in consumer demand in the southeastern United States, because this is the region of the country that is growing and is projected to grow at the fastest rate through at least the year 2040.

So if we look at this logistics sector, and South Carolina as very well geographically positioned not only to receive goods from overseas through the port, but also to be able to distribute them throughout the eastern seaboard and throughout the southeastern United States, South Carolina is well suited to expand its logistics sector as more and more people move to this area of the country and are ordering more goods online.

So that's a great source of demand and a great potential for growth for the state.

<Gavin> ...I think you, in your presentation for this economic outlook, you were talking about folks moving to our state, but a lot of those people that are moving here are older.

So, how does that mesh with growing our labor force when you're talking about demands for the next 10, 20, 30 years?

<Joey> Well, it really makes it a challenge.

...this I like to say that the labor...shortage that we're facing is the defining challenge for South Carolina for the foreseeable future for exactly that reason.

So to make that, to put a fine point on that, if we look at the population and migration that we're seeing, two out of every three people moving into the state right now are over the age of 55.

So, when you think about that, just from a supply and demand perspective, it means that three people moving in, that's great news for business, because that's new demand, they're bringing their wealth with them.

So three new... customers, basically, but only one of them are going to be going to work at least for the long term, because only one is going to be under the age of 55, and in their prime...working years.

So, we have a labor force shortage already.

But this is just going to exacerbate that going forward, we're going to continue to see more and more demand coming to the state relative to the labor supply.

...that's something South Carolina is going to have to deal with, because we have all this opportunity in terms...to be able to satisfy the demand from the population growth, but we have to focus on bringing workers in, bringing younger individuals to South Carolina and also retaining the talent that we that we already have here.

<Gavin> So does that go towards I guess, more education initiatives, or just really working on those retentions, like you're talking about keeping people here instead of moving away.

I mean, it seems like a very difficult challenge, especially when you talk about rural parts of South Carolina, and even some of the smaller cities.

<Joey> It's definitely not one solution.

There's going to have to be a multi pronged or multifaceted approach.

I think, number one, South Carolina has to work on branding itself, outside ...of the southeast.

We really don't have a strong brand outside of perhaps Charleston, once you get outside of the southeast.

So, young people may not be looking to South Carolina as an opportunity, but they can.

There's no reason not to, especially now that working from home is such a professional norm.

So, South Carolina offers so many competitive advantages for a lifestyle in terms of a low cost of living, you can buy a relatively large house in South Carolina compared to many other more expensive regions of the country, more land availability, a lot of natural resources here, as well and you can work anywhere in the country or anywhere in the world.

So that message, the appeal of living in South Carolina, which is more of a marketing...problem than anything else, that's one proactive step... that the state can take to attract more individuals, and then also retaining our talent by providing more opportunities, more direct connections to employers, and looking to keep our best and our brightest here.

So...it's a multi prong strategy ...and it's certainly not something we can do overnight.

This is something we have to be looking at for the next several years.

<Gavin> Gotcha.

So, Joey, when we talk about labor force and continue with this, talk about the labor force participation rate, because we always look at the unemployment number, and everyone says, well look at the participation rate.

What's our participation rate looking like?

And how's that?

What's that mean to you when you see that, rate?

<Joey> So, the labor force participation rate is basically a measure of the total labor force as a share of the total population.

And in South Carolina, that is hovering right around 57% right now, and the labor force participation rate is in South Carolina is one of the lowest in the country, and has been steadily declining for at least a decade, if not longer into 2005 to 2006 period, but the reason for that is more long term, than it is short term, meaning it has to do more with demographic changes than it does to the COVID 19 pandemic, because we have an aging population, of course, as the baby boomers are aging out of the workforce, and South Carolina has always been a very popular retirement destination.

So, it's really no surprise that we are seeing a decline in our labor force participation rate.

That in itself is not... a challenge or not a problem, because we do want more retirees moving into the state and that's been a strategy for South Carolina, to help tourism and to help the coastal regions of the state, but what we really need to be growing is the labor force itself, ...that in South Carolina is one area that has actually done very well, in the last year and a half.

We're the one of only 11 states in the country, where the labor force itself not the labor force participation rate, but the total number of people working or looking for work has actually gone up by about 2%.

Again, because of our population growth that we've seen, so we're getting more people overall, but we're also getting more workers as a part of that.

It's just the challenges that discrepancy that we talked about before is that we just have more older people moving in than then younger people, which exacerbates that workforce challenge.

<Gavin>So, we just talked about people moving to the state, before we get to inflation.

I want to ask you quickly, do you think that we'll see probably another half a million people or more than that move here over the next decade like we saw in the previous decade?

<Joey> Yes, I think that's very, very realistic.

I don't see any projection that suggests that the population growth in our state is going to slow down.

