Economic forecast: stronger, slow year ahead
The local and national economy will continue to grow in 2014, but slowly. The economy this year will be better than last year.
That’s the prediction Clemson University Alumni Distinguished Professor of Economics Bruce Yandle made to a group of about 200 local business representatives at the annual Berkeley Chamber of Commerce Economic Forecast luncheon at the Redbank Club on Jan. 10.
Berkeley County and the surrounding region have the strongest economy in the state, Yandle said.
He compared the economic recovery to driving 80 mph on the freeway then seeing cones and lanes being closed.
The low fuel warning light comes while idling in an interstate parking lot ... Then a good Samaritan comes and helps by lending you gas money for your Saab. You promise to pay him back with interest.
Then you get to the filling station and the pumps have no gas.
Currently 40 percent of every U.S. dollar is borrowed, Yandle said.
The economy is growing at 2 percent instead of 3 percent. That’s like only being able to drive on two lanes of a three-lane highway.
The U.S. economy is still the world’s largest with a 2012 GDP of 15.68 trillion.
“We’re creating a lot of wealth for a lot of people in the world,” Yandle said.
The next largest economies are China, Japan, India and Germany.
Yandle showed a map of the U.S., but instead of state names it showed names of other countries whose economies are the same size as a single U.S. state. The Texas economy alone is as large as Canada’s. South Carolina’s economy is as large as Singapore’s.
“The world economy is growing at a faster rate than ours,” Yandle said. “We are in a wonderland of economic growth in the world but we don’t feel it at home. There are more people that are free than ever in history.”
He said South Carolina’s export economy is stronger than most states. He predicts the 2014 economy will be strongest around September. November and December were disappointing months for retail, which means they have more inventory.
The elimination of extended unemployment benefits, which is being debated at the moment, will pinch and hurt someone somewhere, according to Yandle.
Another quick point he made is marginalized tax rates in 1954 taxed the rich at 90 percent. Now the highest marginalized tax rate is in the 30th percentile.
A line on a chart of tax revenue did not wiggle from 1954 to the present day. Yandle said taxing the rich will not generate more revenue.
“If you’re smart enough to get rich, you’ll be smart enough not to pay those taxes,” he said.
Charleston, North Charleston and Summerville areas have a gangbusters economy that’s doing much better than the nation. The Berkeley County economy is doing better than the state average. There is a retail boom.
“It’s hard to understand how unemployment is so high and retail is booming,” he said.
That’s where the underground economy, lubricated by $100 bills, factors in. The underground economy is about $2 trillion.
It’s possible that someone gets counted statistically as unemployed, but they are buying a new car. People will find a way to put bread on the table.
The cash economy exists in areas like construction jobs, according to Yandle.
The economy will not recover until banks start lending, he added.
Average housing prices are going up and there are less defaults on payments. Right now there is a massive amount of lending capacity.
There is an effort by the Federal Reserve to get the economy going slowly.
Yandle said this is like the Hoover Dam. The money is there but if the flood gates are opened all at once the money will flow out and cause inflation.
For the region, Yandle expects continued strong population growth, stable employment, rising income, accelerating recovery of housing and other construction.
Strong export sales will continue to strengthen regional growth.
For the nation he expects GDP growth will range from 2.4 percent to 3 percent across 2014. He predicts continued growth until 2018, when he expects another recession, which he says happens about every nine years.
S.C. Budget and Control Board Chief Economist Frank Rainwater also gave a presentation.
Over the years South Carolinians have become older and more educated. In 1970 the average age was 25, now it’s 38, according to Rainwater.
The state mirrors national trends, staying about 1 to 1 ½ percent above national GDP and personal income.
“Employment has not returned to pre-recession levels,” Rainwater said, adding that the workforce is now producing more with less people.
The state’s general fund has over 40 revenue generators, with the two main ones being individual sales tax (48 percent) and sales tax (35 percent) for FY 2013-14.
He said sales tax has almost recovered to a pre-recession level.
“We’re going to see growth like we have, it’s just going to be slow.”