South Carolina

USC economists predict ‘economic tug-of-war’ for SC in 2019. Here’s why

While international trade disputes threaten to dampen job gains made in 2018, South Carolina’s economy remains strong, according to a new forecast.

And, experts say, recent developments have left them optimistic, predicting 2019 could be better year for trade for the manufacturing-heavy Palmetto State than 2018.

“South Carolina’s economy remains strong. But we are in a more volatile market environment than we were last year at this time,” University of South Carolina research economist Joseph Von Nessen said.

That volatility was raging as Von Nessen spoke, as Wall Street’s widely followed Dow Jones Industrial Average fell 799 points, or more than 3 percent,

Von Nessen and USC research director Doug Woodward said South Carolina can expect an “economic tug-of-war” in 2019. Steady job and income gains, coupled with lower gas prices and increased consumer spending — all pluses — will be countered by rising interest rates and tariffs, they predict.

The pair presented their latest economic forecast Tuesday to more than 200 business and community leaders during an annual conference.

In 2018, state exports dropped for the first time in years due to continued uncertainty over how tariffs will impact the state’s automakers.

“At the end of the day, a tariff is simply a tax,” Von Nessen said. “In this case, it is a tax that is likely to increase the final sales price of vehicles produced in South Carolina. This price increase, in turn, can have a negative impact on the demand for these vehicles.”

The USC economist said South Carolina could add another 6,000 jobs a year if tariffs are reduced or eliminated.

“For every 10 jobs that are created or sustained by the auto cluster in South Carolina, we see another 27 jobs created elsewhere in the state,” Von Nessen said. “That process can work in both directions for both a positive and on the negative side.”

The new U.S.-Mexico-Canada trade deal and temporary truce in the U.S.-China trade war “make it more encouraging that 2019 will get us back on track so that we won’t see further downturn in our international businesses and our exports,” Woodward said.

Despite the auto tariffs, the economists anticipate most S.C. industrial sectors will see steady gains in 2019, particularly retail, health care, professional services and tourism.

Nearly all S.C. counties experienced job gains in 2018, led by Hilton Head and Myrtle Beach. The Augusta area, Charleston and Rock Hill saw more modest gains. Columbia, Spartanburg, Greenville, Florence, Darlington and Anderson saw the smallest job gains — at 1 percent or less.

In 2019, Von Nessen and Woodward expect a small drop in the state’s historically low jobless rate to 3.1 percent from 3.3 percent.

Tuesday’s USC conference also focused on ways to help those parts of the state, particularly rural areas, that continue to struggle with relatively high unemployment and job losses despite the state’s recent economic expansion.

The Federal Tax Cut and Jobs Act of 2017 includes a provision sponsored by U.S. Sen. Tim Scott, R-Charleston, designed to attract long-term private investment to low-income rural and urban communities starved for economic activity. The “opportunity zones” allow investors who direct money into distressed areas to defer taxes on their capital gains for up to 10 years.

Proponents — including Columbia Mayor Steve Benjamin, state Treasurer Curtis Loftis and former Gov. Jim Hodges — say the zones could help spur development of affordable housing in areas with escalating prices and few options. It also could help pay for infrastructure to support businesses and growing populations in underserved areas, they say.

Critics worry the tax break — rules for which still are being developed — will serve as a subsidy for displacing poor residents in favor of higher-income professionals, and favor already gentrifying up-and-coming areas over more troubled ones. They also fear money will concentrate in high-cost cities and benefit wealthy real estate developers rather than local start-up businesses.

Earlier this year, S.C. Gov. Henry McMaster announced the submission of 135 Opportunity Zones to the U.S. Department of Treasury. He said the zones will help promote the economic competitiveness of communities in every corner of South Carolina.

But, said USC’s Woodward, “It’s going to take a strong incentive to change the mindset of investors to make the commitment and take the risk to invest in these areas.”

Tom Barton covers South Carolina politics for The State. He has spent more than a decade covering local governments and politicians in Iowa and South Carolina, and has won awards from the S.C. Press Association and Iowa Newspaper Association for public service and feature writing.