GSA Business Report sought out economists at Clemson University’s John E. Walker Department of Economics for an academic look at the economy. Scott Baier, chairman and professor, and Curtis Simon, professor, answered a few questions for us about the state of the economy in the first half of the year and what we can expect going forward.
GSA: How has the economy fared in the state/Upstate the first half of the year?
Baier: In terms of employment, there are many positive indicators in the state that are consistent with a growing economy. The unemployment rate in the economy in May was 4.1%, a slight improvement since December 2016 when the unemployment rate was 4.3%. Since December, the size of the labor force has grown by more than 30,000 workers. Over the same time period, employment has increased by 32,000 workers. Thus, the state has been able to accommodate the growth in the labor force. In addition, construction employment has increased by 4.7% in the last 12 months. The increase in employment in the construction industry is a good sign because it likely signals population growth or an increase in business activity. Also, in the last 12 months, manufacturing employment in the state has increased by 3.1%; whereas, nationally, manufacturing employment has only increased by about 0.5%. In the Upstate, the unemployment rate is 3.3%, down from 3.7% in December.
Simon: To that, I might add that the unemployment rate is only part of the story regarding overall labor utilization. Labor force participation is still worryingly low among prime-age men, especially men age 45-54. In 2016, participation averaged 64.9% among men on the whole, and 88.7%, 91.1%, and 81.5% among men age 25-34, 35-44, and 45-54 for 2016 (the labor force as a whole is slightly, but not much different). By contrast, prior to the Great Recession in 2007,
labor force participation among men on the whole was 70.7% and in the same three age groups, 91.1%, 91.5%, and 87.7%.
Baier Personal income growth in the state of South Carolina has been slightly above the national average and I would expect that to continue in the second half of 2017.
GSA: What would you say sustains the state/Upstate economy?
Baier: This state is a place where people want to move to. According to the National Movers Survey (United Van Lines 40th Anniversary Survey),
South Carolina is in the top five in terms of inbound population growth. People are relocating to the area for a variety of reasons including work and lifestyle choices. In addition, the state provides a supportive environment for business.
GSA: How do you see national policy, a trade deficit or NAFTA affecting the state economy, if at all? What do you expect the second half of 2017?
Baier: National policies that could positively impact the state of South Carolina are tax reform and regulatory reform that are more business friendly. In the last four years, the Greenville area has averaged slightly more than 700 new start-up firms per year. A change in the regulatory environment along with the growing population may help boost economic activity in the Upstate. Factors that may negatively impact the state of the economy include the political and economic uncertainty surrounding tax reform, health care and the president’s economic agenda.
Simon: Just as the automation of factory floors reduced the demand for workers with moderate levels of education, e-commerce is threatening the viability of many retail stores, putting further pressure on moderately skilled workers. The emergence of cloud-based services may lead to large changes in demand for more highly skilled labor. The labor displaced by such forces gives rise to policies aimed at reducing their impact, for example, easier access to disability, medical and food benefits. Some of these can reduce the incentive to work, leading to a depreciation of skills and reducing the chances displaced workers will find their way back to the labor market (see my remarks on labor force participation above).
GSA: Do you anticipate another Fed rate hike?
Simon: Most informed observers I have seen on CNBC and Bloomberg are predicting the Fed’s “normalization” policy to continue. Currently, the CME Group’s FedWatch tool is predicting a 97.5% chance of a Fed rate hike at the July 26 meeting with a target rate of 1% to 1.25%. By December 2017, FedWatch shows 44.4% chance of a target rate of 1.25 to 1.50%, and 9.2% chance of a target rate of 1.50% to 1.75%. In addition, observers expect the Fed to unwind its positions in assets acquired during Quantitative Easing.