USC Economic Outlook Conference speakers: investment in infrastructure and manufacturing are keys to stabilizing the economy
By Sharon Delia Stone
The University of South Carolina Darla Moore School of Business held its annual Economic Outlook conference on Tuesday, Dec. 7, from 12-4 p.m., with state and national political and economic experts. SCR communications staff attended the event which addressed the dramatic changes to the economy during the pandemic and predictions for jobs, housing and business conditions in 2022.
The speakers included former Trump Administration chief of staff and SC native Mick Mulvaney, who provided insight regarding Washington’s role in the current state of the economy; Joseph Von Nessen, research economist, Darla Moore School of Business, who provided a South Carolina Economic Forecast; and Doug Woodward, division of research director and professor of economics, Darla Moore School of Business.
Mick Mulvaney’s presentation focused on the issues in Washington DC in regards to budgetary spending. He cited politicization of the Federal Reserve, polarizing political division between parties, and a lack of appropriations bills as major problems in DC. Mulvaney suggested both Republicans and Democrats were to blame for overspending, as it serves their own personal agenda and they are not held accountable to the spending when it is to their benefit.
Mulvaney also talked about inflation as a multivariable equation, dependent on issues like the direction of the Covid pandemic and regulation. He cited issues like fiscal policy being pro inflationary and unlikely to change. In his conclusion, he relayed that we are experiencing a unique circumstance which leaves uncertainty in being able to aptly predict the future of the economy.
Dr. Joseph Von Nessen’s presentation covered details of the great expansion (the longest economic expansion on record since 2009) which was derailed by the pandemic; the subsequent bounce back of the economy; an economic breakdown of the last 18 months; and the economic metrics that help us determine what the future looks like for South Carolina’s economy.
To summarize Dr. Von Nessen’s presentation, he relayed that South Carolina’s economy has rebounded over the past year and credited the housing industry as a major player in the state’s recovery. He said the state’s economy is in a relatively strong position headed into 2022, barring any major disruptions from additional COVID-19 variants.
Von Nessen cited income and substitution effects in consumer spending as continuing to be leading indicators that will help reveal the evolving path of South Carolina’s ongoing recovery and economic growth in the new year. The income effect is the change in the consumption of goods by consumers based on their income. The substitution effect happens when consumers replace cheaper items with more expensive ones when their financial conditions change. Currently, income effect represents about 68% of the consumer goods bubble, with about 1/3 coming from the substitution effect.
Inflation remains the biggest short-run economic threat to South Carolina, while the current labor shortage is more likely to be a long-run phenomenon that will be a defining challenge for the state in the coming decade. In order to experience rates of economic growth in the 2020s comparable to what was seen in the previous decade, South Carolina will likely need to focus on the high-growth potential tied to manufacturing and transportation/distribution industry sectors.
Dr. Doug Woodward discussed monetary policy and the next phase of Covid in his presentation: Will Asset Prices Boom Abate in 2022?
Woodward discussed how the Federal Reserve pumped an unprecedented $5 trillion into the U.S. economy since the pandemic began in March 2020, while the central bank kept interest rates at historic lows.
To date, there has been no hyperinflation in the prices of goods and services as a result of easy-money policy. Instead asset prices such as home values, stocks and cryptocurrencies (which are not part of GDP) have soared. This quantitative easing, or monetary expansion, exacerbated wealth inequality as the top 1% of the wealthiest Americans earned even more and now have more wealth than 90% of the rest of the population.
However Woodward suggested asset appreciation is not beneficial to the economy as a whole. Private sector investments are what is needed and will improve the economy, specifically investment in manufacturing and equipment. The data show we are seeing an uptick in real investment and that gives us an opportunity to provide more goods and services.
He said more investment in our state and nation is needed and less reliance on other countries such as China. Woodward also said South Carolina should move quickly to improve infrastructure now that the infrastructure bill has passed. Private sector investments are needed and will improve the economy as a whole.
Looking to 2022, Woodward said to expect an increase in interest rates soon and that Federal Reserve discussions are being held as early as next week. He expects the increase to start at around .5%.
When addressing the question of whether the bubble will burst in 2022 as the feds taper assets and increase interest rates, he said we can expect to see some volatility but we will not see stock market collapse due to the shift of the $5 trillion in funding.
Dr. Joseph Von Nessen will be providing a 2021 year-end housing economic report update to SCR members on February 8th during SCR’s Capitol Conference. Register now at cc.screaltors.org.