COLUMBIA, SC — After a bumpy series of stops and starts, the S.C. economy has clawed its way back to a broad-based recovery, five years after the end of a devastating recession.
“South Carolina’s economy finally appears to be firing on all cylinders,” said Mark Vitner, a Charlotte-based senior economist with Wells Fargo bank.
Led by a plunging jobless rate that has fallen well below the national average for the first time since before the Great Recession, the recovery is touching nearly every sector in the Midlands and throughout the state – from housing and commercial real estate to consumer spending and bank lending.
“We’ve had a nice boost,” said Vitner, who has followed South Carolina’s economy for decades.
However, while the economy has gained solid footing, there are still some areas of concern.
The housing market has cooled in recent months, and industry professionals will be watching to see if sales pick up later in the spring, following a brutal winter that hampered house hunting by potential buyers. Labor force numbers also suggest some South Carolinians are dropping out of the job market. Those dropouts, who don’t count as unemployed, partially are responsible for the state’s lower jobless rate.
Still, the mood among consumers and businesses looking to expand is bright.
“We’re getting to the point in this recovery ... where we’re finally going to see the good news dominate,” Vitner said. “It’s particularly evident in South Carolina, where we’re seeing the jobless rate drop below the national rate, and that’s likely to continue.
“That tells me that South Carolina’s economy is growing faster than the nation, and that’s what we’re used to,” said Vitner, who said the state’s economy was growing at 1.5 times the national rate before the Great Recession. “We’re back to that kind of pace, and I think we’re likely to sustain it.”
A look at some of the key sectors of the economy:
South Carolina’s jobless rate plunged to a six-year low of 5.5 percent in March, far below its high of 11.9 percent in December 2009.
While nearly every industry saw improvement, construction, manufacturing and leisure and hospitality have had the biggest gains since March 2013.
“There may not have been a whole lot of job opportunities a year ago (in those areas). There are more today,” Vitner said, adding those job opportunities should pull people back into the labor force.
More jobs are in the pipeline. Just last month, BMW announced a $1 billion expansion that will create 800 jobs in the Upstate, construction projects are booming around the Midlands and tourism is rebounding heartily in the Lowcountry.
For at least the next three years, economists expect growth nationwide to be the strongest this decade.
“There is so much more growth ahead in those industries in South Carolina that it doesn’t take that big a leap to assume that the state’s economy is going to be growing faster than the nation’s for several years,” Vitner said.
Housing led the way into the economic disaster that plagued the country starting in late 2007.
Problems did not become evident in the S.C. market until a year later, beginning with a plunge in sales along the state’s coast that, later, spread statewide.
Sales bottomed out in 2011 and have rebounded slowly but steadily since then. Today, sales are up about 31 percent from three years ago as buyers have snapped up deals on discounted homes at historically low interest rates.
However, the tide has been shifting in recent months, with the market becoming more balanced between buyers and sellers, and mortgage rates ticking up. Rates for a 30-year, fixed-rate mortgage loan stayed below 4 percent for 19 months but, since June, have averaged between 4 percent and 4.5 percent.
Government regulations that went into effect at the end of last year, requiring more documentation and a larger down payment from would-be home buyers also are chipping away at the housing recovery, said Fred Green, chief executive and president of the S.C. Bankers Association.
“The mortgage side of it … has probably slowed down a little bit,” Green said, adding the new regulations need to be addressed in Washington. Thus far, however, efforts to win support from lawmakers for that effort largely have been unsuccessful.
Recent home sales also may have slowed by the unusually cold winter, Wells Fargo economist Vitner said.
“It’s still a little early to draw too many conclusions,” he said. Buyers – who put off looking for homes in the brutal months of January and February – probably started looking again in March. “We should really see a strong bounce back in April.”
Commercial real estate
Meanwhile, bulldozers are churning dirt and builders are erecting walls throughout South Carolina as the commercial real estate market lights up.
“There’s really an aggressive vibe to the market that I haven’t seen before,” said Patrick Palmer, the newly named director of retail services for commercial firm NAI Avant and chairman of the Richland County Planning Commission. “We’re definitely feeling it.”
The rebound can be seen at places like Cross Hill Market, an upscale shopping center developed by Columbia-based Edens, a major East Coast shopping center developer. The center is home to Columbia’s first Whole Foods, one of many retailers new to the market in the past three years, as well as a mix of regional and local shops. Edens also announced last week that it will bring Columbia’s first J. Crew and Anthropolgie to its Trenholm Plaza shopping center in Forest Acres.
