By Dan McCue
Staff Writer

It is a statistic that vexes politicos and economists alike. Despite South Carolina’s undeniable success at luring major manufacturers like BMW and Vought Aircraft Industries here and convincing others, like Cummins Turbo Chargers, to expand existing operations, the state continues to have the second highest unemployment rate in the country.

While the national unemployment rate rose to 4.8% in July, a development suggestive of a cooling economy according to the U.S. Department of Labor, that’s still well below the 6.7% unemployment rate South Carolina posted in June.

Only Mississippi did worse in June, with an unemployment rate of 7.1%. And no one was expecting a marked change in those numbers when the next sampling of state unemployment statistics was released by the Labor Department on Aug. 18.

As a result, one can expect those statistics to be interpreted and reinterpreted ceaselessly as this fall’s political season gets into high gear.

Already, state Sen. Tommy Moore, D-Clearwater, who is hoping to scuttle Gov. Mark Sanford’s re-election bid, seems determined to keep the state’s unemployment figure high, if not uppermost in the electorate’s minds. His key assertion: that unemployment has actually risen rather than declined during Sanford’s term.

Sanford, meanwhile, is trying to capitalize on another set of statistics that show 123,000 more people are working in the state than when he took office three years ago.

More recently, during the National Governors Association meeting at the Charleston Place Hotel, Sanford also touted statistics, later confirmed by an independent analysis by Wachovia Corp., that show South Carolina is growing faster than any other state in the Southeast and well beyond the national average.

How can the unemployment numbers be so bad when things appear to going so well? That’s the $25,000 question of this election year and the answer depends on which economist is talking.

Transition and change

According to Sam McClary, a labor market analyst for the South Carolina Employment Securities Commission, a number of different factors are influencing the current state of South Carolina’s economy.

“On the one hand, we have job growth figures that are among the highest in the region, if not the nation,” McClary said. “The job count in June was nearly 3% above the comparable figure a year ago.”

“Further, Gov. Mark Sanford states that tax revenues are at an all-time high, which the job growth figures would tend to support,” he added.

But those numbers don’t address the reality of what’s happened to the manufacturing sector in the state.

McClary contends that despite a 30-year trend away from manufacturing to a service-based economy, South Carolina remains a manufacturing state.

“Especially in our rural areas,” he said. “Layoffs are persistent in this sector, particularly in the textile and apparel industries, and the typical person that gets laid off is low-skilled, and probably not well-educated.”

While South Carolina is doing well in regard to enticing businesses to relocate or open facilities here, there’s a growing gap between the skills that are required for the jobs they bring with them and the skills the state’s laid-off workers possess, McClary said.

“It’s a well known fact that South Carolina has one of the highest drop-out rates in the nation,” he said. “Approximately one-half of all students that enter the ninth grade never graduate. These are the individuals that we are putting into our job market. … The workers who do not have skills are staying unemployed, thus our high unemployment rate.”

Al Parish, director of the Center for Economic Forecasting at Charleston Southern University, believes the net result is that economically, South Carolina has become two states in one.

“There are the heavily populated areas along the coast, Midlands and Upstate,” he said. “In these areas, the unemployment rate is lower than elsewhere in the state, generally speaking.

“The rest of the state is much more rural, with populations that in most cases have barely budged in decades. The unemployment rate is much higher in these counties,” he said.

That, he said, boils down to population, taxes and skill level.

“Low population means tax revenues are comparatively low, which in turn means students typically do not get the level of schooling they do in other areas and that leads to lower skill levels leading to lower paying jobs,” Parish said.

State at a turning point

That said, Bruce Yandle, a Clemson University economist, believes South Carolina is indeed at a turning point in terms of “profound structural changes.”

“That change is a shift in employment from large-employer manufacturing to smaller employment firms and to services,” Yandle said. “Then, within manufacturing, South Carolina has experienced the rougher end of the transformation taking place in commodity textiles.”

Despite the dislocation that comes with such dynamic change, Yandle is quick to point out there is far more to an economic health exam than just reading the unemployment rate.

“There is employment growth, where South Carolina looks good, income growth, where we do not look so good, and other measures of vitality such as readings on tax revenues,” he said.

Yandle also points out an interesting feature of unemployment statistics: The numbers are almost always seen as rising when times are getting better.

“An improving economy encourages people who had pulled out of the labor force to enter and begin searching. It is only then that they are counted as unemployed,” he said.

Overstating unemployment stats

One person who doesn’t think the unemployment numbers make sense is Mark Vitner, director and senior economist for Wachovia Corp.

“There is a huge gap between the performance of the state and its major metropolitan areas,” he said. “In fact, I would be hard-pressed to point to a time when Charleston’s economy was doing better than it is today.”

Vitner said he believes a technical glitch in the complicated formula used to determine the state’s unemployment rate has caused its numbers to be as much as two percentage points higher than the actual rate of unemployed.

That difference is significant because if Vitner is right, South Carolina’s actual unemployment rate is likely about equal to the current 4.7% national average. It would also rank the state just one-tenth of a percentage point behind North Carolina, but ahead of 18 others states including Georgia, New Jersey, Massachusetts, Texas, Tennessee, Kentucky and Michigan.

“Basically the local unemployment is being computed with a formula that works well for rural parts of the state, but makes absolutely no sense in places like Charleston, Myrtle Beach or Hilton Head, where undoubtedly, based on the evidence of other economic indicators, the number of unemployed is vastly overstated,” he said.

As an economist whose forte is monitoring state and regional trends, Vitner said when it comes to South Carolina, all other economic evidence is contrary to what the unemployment numbers seem to be saying. In fact, he describes the state’s unemployment numbers as “the worst set of unemployment numbers published anywhere in the country.”

“Most of South Carolina’s economic data is consistent with a 6 percent annual growth rate in each of the past three quarters, and the employment statistics, which I do think are about right, show a gain of 50,000 jobs in the state in the past year,” Vitner said. “Those employment statistics are backed up by tax collection data, and whether people love or dislike the governor, no one is going to lie to pay more taxes and skew the statistics.”

Vitner said recent visits to Charleston, Orangeburg and Columbia also suggested to him that the unemployment statistics are way off.

“I think almost everybody I talked to in Charleston thought that the economy is doing relatively well. In fact one developer even told me there’s absolutely no industrial property available in the city,” he said.

To further illustrate his point, Vitner pointed to York County on South Carolina’s border with North Carolina.

“York County, which is south of Charlotte, where I work, is growing very rapidly and yet statistically, when you cross the border from North to South Carolina the unemployment rate jumps off the charts. It doesn’t make sense,” he said.

McClary is sensitive to Vitner’s criticism. According to the state’s labor market analyst, while some changes were made two years ago in how the unemployment rate is calculated here, those changes—shifting some components used in the analysis to the 2000 census—were made by every state in the union.

But Parish, like Vitner, also said he believes the formula is out of whack and the state numbers are too high.

“It is a statistical problem, not an economic one,” he said. “No economist worth his degree believes that we have the second highest unemployment rate in the country or that Charleston county’s rate is above the nation’s.”

Parish said he believes one solution to the numbers puzzle would be to combine counties of low population into counties with higher populations to make government, including public schools, more efficient as it can take advantage of economies of scale.

But McClary thinks time may be the ultimate balm for the state’s high unemployment numbers.

“I think that over time our jobless rate will begin to recede,” he said. “Our government leaders are well aware of the skills gap and drop-out issues and are continually working to improve those. As our metropolitan areas continue to grow, they will begin to provide more job opportunities for outlying areas.”

Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.

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