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USC economists see stable growth if ‘fiscal cliff’ resolved

Staff Report
Published Dec. 12, 2012

South Carolinians can expect stable growth across a range of industries in 2013 if the Obama administration and Congress agree on a path to avert the “fiscal cliff,” according to University of South Carolina economists.

The growth would mean more jobs and greater income for the state’s residents, the economists said at the Darla Moore School of Business 32nd annual Economic Outlook Conference today at USC.

About 250 business and government leaders attended the conference held at the Capstone Conference Center on the Columbia campus.

Job creation is expected to grow 1.2% in 2013, according to forecasts presented by Doug Woodward and Joseph Von Nessen, economists in the Moore School’s research division.

Last year they predicted employment growth of 2%, which came very close to South Carolina’s performance of a 1.8% increase based on a comparison of October 2011 and 2012 employment figures.

Von Nessen, who said South Carolina has seen steady growth in 2012, expects to see growth in the coming year from industries that extend beyond manufacturing.

“Though manufacturing has largely been responsible for South Carolina’s economic recovery, we’ve started to see other industries expand this year, and we expect more diverse growth in 2013,” Von Nessen said.

Growth sectors
Gains are expected in transportation and warehousing, health care, education and even construction, an industry that has been hard hit during the recession.

“Residential construction turned a corner in 2012,” Von Nessen said. “Sales activity is up and house prices are rising again, which suggests a better year for housing ahead.”

Von Nessen expects construction to increase throughout 2013 and anticipates industry job growth for the first time since 2008.

However, he said the nation and state are at a precipice, facing prosperity or peril depending on the actions of Congress.

“The demand is there, but the resolution of the fiscal cliff is a major piece of the puzzle that remains,” Von Nessen said. “We don’t know what the resolution will be, but we definitely will feel the effects in South Carolina of any increases in marginal tax rates, payroll taxes or reductions in federal funding to our state through various measures such as military sequestration or the elimination of extended unemployment benefits.”

John Connaughton, an economist at UNC Charlotte, said he expects Washington to strike a deal before Jan. 1, and also expects very slow growth to result in the Carolinas.

“We are going over a ‘fiscal cliff’ on Jan. 1, 2013. The only question is how severe,” said Connaughton, the Babson Capital Professor of Financial Economics. “If Congress and the president don’t reach a deal by Jan. 1, the consequences could be quite bad and the U.S. economy would enter into a mild recession during the first half of the year.”

Unemployment, nationally, could reach 9% by fall 2013 without a deficit reduction deal in Washington, he said.

“If Congress and the president 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 1% or less growth rate during 2013. There is no good economic outcome to these talks. 2013 will be a year where we pay for our borrow-and-spend past,” he said.

Von Nessen addressed South Carolina’s current unemployment rate of 8.6%, which hovers at 12th-highest in the nation. He said projected job gains in 2013 should continue to bring the rate down and that much of the job creation will come from temporary hiring and contract labor.

“If workers are regularly going on and off payrolls as they take various temporary positions, we’re going to see higher fluctuations in month-to-month employment changes and the unemployment rate,” Von Nessen said.

In addition to the economic forecast, the annual conference focused on the role of entrepreneurism and business startups.

Highlights at a glance
In 2012 employment growth was positive throughout the majority of the state (October 2012 employment compared against October 2011).

The biggest gain came in Spartanburg (+3.3%), but other sizeable gains occurred in Florence and Darlington (+2.8%), Rock Hill (+2.6%), Myrtle Beach (+2.2%) and Charleston (+1.9%). Milder gains occurred in Columbia (+1.6%), Sumter (+1%) and Greenville (+0.1%), and small losses occurred in Anderson (-1.4%) and Augusta (-0.8%).

South Carolina employment in retail trade slightly increased overall (+0.9% in October 2012 compared with October 2011), though this growth varied considerably within the state.

Gains occurred in Charleston (+4.5%), Anderson (+1.2%), and Spartanburg (+0.8%) and Myrtle Beach (+0.6%). Declines occurred in Augusta (-4.1%), Columbia (-1.1%) and Greenville (-0.3%).

Most major regions of South Carolina experienced increases in residential building permit activity over the last year.

Comparing total residential building permits issued through October 2012 with permits issued through October 2011, the gains occurred in Anderson (+47.5%), Charleston (+46.4%), Spartanburg (+33.4%), Greenville (+32.2%), Columbia (+27.4%) and Myrtle Beach (+9.6%). A small decline occurred in the Augusta market (-3.3%).

In October 2012, unemployment rates had significant declines in the various metropolitan areas compared to October 2011. The biggest declines were in Spartanburg (-1.9%), Florence (-1.9%), Sumter (-1.8%) and Myrtle Beach (-1.8%). More moderate declines occurred in Charleston (-1.6%), Anderson (-1.4%), Greenville (-1.4%), Columbia (-1.3%) and Augusta (-0.7%).