Economist: SC slump should begin to ease in 2010

AP News
Posted: Dec 03, 2009 9:59 AM

An economist for the University of South Carolina is cautiously forecasting the state will begin recovering in 2010 _ though not by much _ barring more financial shocks.

"We have a very, very fragile recovery right now," USC economist Doug Woodward said at the university's 29th annual Economic Outlook Conference. "We've got to be worried there's going to be another surprise, and frankly we're running out of tricks. ... A relapse is possible."

Woodward expects personal income to improve by about 3.3 percent in the coming year, up from -1.4 percent in 2009. He described job growth in 2010 as "modest, slight, meager" and his general forecast at "cautiously pessimistic."

A colleague, however, said he's just plain pessimistic.

Economist Donald Schunk with Coastal Carolina University said he sees the economy "moving sideways" for the next few years, as the various government intervention programs dissipate.

"We don't know what the real private sector is capable of. ... I think it's going to be a pretty tough year," he said during a later panel discussion titled "Outlook for the Economy 2010: Recovery or Relapse." "I'm between recovery and relapse _ option C _ somewhere in between."

Woodward, along with the three panelists, agreed the recession has ended.

But, try telling that to "that long line at the unemployment office," said economist Bruce Yandle at Clemson University.

"When we say a recession is over, it doesn't mean we're on the yellow brick road. It just means it's not getting any worse," he said.

The economists also agreed it will take years to bring South Carolina's unemployment rate, currently at 12.1 percent, below double-digits, but disagreed on when it could start improving.

Woodward believes joblessness will come down slightly in 2010 _ to a yearly average of 11.2 percent _ after possibly getting worse in early 2010, depending on spending by consumers and businesses. Yandle predicts it will hit 13 percent by midyear, while Schunk sees it worsening slightly for the year.

Schunk said he believes the rate of unemployed and underemployed _ those who have stopped looking for jobs or taken part-time work _ is already around 20 percent in South Carolina. He said the state's backward slide in job growth stems back nearly a decade, not just since the recession. Yandle blamed that on the disappearance of labor-intensive manufacturing jobs.

"In a sense we've got double trouble," Yandle said. He foresees a bumpy recovery path, "shaped like a caterpillar, with lots of humps and valleys."

The bright spot, Woodward said, is Boeing, which recently announced it would open a second assembly line for the 787 jetliner in North Charleston.

"It will pay dividends in our state for years to come," he said. "We need more Boeings. Every state does."

Woodward said uncertainty remains in the financial system. Despite "unprecedented government activism," small businesses and consumers still can't access credit. A continuing lack of access will hold back recovery, he said.

"The banking system in this state is still not where it should be," Woodward said. "It's actually choking private expansion."

He said the government has been propping up the economy, and a lasting recovery is contingent on consumer spending and investment by private business. But fearful consumers are saving more, he said, noting double-digit declines in retail sales in the last year in nearly every metro area statewide. And unfortunately, legislators have made the state budget increasingly reliant on sales taxes, which likely won't change anytime soon, he said.

"That will continue to linger as a problem," he said.

If the credit crunch persists, America is running out of options, the economists said.

College of Charleston economist Frank Hefner said the government has thrown everything it can at the problem. He believes the stimulus programs have created more uncertainty for business leaders trying to plan for the future.

"I don't think the American public can really stomach another trillion-plus stimulus program," Woodward said. "We've had all the stimulus basically we can stand."