MAKING THE GRADE: Economist gives South Carolina economy a ‘B+’

MAKING THE GRADE: Economist gives South Carolina economy a ‘B+’

January 27, 2025 | SC News Biz

Consumers — and the businesses that provide the goods and services they consume — are facing a mixed financial outlook with the beginning of the new year.

With 2025 in full swing, the outlook for South Carolina — and South Carolinians themselves — is fully dependent on a lot of unpredictable circumstances, ranging from what happens to inflation to the possibility of new tariffs being put into place during the new presidential term.

On the positive side, however, consumers will continue to get back a little bit of the spending power they had prior to the COVID-19 pandemic as wages continue to increase, and many industries statewide will continue to see growth and increased revenue.

All this is part of a forecast by Joseph Von Nessen, a research economist at the Darla Moore School of Business at the University of South Carolina. Von Nessen offered his perspectives on the state’s overall economic and financial outlook at the 2024 Economic Outlook Conference held on recently in Columbia.

“When we look at the state’s economy where it stands right now, we would grade it at a solid B plus level,” Von Nessen said.

Inflation is still an irritation

He lists steady rates of consumer spending, historically low unemployment (4.8% in November 2024, the last time statistics were released by the South Carolina Department of Employment and Workforce) and stable wage growth as reasons for that rating. Considering these positive factors and constant reports of new companies and businesses coming to the state, what is preventing it from being an A?

Blame the problem that’s been on everybody’s minds for the past three years — inflation.

“The major weak point is that the average South Carolinian is still worse off in terms of purchasing power than they were on the eve of the pandemic,” Von Nessen said. “Their dollar doesn’t go as far because of the higher inflation we’ve seen in recent years, and as a result many consumers aren’t feeling good about the economy despite metrics that show it’s still performing well.”

Inflation that spiked during the pandemic and in its immediate aftermath has cooled somewhat — now at an average of 2.7% from its height of 9% in 2022 — but that hasn’t made that much of an effect on the wallet power of the average consumer. Prices initially spiked because of two factors — a quicker than expected return of people to the workplace, often making higher wages paired with an influx of trillions of stimulus money into the economy.

“Many consumers three years ago were in a very good financial position — they had access to those federal stimulus dollars as well as earning higher wages,” Von Nessen said. “They were spending a lot of money which generated very high levels of demand and therefore higher prices. The problem is now that even though inflation is coming back down, prices haven’t and they probably won’t. They’re stabilizing at those higher levels.”

As an example of why consumers are still struggling and feeling negative about the economy, Von Nessen cites statistics that show that while wages are up overall 20% from the eve of the pandemic until now, the average price of food is up 28% and energy costs for things like gasoline and utilities are up close to $0%. In other words, the cost of basic daily expenses is rising faster than the average wage. Consumers in South Carolina — and across the nation — are making more money in many cases but it’s going to pay higher prices for basic needs.

The silver lining, if there is one? Von Nessen said that if inflation remains at its current level (2.7%) and wages continue at their average growth of about 4% a year, consumers will eventually break even, in a way, even though they don’t come out ahead.

“If things continue as they are right now in 2026, consumers will claw back that lost purchasing power, and on average shouldn’t end up any worse off,” he said. “That’s not a very satisfying answer but that’s unfortunately one of the challenges of inflation and why it is such a major problem.”

How will the potential tariffs affect The Palmetto State?

A continued leveling off of inflation would also be good overall for business owners who have been dealing with higher prices across the board as well as the challenges of higher labor costs, Von Nessen said.

The biggest uncertainty for the state — and national — economy going forward can be summed up in one two-syllable word — tariff. The new presidential administration has promised to slap new tariffs on a wide range of consumer goods imported from overseas, but no one is certain exactly how or when they will go into effect, or what goods specifically will be involved.

Tariffs can affect consumers and businesses in two ways, Von Nessen noted. Tariffs would cause the prices of products made overseas to go up, and also would affect the price of goods like automobiles and computers that are built with components that have to come from overseas.

While higher prices on some products would not be popular with many consumers, tariffs could result in positives for certain industries in South Carolina. Von Nessen cited the example of 2018 tariffs on aluminum and steel which ended up benefiting producers as more companies looked to buying the products from U.S. companies.

“Tariffs can have benefits for industries which then flow into their communities, so there is a tradeoff there which is why it’s such a divisive issue,” Von Nessen said.

South Carolina’s silver lining

Whatever happens with inflation and tariffs, there are two positive factors which will likely impact the spending power of both consumers and businesses in South Carolina in 2025, Von Nessen said.

The first is the end of the “pandemic bubble” that caused a swing toward a more goods-oriented economy. When COVID-19 hit, consumers were forced to socially distance and didn’t spend as much money on eating out or traveling. Instead, much of their spending focused on goods like items to renovate their houses. While the goods side of the economy is still strong, in the last six months of 2024 spending on services leveled back out to pre-pandemic norms. In South Carolina, that type of correction translates into more money for those employed across the service sector, including the restaurant and tourism industries.

The other wallet-positive is the continued population growth in South Carolina. As more people move here either for work or retirement, that’s causing an increased demand for both goods and services, a change that will benefit housing, manufacturing and particularly health care, Von Nessen said.

“Health care has been the overall driver of South Carolina’s growth for the past year, and that doesn’t always get talked about,” Von Nessen said. “We’ve got a high rate of population growth as well as an aging population, and that’s creating a higher demand for health care overall which is going to continue. Health care is going to be a major driver of our economy in 2025 and beyond.”

The post MAKING THE GRADE: Economist gives South Carolina economy a ‘B+’ appeared first on SC Biz News.

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