Through the Looking Glass: South Carolina's Labor Market Recovery
December 2017 marked the 10-year anniversary of the start of the economic downturn that would ultimately evolve into the Great Recession. Given that 10 years have passed, I have spent a little time during recent presentations in South Carolina talking about the labor market damage that resulted from the downturn and how much of it has been repaired.
As bad as the Great Recession was nationally, South Carolina's descent into the trough was steeper. Its recovery has been more impressive, particularly in the Charleston and Upstate regions. Yet while most metropolitan areas have put the downturn in their rearview mirrors, others have not. And continuing difficulties in most rural areas show that there is considerable room for improvement.
While the official start of the Great Recession was pegged at December 2007, strains in financial markets emanating from problems with subprime mortgage lending began to appear earlier in the year. Risk premiums on corporate debt instruments began to rise in the summer of 2007, and equity market values started to sink in the fall. Of course, these strains would be greatly exacerbated about a year later with the collapse of Lehman Brothers and other financial institutions, which transformed a financial crisis into a full-fledged financial panic.
It didn't take long for the strains in financial markets to affect real economic activity. Real gross domestic product began to contract steadily in the third quarter of 2008. Manufacturing output dropped by 20 percent. The housing market collapsed as new single-family homebuilding fell by roughly 80 percent. And firms shed workers from their payrolls — a lot of them. Before the dust settled, more than 8.7 million payroll jobs were lost in the United States as a result of the Great Recession. During the worst stretch, the first quarter of 2009, the U.S. economy was shedding 750,000 jobs a month on average.
As bad as the damage appeared through the lens of the U.S. labor market, it was much worse in South Carolina. The 8.7 million jobs lost on the national level translated to 6.3 percent of total payrolls. In the Palmetto state between December 2007 and February of 2010, employers cut more than 167,000 jobs, which amounted to 8.4 percent of all payroll employment. In large part, the steeper job losses in South Carolina were a function of industry structure, as the state was more heavily concentrated in the manufacturing and construction industries, which were so hard hit nationally.
Since that time, however, South Carolina's job recovery has outpaced the nation's by a fairly wide margin. From February 2010, when the labor market recovery began, through January 2018, employment in South Carolina grew by 19 percent compared to the national rate of 14 percent. Thus, despite having fallen further into the trough, payroll employment in the state today stands 8.1 percent above the peak of the prior economic expansion, compared to 6.8 percent for the nation as a whole. (See chart below.)
While South Carolina has recovered all of the jobs that were lost during the recession on net, and then some, the recovery has not been uniform across geography or industry. Of the roughly 337,000 jobs added during the expansion, nearly 54 percent were created in Charleston and the Upstate (Greenville and Spartanburg). Add in Columbia and Myrtle Beach and that total rises to 80 percent. But while each of these MSAs have experienced payroll employment growth well into the double-digits since the end of the Great Recession, Florence and Sumter have seen far smaller gains, just 9.6 percent and 9.2 percent, respectively.
For more rural areas of the state, of which there are many, the recovery process has been painfully slow. Approximately 94 percent of all net new jobs were created in the MSAs (including York County in the Charlotte, N.C., MSA and Aiken and Edgefield counties in the Augusta, Ga., MSA). That leaves just 6 percent of the gains since the end of the recession in more rural areas, or fewer than 20,000 jobs.
Job recovery has been uneven across the state’s industry sectors as well. Remarkably, job growth in the goods-producing industries has been among the strongest in the state since the labor recovery got underway. In fact, only the professional and business services sector has outperformed employment growth in construction and manufacturing. Yet, despite the material increases, employment in construction and manufacturing is still lower today than it was in December 2007, which speaks to the magnitude of the declines during the Great Recession.
In addition to professional and business services, South Carolina firms have added significant numbers of workers in services such as leisure and hospitality, education and health services, and trade, transportation, and utilities, with smaller gains in other service-providing industries. One area of continued weakness is financial services, where payroll employment has yet to return to its pre-recession level because South Carolina has seen considerable consolidation among its depository institutions over the past several years.
South Carolina’s recovery from the Great Recession has been robust when aggregate employment numbers are compared to nationwide averages. In addition to strong job growth, the state’s unemployment rate has converged on the U.S. average after exceeding it by more than 2 percentage points during the worst of the recession. And South Carolina is attracting more workers to its labor force than the nationwide average as well, enhancing its long-run economic growth potential. While this improvement has been impressive, more rural areas and some industries in the state have yet to recover.
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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.