So, I think the 2020s are going to be very comparable in terms of the last decade in terms of population growth.

<Gavin> So, lots to deal with over the next decade, but let's talk about inflation, Joey, obviously, a very big issue that everyone's been talking about a lot lately.

We're taping this before the November consumer price index numbers come out, but what do you expect to see with those numbers?

What do you make of what's going on right now, when we talk about how inflation is specifically affecting people in South Carolina.

<Joey> Well, in South Carolina, as we alluded to, before, the biggest ways that individuals are seeing inflation is with the erosion of purchasing power.

So just, they're not seeing their wages go up as much as prices are going up at the grocery store or at the gas station and that's not true for everybody, but it is true for about 40% of the workforce.

So, that's a real challenge for South Carolinians, and it's a real problem that they're facing.

So as we look into 2022, the question is, do we expect for inflation to begin to abate, and there are, of course, multiple causes.

The primary cause that we're seeing is the increase in demand, and that's likely to continue into 2022.

So the demand, for example, for consumer goods is up about 25%, compared to where it was in February of 2020.

Just a staggering number, and even if we look more broadly, at total consumer spending for goods and services, it's still up about 10%, and so when you compare an increase in demand of 10%, for consumer spending, to the supply side to labor supply, for example, where employment is just now getting back to pre-pandemic levels, that's a huge difference, and so when you have a level of demand that that's high, that's going to put upward pressure on prices, and so that labor shortages is a piece of why we're seeing inflation, so - going up so rapidly, as it has over the last year.

The other piece of that is the supply chain bottlenecks, which are slowly being resolved over time, as we see businesses invest in more fixed assets and ramp up production.

and that's going to help alleviate inflation in 2022.

So the labor, the pressure from the labor market is likely to continue.

The pressure on the supply side from...these supply chain bottlenecks is likely to be alleviated in 2022.

So the bottom line is that we do expect for inflation to abate in 2022, but not likely to get back to 2%.

anytime soon, which is really the Feds' target.

<Gavin> So we'll just kind of settle down around somewhere, I guess, under at least where we are right now, once these issues start to mitigate themselves.

I mean, we heard from Federal Reserve Chairman Jerome Powell saying that he wants to retire the phrase, transitory inflation, which has been kind of like the buzzword of this year.

I guess because things have, you know, we are going to reach a point where we, I guess, reach a happy medium that's not quite 2%, but maybe not as high as we are right now.

<Joey> I think that's likely, I think we're likely to see inflation come back down next year begin to move in...a decreased direction, but not likely to come back to 2%, and...the other factor, of course, is Fed policy, and we know that the Federal Reserve is looking to raise interest rates, perhaps two or three times.

Not...a whole lot, though.

I mean, we're talking about 25 basis points, at most, per incident.

So if we see three rate increases, that's less than a percentage point.

So raising rates, that, of course, will have an impact, and in addition to that, we see these supply chain bottlenecks that begin to be addressed through additional investments in the private sector and fixed capacity.

So that production can be ramped up.

So again, moving in the right direction, seeing a decline in inflation, but probably not back to 2%, next year.

>>and those rate increases.

I mean, that's not going to really make any drastic impacts on our state economy, in your opinion, do you think?

>> Probably not, it will have some effect in the housing market, for example, making borrowing a bit more expensive, and so that could put once a little bit of the momentum that the housing market has acquired, but is it going to derail our recovery or put us in any type of real danger for our economy as a whole?

No, I don't think so.

This is - and in a real sense, this is a good thing, because when you see interest rates rising, that's basically a response to a booming economy.

So interest rates going up in and of itself is not a bad thing at all.

>>Joey, I want to switch gears now to talking about just this influx of money that we've been talking about.

We're talking about, you know, $65 billion for the state from the American Rescue Plan.

We saw $6 billion coming to the state over the next five years because that bipartisan infrastructure bill was signed into law in November.

The state itself has an extra $3 billion for lawmakers to budget with next year.

Most of that's from surpluses and some growth.

What will This spending mean for the state?

...that's like $74 billion dollars we're talking about here.

That's massive.

That's a massive inflow.

How do you see that working in the state?

And do you think that might affect inflation too when we talk about spending this kind of money?

<Joey> It will have a marginal effect.

Yes.

I think that the -though, if we look at the trade offs, especially to the extent that these funds will be spent on infrastructure is going to be a win for South Carolina, because we need this maintenance, we need this infrastructure.

And businesses have been telling us.

They were telling us this before the pandemic began, that we need investments in infrastructure, and we need this maintenance, because manufacturers need to be able to distribute goods, and now that we're seeing growth in the logistics sector, that potential going forward with people moving in, ...We need that infrastructure so that companies like Amazon, and Walmart, and others are able to and want to come to South Carolina to set up shop and be able to distribute across the southeast.

