♪ Welcome to "This Week In South Carolina."

I'm Gavin Jackson.

This week we're looking back at the 2025 economy and also looking forward to the 2026 economy, what some economists are expecting in the new year.

And to do that we're joined by one of our go to experts, Doctor Joey Von Nessen, who's a research economist at the Darla Moore School of Business at the University of South Carolina.

Joey, welcome back.

Always great to see you.

Dr.

Joey Von Nessen> Thank you Gavin.

Great to be here.

Gavin Jackson> So you are fresh off that annual economic outlook conference that U.S.C.

puts on every year, where you guys forecast the year ahead was all thinking back.

So let's start there and look at 2025.

The economy, affordability, lowering high prices and sticky inflation, that was the focus of the 2024 presidential campaign that now President Trump campaigned heavily on and won the election on that message.

But it's been more than a year since that election.

I'm wondering what has changed here.

What have you guys seen with these big promises?

What did you take away from the 2025 economy when you look back at some of these major economic concerns for our country in the state?

Well, what's interesting is that many of the concerns that you mentioned from last year are still with us going into 2026, and in a real sense, we look at 2026 almost is, 2025 part two.

Uncertainty has been the key theme for this year for the reasons you mentioned, both business uncertainty with respect to tariffs and also consumer uncertainty as we've seen, price increases continue to stress consumers.

And consumer sentiment we see is still at a, at an all time low.

And that uncertainty has filtered through and generated a mild slowdown in the U.S.

economy and in South Carolina in 2025.

But the key there is that the slowdown has not been economy wide, it's mostly been in the good sectors.

And we can talk about that in more detail.

But the main reason for that is because of new tariffs that have been implemented this year.

And so sectors that tied directly to international markets, namely the good sectors, have been mostly affected by that.

Gavin Jackson> Yeah, we definitely talk about tariffs because they were the biggest curveball.

It's an economic curveball this year from the Trump Administration.

They were rolled out under the guise of the International Economic Emergency Powers Act, all of which is now under review by the U.S.

Supreme Court.

And a decision is pending on that, so that's gonna be another curveball.

And these tariffs were all meant to punish countries, allies and foes alike were implemented over fentanyl smuggling and trade deficits.

So kind of questionably, and they're also questionably intertwined with an economic policy of trying to get job creation, reshoring of manufacturing into the country.

But it doesn't seem like that's the case right now, eight months into this.

So, especially when we look at the jobs data, especially the most recent jobs data.

So, what has been the broad trend this year when it comes to how those tariffs have been rolled out?

Dr.

Joey Von Nessen> Well, what we see in terms of any new tariff policy is typically you have short run and long run effects that you have to separate.

In the short run, that's where we see the price increases associated with tariffs.

Because remember, tariffs are nothing more than a tax on imported goods.

And so that has an effect on business activity in terms of whether they are able to absorb those price increases or whether they have to pass those along to the consumer.

And how does that actually ripple through?

And so this year we have seen price increases on many goods, which has impacted manufacturing and retail trade, logistics, transportation and warehousing.

All of those good sectors that are tied to international trade have seen some pullback in economic activity.

But that's, that's the short run.

If we look at the long run and we look at the potential for investments in the U.S., the question is whether this is going to lead to a surge in manufacturing in the long run.

We haven't seen that yet.

We've seen some announcements about future investment potential in the U.S., but that's going to be several years before that, that plays out.

So right now we're seeing mainly the negative effects in terms of the of rising prices.

Gavin Jackson> Joey, when you talk about the potential positive long term effects, in terms of reshoring and job investment and creation here, uncertainty is a big factor and that's what you said it's an issue here, and jobs and, you know, business owners do not like uncertainty, business people don't like it all around.

So how does that mesh with this long run outlook?

Dr.

Joey Von Nessen> Well, that's, and that's the other, the other challenge is you have price increases on the one hand, for where we know what the tariff activity is going to be like, what the tariffs are going to be, and then the uncertainty of the back and forth.

And as we look ahead to 2026, that uncertainty is not likely to go away.

So that's something that's going to be around for a while.

You mentioned the Supreme Court case.

And we look at the, the instance or rather, if we were to see the Supreme Court rule some of these tariffs unconstitutional, now that could alleviate some of the price pressures, but what does that mean for companies?

