S.C. economic forecast: Growth is very strong, but challenges persist

For anyone looking into the South Carolina economy for 2022, there’s good news and there’s bad news.

First, the good news: The state’s economy has been on a tear since the shutdown for the pandemic ended last year, and it looks to be entering 2022 with the same velocity.

That’s according to Joseph Von Nessen, a research economist at the Darla Moore School of Business at the University of South Carolina, who spoke during this year’s Economic Outlook Conference.

State’s economy roaring back

“We are rapidly approaching pre-COVID levels of employment,” he said. At that point, the country had been on an unprecedented 128-month economic expansion he dubbed the Great Expansion. Following the Great Recession, the expansion was the longest on record and was expected to continue until the COVID-19 shutdowns hit.

However, the pandemic-triggered economy has bounced back much faster than from the last recession, and the state is within 1.8% of pre-pandemic employment levels. The rate has dropped dramatically from 11.5% in April 2020 to 3.9% in October 2021. He predicts it will finally cross the pre-pandemic threshold sometime in the third or fourth quarter of 2022.

Labor shortage a big challenge

However, it wasn’t all good news. South Carolina faces a pair of challenges going into 2022 that could temper some of that economic growth. Von Nessen believes higher inflation and labor shortages are the biggest challenges facing the South Carolina economy.

He noted the labor force participation rate was at 57%, which may have to climb to 80% for millennials and Gen Z when the baby boomers exit the workforce. The state has one of the highest levels of population growth, but two-thirds of those moving in are retirees. That means the labor shortage has a good chance of being a protracted problem, Von Nessen said.

“It is most definitely a worker’s market,” he said.

Inflation another issue

Inflation has jumped to 6.2%, which is something higher than anything seen in recent years, Von Nessen said. He noted a mismatch of supply and demand has been a culprit, with companies needing to hire back the workers they lost in 2020 and hire more on top of that to keep up with demand for goods, which has risen as much as 25% in some cases.

While growth in wages has been strong in certain sectors — construction, leisure/hospitality, education and health care — 40.3% have seen their purchasing power decrease since 2019 thanks to inflation, Von Nessen said. He said the Great Resignation is not the cause of the labor shortage, it is the result of labor shortage.

As an added bonus, he noted the state is in a good place to take advantage of changes in manufacturing and logistics. The influx of electric cars to the market will likely benefit South Carolina-based auto plants. Gains in population mean big-box distribution centers will become more ubiquitous, too.

However, as the economy bounces back, there’s one variable that no one can predict.

“COVID variants are the major wild card,” Von Nessen said.