So the more we do see investments in roads and bridges in our ports, in our airports, that's going to be positive for the state, and in addition to that, we see some companies, some manufacturers that will directly benefit from getting access to these dollars.

So think about Michelin, for example, that makes earthmover tires.

I mean, that's the type of demand that this infrastructure, the spending on infrastructure will require.

So we're going to need more of those tires for that type of shovel ready or close to shovel ready jobs in South Carolina.

So, it it'll benefit us from a structural standpoint in terms of improving infrastructure, but also provide direct demand to a lot of our manufacturers here.

So I think on par, it's something that's going to be very positive for the state.

<Gavin> Yeah.

And not to mention the revenues, tax revenues will be coming to the state in the years like you're saying, because of all this, especially for our manufacturers coming to our state coffers.

Joey, we have five minutes left.

I want to talk to you about 2022.

Tell us; look into your crystal ball, what you are forecasting for 2022.

I know we've talked a lot about different things, ...but what are you seeing?

What are you telling people about what to expect next year?

<Joey> Well, the bottom line is that 2022 is likely to be a good year for South Carolina, barring any additional COVID variants or up tick in cases, because most economic metrics in South Carolina have either fully recovered or will likely recover in 2022, and so getting back to this idea of the great expansion that we just came out of going into 2020, we hit the pause button on it because of COVID, and we're really able to hit the play button again, in all likelihood in 2022.

So if we look at metrics, everything from our overall GDP, which is the size of our economy that completely recovered.

We're back to pre pandemic levels as of 2021, by various measures of the labor market.

Unemployment is down.

Unemployment insurance claims are down.

Wage growth.. has been strong.

So all these metrics really suggest a good year ...for us in 2022, and the main challenge now is finding that workforce, being proactive about creating additional, an additional workforce, drawing people in, retaining our talent, and then monitoring inflation very closely, particularly with respect to Fed policy.

<Gavin> Joey, when we talk about the role of the pandemics plane, we just saw the Omicron variant come out.

That affected stock markets a little bit, then they kind of recovered a little bit because some initial research is showing that it's maybe not as bad as we expected to be.

Do you think that we'll just, you know, if...there are other variants going forward that will just kind of take them in stride and maybe it won't derail the economy like previous ones had?

Because...we heard from the President right after that variant was discovered, saying we're not going to shut down.

Do you think we've now gotten to this point where businesses, the economy can absorb the shocks better?

<Joey> I think so.

I don't see any political appetite for any type of significant shutdown, and probably not for any additional significant stimulus either.

So,...that's from a political standpoint, but from a business standpoint, and a consumer standpoint, yes, I agree that if we look at what the reaction has been, we know that businesses are now far more prepared and are already preparing for those additional potential variants and how to address that.

So they don't have to shut down and they don't have to see much of a negative impact on their business activity, and consumers now are far more adapted, as well.

The vaccine is readily available.

So I think perhaps blunting the momentum that our economic recovery has achieved so far, that's always possible, but no, I don't think that we're going to see any type of extreme reaction next year.

I think that perhaps a slowdown of the recovery is possible, but generally speaking, we're going to continue to move forward and resume a more healthy economic expansion, next year.

<Gavin> Joey, with a minute left, tell me... about how state economists are looking and forecasting things right now.

I know it's been very tricky for them because the economy... has been so juiced with all this stimulus and all this revenue.

Do you think it's easy for lawmakers to spend this money next year when they go into session to create a budget without being too too cautious like they've been in years past, because we know these revenues keep coming and coming, especially when we look at all this growth when it comes to manufacturing and other jobs in the state?

<Joey> Well, I think if we look at growth going forward, we are anticipating with that expansion that's likely to continue next year, some, a bit of a pullback once those dollars are spent, because consumer spending is well above its historical trend right now, and so what's likely going to happen is as these dollars are spent, they're invested, consumer spending begins to wane, we're going to get back to more... historical trends, more long term patterns that are going to be more sustained by steady employment over time, which is where we want things to be.

So as we move into 2022, I think lawmakers are always going to be incentivized to invest...the best, that they can to, especially in South Carolina for infrastructure.

But eventually we're going to have to get back to more reliance on the private sector and that will move us more towards a long term equilibrium for growth.

<Gavin> Gotcha.

That's a lot to look forward to in 2022.

Thank you, Joey for that.

That's Dr. Joey von Ness, and he's a research economist at the Darla Moore School of Business at the University of South Carolina.

Thanks as always Joey.

<Joey> Thank you, Gavin.

My pleasure.

To stay up to date with the latest news throughout the week.

Check out the South Carolina Lede.

It's a podcast that I host twice a week that you can find on South Carolina public radio.org or wherever you find podcasts.

For South Carolina ETV I'm Gavin Jackson.

Be well, South Carolina ♪ This Week in South Carolina closing music ♪ ♪