By James T. Hammond
About 8,600 South Carolinians stopped looking for work in June, contributing to a seasonally adjusted decline in the unemployment rate to 10.7% in June, down 0.4 percentage point from a revised 11.1% in May.
The trend in several Upstate counties ran counter to the statewide trend, as unemployment rates rose in Greenville, Spartanburg and Anderson.
“The four-month decline in the labor force continues to be a major concern,” said John L. Finan, Executive Director of the Department of Employment and Workforce.
“The drop in our state’s jobless rate has been largely driven by the unemployed dropping out of the labor force,” Finan said. “We still have a long way to go in increasing consumer confidence which will lead to increased demand and more job growth.”
Last December, Doug Woodward, who heads the research division at the University of South Carolina’s Moore School of Business, differed with other economists on the school’s annual economic outlook panel discussion and predicted that federal stimulus funding would kick in by mid-year, and unemployment would come down.
That scenario played out pretty much as Woodward predicted; his forecast for 11% to 11.5% unemployment in South Carolina was on target, down from a high so far for the recession of about 12.5%.
Now Woodward says he’s concerned about maintaining that momentum, which he says must come from the private sector.
“We’re on track for a slow second half,” Woodward said, reflecting upon the developments in the first half of 2010.
“We have had some good news,” he said, “But there’s been no recovery in construction. In this phase of the business cycle, construction is usually a leader. It’s just not happening. And there’s just not enough in the other sectors to compensate.”
Woodward pointed to new projects and expansions by Boeing, BMW and GE Aviation as good news, but said those projects won’t offset the massive downsizing that has occurred across the economic spectrum.
“It’s good to see diversity, such as the electric car maker CT&T. South Korea has a strong economy. That’s diversification that will be good for us in the long run. The South Koreans know the U.S. market even better than the Japanese,” Woodward said.
But Woodward worries that the economy could falter again before it manages a full recovery.
“There are many headwinds and we’re running out of tricks to stimulate the economy,” Woodward said.
“We still haven’t seen a recover in housing, and that usually creates a lot of jobs,” Woodward said.
During June, the number of employed persons dropped 1,009 (-0.1%), and the number of unemployed decreased 8,609 (-3.6%).
This resulted in a decrease in the labor force (employed + unemployed) of 9,618 to 2,149,605.
That was the fifth straight month of decline in the unemployment rate, and the fourth straight month in which the civilian labor force declined.
Nationwide, June’s unemployment rate decreased 0.2 of a percentage point to 9.5%. The national civilian labor force also declined in June (-652,000), with losses in both employment (-301,000) and unemployment (-350,000).
The monthly establishment survey in South Carolina showed a loss of 3,000 nonagricultural jobs in June. The Government sector (-10,300) accounted for most of the loss as state and local schools released staff for the summer recess.
The private sector partially offset the government losses with a modest gain of 7,300 jobs in June. Leisure and hospitality added 6,200 jobs reflecting increases in tourist activity. Other private sector gains were recorded in retail trade (+1,800), construction (+900), and manufacturing (+500).
Losses in the private sector occurred in education and health services (-2,000) and professional and business services (-1,200). The overall job count was 14,100 above the year-ago level, but still almost 100,000 below pre-recession levels.
Economist and banking analyst Tony Plath, a professor at the University of North Carolina at Charlotte, says he wishes he had better news to report as the Great Recession continues to grind down jobs, depress real estate and new development, and banks continue to see their capital erode.
“Increasingly, it's looking like we're headed for a second recession in 2011,” said Plath, an economics professors at the University of North Carolina at Charlotte, and an expert on banking in the Southeast.
“It won't be the sort of catastrophic collapse that we saw in 2007, but it'll make a 10% unemployment rate seem like the new normal,” Plath said. “You can't create much economic growth when 10% of the labor force is out of work, which means we're looking at a few more tough years before this is over.”
Even the International Monetary Fund has weighed in with its concern about the state of the American economy, issuing a first-ever critique of U.S. financial health. Budget deficits must be reduced, the Social Security system needs to be stabilized, and politically popular benefits such as the home mortgage deduction should be reduced, the IMF said, citing continued difficulties in the commercial real estate and banking sectors.
Since World War II, it has been the United States and the Europeans, speaking through the IMF, who lectured the rest of the world. Now the tables are turned, as the rest of the world grows increasingly concerned about the economic health of America.
The Carolinas are relatively better off than states such as California, Michigan and Illinois, which are tottering on the brink of bankruptcy.
“In relative terms, we are far better off than the rest of the country,” Plath said. “But bankruptcies and foreclosures are still rising. That’s what scares me.”
Michael Dey, executive vice president of the Home Builders Association of Greenville, said the first half of 2010 was a significant improvement over 2009. Demand for new housing was stimulated in part by pent up demand and the effect of the Homebuyer Tax Credit, he said.
But the end of that tax incentive has eased demand again.
“The tax credit helped bring buyers to the closing table,” Dey said. Now that the tax credit has ended, demand has reverted to its normal state and will continue to be constrained by a combination of factors that he said include:
- excess inventory left over from the housing boom, particularly at the higher price points,
- additional inventory resulting from foreclosures and bankruptcies,
- pessimism about the economy that is causing potential homebuyers to remain on the sidelines,
- tight credit and overregulation of banks that is interfering with the new home construction market,
- and new appraisal rules, an overreaction to the boom years, that also is interfering with the new home construction market.
“On the plus side home mortgage rates are very near 4%, an almost historic low,” Dey said. “With good credit now is a terrific time to buy a new home.”
Dey remains optimistic.
“Long term, home building is very positive. Demand is expected to be very strong through the long term. In the short term, however, excess inventory along with tight credit, overregulation, and consumer reaction to the economy are causing 2010 to be difficult, but still an improvement over 2009,” Dey said.
Plath is not optimistic that South Carolina banks will be in a position soon to lead an economic recovery, as they continue to struggle with troubled real estate loans.
“Capital is becoming more difficult to raise,” Plath said. “Banks continue to write down loans, eroding their capital. It’s a race to the bottom.”
He predicted there will be more shotgun marriages, arranged by federal regulators, among banks, and more bank failures.
“Banks are giving up control in exchange for injection of new capital, and that’s hurting earnings per share.”
“We’re not out of the woods,” Plath said. “This will take years, not months. And it is affecting the volatility in the stock market. Investors don’t know how to value assets.”
