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Speaking of the Economy
Speaking of the Economy - Matt Martin
Speaking of the Economy
Dec. 16, 2020

A Look at the Carolinas Economy

Audiences: Business Leaders, Community Advocates, Community Investors, General Public

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Matt Martin provides his take on this rather tumultuous year and how it has impacted economic conditions in North Carolina and South Carolina. Martin is vice president and regional executive based at the Richmond Fed's Charlotte office.


Management Committee member Matt Martin

Matthew Martin

Regional Executive
North and South Carolina
Federal Reserve Bank of Richmond


Charles Gerena: I'm Charles Gerena, online editor for the Research Department at the Federal Reserve Bank of Richmond.

Today, I am speaking with Matt Martin, vice president and regional executive based at the Richmond Fed's Charlotte office. Matt leads the Bank's outreach efforts across North Carolina and South Carolina, talking with business, banking, and community leaders throughout the region to gain a real-time understanding of the state of the economy and the challenges facing our communities.

So, what's going on in the Carolinas right now? We'll get Matt's take on this rather tumultuous year and what it has meant for the region.

Thanks for joining us, Matt.

Matt Martin: Thank you, Charles.

Gerena: Before the COVID-19 pandemic hit the U.S. economy hard, how were North Carolina and South Carolina doing?

Martin: Both states had strong economies that were outpacing the nation's growth, at least into early 2020. South Carolina had a surprisingly low unemployment rate of 2.4 percent, indicating a very strong labor market. North Carolina's unemployment rate never got below 3.5 percent, but payroll employment growth was right at 2 percent, year over year. A steady stream of people migrated to the state's larger metro areas, including Charlotte and Raleigh, to take those jobs.

Looking back at my notes from late 2019, many business leaders told me they expected another steady year of growth in 2020. Some were concerned about tariffs that might affect business investments to some degree. But nearly everyone expected to grow and was wondering where they would find the workers they needed.

Gerena: Were there any differences between the states' economies at the time?

Martin: There were a couple. Both states have sizable manufacturing sectors, but South Carolina has a greater concentration of manufacturing, especially large-scale assembly plants and their supplier networks. This includes factories operated by BMW, Volvo, Boeing. All of them shut down for several weeks around April as demand plummeted, even though they counted as essential industries and could have stayed open.

Also, travel and tourism are significant in both states, but there are important regional differences. For South Carolina, the bulk of the tourism industry is concentrated along the coast, the Grand Strand. North Carolina is a little more geographically diverse — it gets a lot of coastal travel, but it also sees plenty of tourists in the mountainous western part of the state, around Asheville and Boone. So, while summer beach vacations dominate the coastal region, the fall season brings a lot of travelers to see the fall foliage in the mountains.

Gerena: Interesting. Did the states have anything in common?

Martin: Yes, they do. Both North Carolina and South Carolina have smaller towns that were not doing as well as major urban centers, even with these historically low unemployment rates overall. Some of this disparity was caused by the decline of key industries, historical industries like textiles and tobacco. But mostly it was because of the pull of urban areas and the opportunities they provided. The challenge for many of these areas is to provide job opportunities that give local residents a reason to stay, as well as possibly attracting some new residents.

As an example, we spent some time around Orangeburg, South Carolina last summer. There are a couple of small towns south of there that have seen steady population declines over the years as employers have moved out. This included, not too long ago, a local hospital that shut down that eventually lead to the loss of the town's only grocery store and only car dealership.

Gerena: Once people had to stay home to slow the spread of COVID-19, which parts of the North Carolina and South Carolina economies were affected the most?

Martin: Travel and tourism were hard hit, especially in South Carolina early on. The start of the state's tourism season was very weak, at least until Memorial Day at the end of May. But by that time, the first wave of the virus was slowly receding and people must have felt being outdoors at the beach was safe enough. South Carolina had taken steps to reopen the state in early May, and that included lifting some travel restrictions and allowing restaurants to operate at 50 percent capacity. That was well ahead of what was happening in North Carolina.

As it turns out, tourism in the coastal communities ended up being a real bright spot, both in North Carolina and South Carolina through the summer months. It wasn't quite as positive in the mountains, but I have heard that vacation rentals have been strong this fall. It seems people were eager to get outside to see the leaves change and enjoy the cooler weather.

Restaurants struggled for some time, especially in North Carolina where restrictions on occupancy lasted longer than they did in South Carolina. As I mentioned, South Carolina reopened the state in early May, and that helped bring about a surge in economic activity, especially for restaurants and vacation spots.

North Carolina took a little bit of a more cautious approach. It started with Phase 2 on May 22 and didn't get to Phase 2.5 until September 4. That's when they eased some restrictions on social gatherings and allowed some additional business activities. A lot of restaurants have adjusted to handle more take-out business or offer outside dining … but I'm still hearing a lot of reports that restaurants are still struggling.

Gerena: Well, I guess it's not surprising that the high-touch industries haven't been doing so well during the pandemic. Have there been any bright spots?

Martin: There have. Some manufacturers have done well, and that includes anything associated with healthcare and providing PPE to that industry. A lot of apparel and textile companies pivoted to making PPE as their regular businesses declined. Also, anything to do with home improvement and furniture has done well, as people have worked to improve the spaces where they have been spending a lot more time.

Home building did well once the economy began to open up again. There was some initial slowness as builders and realtors were unable to show their offerings. But they quickly figured out how to operate in a clean environment, or else they used technology to give virtual tours to potential buyers. I have heard a lot of reports of people buying homes in the region having never actually walked into them.

Gerena: It's definitely an interesting time right now. Did North Carolina or South Carolina have any "pre-existing conditions" that contributed to these variations that you talk about?

Martin: Overall, it has been interesting to essentially see a lack of a pattern.

In typical recessions, the larger metro areas usually fare better since they are more service oriented and less reliant on manufacturing. With this episode, however, some manufacturing segments have done okay, so there are some smaller metro areas that have held up relatively well. Still, all areas have suffered significant unemployment.

Here's one feature of the Carolinas' economy that could be considered a positive during these trying times: both states have been heavily reliant on workers moving to the region from other areas of the country. This has long been a way the region gets the talent it needs to fill the jobs available. That baseline trend has proved to be part of a seemingly larger movement of people and firms to the Carolinas during COVID-19. People are moving from the Northeast and West Coast to areas that are less dense, and less costly in many cases. Firms are also looking to move more workers to the region, or else they are willing to let staff chose where they want to live.

Then there is the concentration of manufacturing in the Carolinas, especially in smaller towns. We have long lamented the decline of legacy industries in the region, which has led to a tremendous amount of job loss over time in certain communities. But new industries have cropped up, and even the legacy industries that are still here are different in important ways. I think there is a real opportunity for some of the smaller towns to capitalize on this episode, perhaps attract some new residents and change the narrative from the last couple of decades.

Gerena: So, where do we go from here?

Martin: I will keep watching the movement of people and businesses to the Carolinas. It's clear the pace of this movement has picked up, but it remains to be seen how long this will persist. It will also be interesting to see if this movement is an opportunity for smaller towns, as I just mentioned. If people prefer less dense communities, for example, they might take a second look at these towns.

Also, interestingly, some of the sectors that are doing well are having trouble finding workers, even with unemployment still elevated. I think a lot of this is a mismatch in skills. For example, a waiter might need some training before taking a manufacturing job … It's not easy to walk from one industry to the next.

Companies, community colleges and organizations involved in workforce development are all working on this issue. The faster they can make progress, the better.

Gerena: Definitely that's true.

Matt, thanks for joining us for the podcast. I appreciate you spending time with us.

Martin: My pleasure.