Contributing Editor, C. Grant Jackson
A tightening labor market is expected to keep South Carolina’s economic growth at a slow steady pace in 2017 and state leaders will need to address a growing skills gap if they want to accelerate that growth.
Research economists with the University of South Carolina’s Darla Moore School of business are predicting continued economic growth for the state in 2017, although at a slower pace than each of the past five years of expansion coming out of the Great Recession.
Dr. Joseph Von Nessen said he is expecting employment to grow in 2017 by approximately 2.7 percent, which is a marginal increase over 2016’s 2.5 percent. Personal income growth should also see steady gains as well. “Our forecast is for 4.8 percent for 2017, which is approximately what we experienced in 2016.” He also expects the unemployment rate to steadily decline, although at a very slow rate. “We are forecasting 4.5 percent unemployment by this time next year compared to where we are now at 4.7 percent.”
Von Nessen and Dr. Doug Woodward, director of research for the Darla Moore School of Business, shared their forecast with about 200 people at the school’s recent 36th Annual Economic Outlook Conference.
Woodward, who has been involved in 30 of the annual outlook presentations, noted that last year the economists predicted solid growth and they were right, and “this year our economic forecast for South Carolina is looking very good.”
“What we know for certain going into 2017 is that we have a growing economy reaching toward full employment. Our unemployment rate in S.C. is close to the lowest point it was in our last economic expansion,” Woodward said. “Consumers are in good shape, retailers are doing well and we should have a good Christmas season. Everything points to further expansion,” he said.
But full employment, which means that most people that want a job can find a job, leads to a tightening labor market and that can slow the pace of economic expansion. Von Nessen said that is South Carolina’s situation now and one of the reasons growth has slowed.
South Carolina and the nation are certainly seeing a paradigm shift with a new president coming into office and the likelihood that Lt. Gov. Henry McMaster will occupy the governor’s office once Gov. Nikki Haley is confirmed as U.S. ambassador to the United Nations. South Carolina’s economy is also seeing a paradigm shift with a leveling off of economic growth, Von Nessen said, and one thing the new governor will need to do is shift his emphasis to workforce readiness to push South Carolina’s growth rate higher.
Von Nessen pointed out that when Gov. Haley took office in 2011 unemployment was very high and her priority was to generate employment opportunities for South Carolinians. But in 2017 unemployment is fairly low and employers who to grow their businesses are struggling to find qualified workers.
Employment growth in 2016 was about 2.5 percent, coming off a high of about 3 percent in 2105. If the state wants return the growth rate to a higher level it is going to have to come from businesses that are expanding and hiring workers. “But what we are finding is that we are in a very tight labor market, which means that employers are struggling to find qualified workers. We are hearing it anecdotally and seeing evidence of it,” Von Nessen said. That means an emerging skills gap needs to be addressed. The skills gap index matches up the job vacancy rate with the unemployment rate and the underemployment rate. “When we look at those two we find there is a significant mismatch, more so that what we would otherwise expect at this point in an expansion with the unemployment rate at around 4.7 percent as low as it is right now,” Von Nessen said. “Workforce readiness becomes a very important issue for a new governor coming into office in 2017.”
Economic growth in 2016 was also impacted by slowing global demand, particularly in China during first half of the year, and secondly, and more importantly, has been the significant appreciation of the U.S. dollar, which has made U.S. exports more expensive for foreign consumers, Von Nessen said. The combination of that is what has led to the tapering off of the economy, Von Nessen said.
Although the state is not seeing any specific industry – such as another big win in the aerospace or automotive sector — that is likely to significantly accelerate the state’s growth beyond its current level, South Carolina’s economy “is still strong and stable and we expect to continue to see those healthy gains in 2017,” Von Nessen said.
South Carolina can expect another year of strong and stable growth but Von Nessen is not anticipating any sizeable increase in the state’s rate of growth over what occurred in 2016. “I like to say we’re in more of a cruise-control mode now growing at a fairly constant rate rather than accelerating as we have been in previous years.”
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