Highlights

Summary

Indicator Data

Commentary

Highlights return to top

• The South Carolina leading index remains flat in June.

• Surprisingly, residential construction increased 4.7 percent.

• June’s inflation-adjusted retail sales dropped again.

The Index of Leading Indicators for South Carolina is composed of the Average Manufacturing Workweek (hours), Initial Claims for Unemployment Insurance, and Real Weekly Earnings

The Index of Coincident Indicators for South Carolina is composed of Total Nonagricultural Employment, Real Retail Sales, and Total Unemployment Rate

Summary return to top

In June, the South Carolina Leading Index, our barometer of future economic activity, fell by 0.2 percentage points. The drop is small when compared with declines in the second half of 2007. In the previous three months, the index has remained flat at around 139 points, providing hope that the state’s economy may not deteriorate in the coming months, in spite of rising inflation and unemployment, along with continuing bad news in the finance and housing across the United States.

Yet a closer look at the components of the leading index shows that the South Carolina economy is still under significant pressure. This month, with the exception of residential construction, all components of the index dropped. The declines were small, however, and not clearly indicative of a worsening economic climate. Initial claims for unemployment had a marginal increase of one percent compared with April. At 6,900 claims per month, the level is now 25 percent higher than last year. Two other indicators of manufacturing activity showed small declines as well. The average manufacturing workweek dropped from 42.9 to 42.7 hours, and inflation-adjusted (real) earnings dropped by 1.3 percent. Despite evidence of increased foreign demand for U.S. manufactured goods induced by the weak dollar, the South Carolina manufacturing sector lost 600 jobs in June. While this should be of concern, note that during the expansionary period of 2002-2007, the South Carolina economy lost approximately 800 jobs in manufacturing every month.

Surprisingly, the only leading indicator with a positive reading for June was residential construction, which increased 4.7 percent with respect to the previous month. Actually, a look at recent values points to a stabilizing housing market. Since reaching the lowest value (2,000 units per month) in November 2007, the seasonally-adjusted number of newly constructed units has averaged 2,200. This number is much more in line with that of single family housing permits which averaged 2,100 in the last 12 months. Thus, in the coming months, more significant drops in construction employment are not expected. It should be noted that, between October 2007 and June this year, the construction sector lost 17,500 jobs. With about 112,000 workers, the construction industry in South Carolina employs as many workers as it did before the construction boom of 2004-2007.

Finally, the state leading indicator includes the national leading indicator as a component. In June, the U.S. leading indicator dropped 0.1 percentage point. In recent months the decline in the U.S. leading index has moderated, but weaknesses its components persist.

Next consider the South Carolina Coincident Index, a measure of current economic activity. The index exhibited a small increase of 0.4 percent in June. Two of its three components, inflation-adjusted retail sales and total nonfarm employment, decreased during the month. The improvement in the index is explained by a drop in the unemployment rate. After surging 0.6 points in May (from 5.9 to 6.5 percent), unemployment fell back to 6.2 percent. However, this is not a sustained drop in the unemployment rate. In the last nine months, the Palmetto economy has been unable to create additional jobs, while layoffs have increased steadily since the beginning of the year. In June 2008, total nonfarm employment stood at 1,958,300, practically unchanged from the count observed in September 2007.

Notes
[1] Calculated from data provided by the S.C. Employment Security Commission.
[2] Calculated from data provided by the F.W. Dodge Corporation.
[3] Calculated from data provided by The Conference Board.
[4] Calculated from data provided by the S.C. Department of Revenue.
[R] Revised.
[n.a.] Data not available.
Monthly percentage change based on seasonally adjusted data.
Annual percentage change based on unadjusted data.
*1982-1984 dollars

Commentary return to top

In 1950, South Carolina was ranked 47th in the nation in terms of per capita income. Only three other states in the Southeast, Alabama, Arkansas, and Mississippi, were ranked lower. However, during the last half of the past century, the Palmetto state has managed to grow above the national average and improve its standing. As figure 1 shows, personal per capita income in South Carolina has been approaching the U.S. average and now stands slightly above 80 percent. This progression happened because, during the last half of the century, per capita income in South Carolina grew at a faster rate than in the United States.

However, it is interesting to see how different components of personal income in South Carolina have behaved. Personal income is usually divided into three components: (1) net earnings, (2) dividends, interest, and rents and (3) transfers. Net earnings is the largest component of personal income and, because it reflects labor and proprietors’ income, is a good barometer for the level of economic activity in the state. Dividends, interest, and rents (DIR) also reflect economic activity but, because financial markets are national in scope, DIR need not be linked to the state. Finally, transfers (both business and government transfers) are more likely to reflect growth in the old-age population, survivors, disability, and health insurance payments.

In Figure 2, 3, and 4 the contribution of each component to personal income is plotted. From Figure 2, the share of earnings in South Carolina has been steadily declining and is now lower than the U.S. average. Figure 3 shows that the share of DIR has increased its importance and has an importance similar to the rest of the country. Finally, in Figure 4 is depicted the share of transfers in personal income. Until 1990, South Carolina had a share similar to the United States but it since has seen its share increase well above the national average. This remarkable increase in the share of transfers provides indirect evidence of the increasing importance of South Carolina as a destination choice for retired workers. On the other hand, this also serves as a reminder that in the last two decades a significant share of the increase in per capita personal income is related to the influx of retired population and not tied to increases in production of goods and services.

Figure 1

Figure 2

Figure 3

Figure 4