“There’s a lot of people looking at Columbia for the first time,” Palmer said, adding that retailers now are looking to enter the S.C. market in Columbia, rather than Greenville or Charleston – a shift from how retailers traditionally have looked at the state.
In Columbia, demand is particularly strong in the Main Street and Vista areas, as well as Harbison Boulevard, Palmer said. Some retailers interested in the downtown area even are approaching building owners, who do not have their property on the market, to try to make a deal, Palmer said.
“The demand is so great now, people are trying to find spaces,” he said, as housing projects are expected to triple downtown’s population, adding students and young professionals in the next few years.
“Retail tenants must act quickly and have their checkbook ready in order to secure the best spaces,” said Ben Johnson, research director for commercial real estate firm CBRE | Columbia.
Industrial growth also has been hot, Johnson said. “A number of tenants are circling that will likely take almost all of the remaining Class A industrial space. … This shortage of available space will increase competition for remaining Class A and B spaces.”
The availability of public parking has been a key factor in some of the commercial growth, Johnson said.
The Hyatt hotel, under construction in the Vista, and another hotel, planned for Lady Street, likely would not be on the books if not for the city-owned parking garage that they are using for parking, he said.
“Similarly, Agape has opened a splendid corporate facility on Main Street because they were able to take advantage of the availability of parking in the city garage at Sumter and Taylor Streets,” Johnson said. “Even the HUB, the student housing project renovating the Palmetto Center office building on Main Street, is leasing all of their parking from the city-owned garage attached to the building.”
When consumers feel secure in their jobs and investments, they eat out more, go on trips and make those big-ticket purchases that move the economy, such as buying a new car.
Consumer confidence levels have been hovering around pre-recession levels for the better part of a year nationally.
In South Carolina, gross retail sales during the July 2012 to June 2013 fiscal year – the latest period for which statistics area available – were the highest since the beginning of the recession. Sales hit $2.4 billion during that period, up 12 percent from the 2009-2010 low of $2.16 billion.
“The unemployment rate coming down should make folks that are working feel a little bit more secure,” said Vitner, the Wells Fargo economist. “When you feel that your job is safe, you’re more likely to make those major purchases for a car or upgrade household appliances, or a buy house.”
While consumer confidence is not back to boom-time levels, Vitner expects it to improve in the next couple of years.
Tom Dornfeld, the outgoing general manager of Columbiana Centre mall in the Harbison area, said he has seen the increased confidence in mall crowds.
“While local shopper traffic has been remarkably consistent over the years, we have noticed a recent uptick in out-of-town visitors, including many bus groups stopping at the mall, and those extra visits are always very welcome by our merchants,” he said.
Another yardstick for measuring the economy is bank lending, which also has rebounded since hitting a low point in 2011.
S.C. banks reported net loans and leases of $21.72 billion last year. That’s an increase of 14 percent over lending in 2011, which sunk to $19.1 billion. But it’s still nowhere close to the $36 billion in lending in 2008.
“Loan demand is created by an economy that is growing and people’s comfort in their ability to invest,” said Green, with the Bankers Association. “With the uncertainty that has existed in the economy for some time … folks have been hesitant.”
Green met last week with more than 20 bank leaders from a broad cross-section of the state.
“Loan demand is not brisk, but it is healthier than it was three, four, five months ago, and they are seeing more of their customers looking to expand and borrow money than what they would have seen at the end of last year,” he said.
Some areas remain weak. Mortgage lending is not as strong as it needs to be, and lending to developers for speculative projects, which are built without a buyer in place, is the softest area, he said.
“That was the area of loan portfolios that was hit the hardest,” Green said. “That is still weak. It’s still an area the regulators frown on.”
Still, lending is strong in some areas, such as growing companies looking to expand and hire employees.
“I think we’re recovering … slow and steady,” Green said. “Growth, in and of itself, is positive right now.”
While the S.C. economy is rebounding strongly in many areas, some weaknesses threaten the recovery. Among them:
• Some unemployed people are dropping out of the labor market, and the longer people linger without a job, the harder it is for them to find one, studies have shown.
• Home sales have slowed in recent months. Bankers blame new regulations that, they say, make it harder for buyers to get a loan. However, some of the slowdown could be due to the exceptionally cold winter. Industry professionals will be watching to see if sales rebound in April and May.
• Developers still are having trouble getting bank loans. Lenders say they are constrained by regulators, who are wary of banks lending money for speculative projects that don’t yet have buyers. That concern will limit some new development.