South Carolina well positioned to weather potential recession, labor shortage here to stay says Columbia economist
COLUMBIA, S.C. (WIS) - A Columbia economics expert is predicting South Carolina is well positioned to handle a potential recession.
Joseph C. Von Nessen is a research economist in the Division of Research at the Darla Moore School of Business at the University of South Carolina. Von Nessen is an expert in regional economics and economic forecasting. He spoke with WIS to discuss the latest state economic data.
In the last year, South Carolina has seen a record-breaking number of workers leave their jobs as part of the ‘Great Resignation.’ Von Nessen calls it a ‘great churn’ with many workers looking to change industries and find higher wages. He says workers are in a strong position as they search for new opportunities. The years of the COVID pandemic have found businesses facing a labor shortage both in SC and nationwide.
This churn is found in workers of all ages. He calls it a benefit for workers across the board, whether they’re finding new opportunities or are renegotiating benefits with their current employers.
Von Nessen said, “This is arguably the strongest job market we’ve seen in the last decade, if not more.” He says currently this may be the peak of the labor market. He looks at the Federal Reserve’s interest rate hikes as indicators that in 2023 demand may go down, “Some signs point to the beginnings of a labor market cooling already.”
On Aug. 23, the South Carolina Department of Employment and Workforce reported a slight drop in job openings and hiring in June. That preliminary data is paired with a continuing high rate of job quitting at 80,000 workers. In March SCDEW reported a record-breaking 90,000 South Carolinians quit their jobs.
Von Nessen predicts if the trends continue to cool the labor market, then workers will likely be less inclined to quit. Specific industries are already seeing the impacts of the Federal Reserve’s interest rate hikes. Von Nessen says in South Carolina, the only industry to see job losses through this year so far is the construction industry. He cites the interest rate raises impacting mortgage rates as the reason, which raises the cost of buying a home that may already have a heightened value.
He says though part of the labor shortage is going to resolve in the next year, long term there is a demographic shift that will linger. As baby boomers retire through the 2020′s, there aren’t enough Gen Z and Millenial workers able to fill those positions.
Businesses will need to get creative to combat the labor shortage, he said, “This is likely to be a new normal.” Some of those solutions have come in the form of remote work and automation. This is seen in service industry jobs as grocery stores or fast food restaurants shift to kiosks rather than having a traditional cashier or offering more carry-out options. Other adaptations include offering flexible scheduling or increased benefits as businesses compete to attract employees.
“South Carolina is in a much better position relative to the national average, even if we do go through a recession,” Von Nessen said. South Carolina is facing some of the largest population gains in the country, he says the American South East is positioned for growth. It benefits industries such as housing and logistics regionally. Businesses looking to shorten the travel of consumer goods to customers will see things like the port in Charleston as appealing, “South Carolina is ideally located to see a boom in the logistics sector and also in advanced manufacturing.”
He says the official definition of a recession comes from the National Bureau of Economic Research, which uses various factors such as GDP, job growth, and other indicators. He explains that economists don’t know if we’ve been in a recession until long after the fact. However, some define it as two-quarters of negative GDP growth, which is what has been seen in the 2022 economy. He says 2022 is unique because the labor market is still strong and hasn’t seen a broad pullback, which is also used to measure a recession. He says the Fed’s continuing interest rate hikes to combat inflation may cause a recession by the end of the year or early in 2023.
He explained these rate hikes take months and years to correct prices for normal purchases. The target the Fed is aiming for is 2% inflation, it hit a 40-year high over the summer with people across the Midlands feeling it impacting their groceries and utilities. The Fed announced Friday it intends to continue to raise rates in the fight against inflation. However, even with the rate increases, some products may not come down much or at all Von Nessen warned.
He says there are three metrics to watch to get a picture of our economic health going forward. The first is the actions of the Fed in its fight against inflation. The more aggressive they change rates, the higher the likelihood of a recession Von Nessen explained.
The second is the number of unemployment insurance claims, specifically initial claims. He said current numbers are below where they were in 2019. When claims go up, it is an indicator that people are being laid off from jobs and are applying for assistance.
The third metric is the job openings rate, it is higher than it was in 2019 before the pandemic. He explained, “So if the jobs opening rate begins to come down appreciably, or quickly then that’s another sign that employers are not hiring as much and that they may be seeing a pullback in demand as well.”
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