Are companies going to be rebated?

Right.

So how does, how does that actually flesh out in terms of being resolved.

So that uncertainty is almost, certain to extend into 2026, even if we see some relief on, on price pressures.

So, this back and forth on tariff policy, that's going to continue to be with us next year, Gavin Jackson> Which then kind of, kind of self-sabotages the Trump Administration, too and they're trying to talk about having this roaring economy as a result of all this, especially since for about the entire year we heard that this is still President Joe Biden's economy, which is up for debate.

But this is still a lot of volatility as a result of these tariffs being rolled out in April during Liberation Day.

That kind of fizzled as, and there were calls and worries and concerns about recessions because of that.

I mean, we had big names, mentioned that in April.

Those receded because we saw the tariffs shift around.

There was a lot of give and take.

Trade negotiations took place.

But, we are a year into this.

So when can we start to see that roaring economy come, or is it still a wait and see mode at this point?

Dr.

Joey Von Nessen> I think we're still in wait and see mode at this point.

And one of the reasons we didn't see as much of a pullback as many had expected, is because, well, there are multiple reasons.

Number one is that when you look at tariffs, they're not impacting, the entire economy.

The, if you look at the goods and the services sectors of the economy as a whole, the goods sectors only represent about a third of total economic activity, and then imported goods represent a subset of that, and then the goods that are subject to tariffs or even smaller.

So it's a fairly small percentage of the economy as a whole.

And right now we've seen businesses to the extent that they can try to shield consumers from these price increases.

One way we saw that was in the first quarter of this year, we saw imports spike when companies were trying to stock up on inventory and get ahead of the tariffs ahead of Liberation Day.

And they've been able to, to a certain extent, shield consumers from price increases in that way.

But that's only temporary, right?

So what happens when they have to, reconfigure supply chains or begin to pass those costs on to consumers?

So that's another area of uncertainty going forward in terms of this is a temporary effect to a certain extent, in terms of what businesses have been able to shield consumers from, can they continue to do that next year?

Gavin Jackson> And we're talking about uncertainty in 2026.

And you mentioned a, a mild slowdown this past year, but not recession.

No one's talking about the R-word here.

But, could could there be a greater concern that this is a slow drip to a recession?

Or maybe we're talking about stagflation, which we can talk about in a moment, but like, you talk about a mild slowdown specifically because of goods.

I mean, that means a lot of folks aren't buying as much and we know the American consumer drives the economy.

So how do you kind of measure that?

How concerned are you about this mild slowdown possibly becoming a bigger slowdown?

Dr.

Joey Von Nessen> Well, at this point, particularly in South Carolina, we don't see a recession as being likely next year.

In South Carolina that's largely because of our population growth.

If we look locally, that's, what I would call our secret sauce.

And that's what has kept us insulated from some of these broader slowdowns at the, at the national level.

And you can see that in a number of markets, most industries in South Carolina have grown faster than the national average.

So in a sense, South Carolina is somewhat insulated from these national trends.

But looking ahead, again, when we look at the service sectors, those continue to do well.

The good sectors, although they have seen a slowdown, have seen positive growth, even if weak growth in many cases.

But it does remain a challenge looking ahead to next year, particularly if we see inflation tick back up in 2026, because, as you allude to, the consumer is still very frustrated.

And we've seen purchasing power that has, has not seen any meaningful improvement in 2025.

So if we do see inflation begin to tick up again next year, that could increase the risk of recession.

And inflation is certainly the metric to keep our eye on.

Gavin Jackson> When we talk about inflation, the organization, the group that's responsible for taming that is the Federal Reserve Bank of the United States.

And, this year we also saw another economic curveball with unprecedented pressure on the independence of the Fed by President Donald Trump, including his attempted firing of Federal Reserve Governor Lisa Cook over unsubstantiated mortgage fraud allegations, a move that is also now before the U.S.

Supreme Court.

His repeated harassment of Federal Reserve Chair Jerome Powell, including tense moments of Trump openly musing about firing Powell because he wasn't lowering rates, which is something that the F.O.M.C.

does, not just Powell.

So do you think that the fed is still independent in your view?

And again, how important is it for our country to have an independent central bank?

Dr.

Joey Von Nessen> Well, it's critical for them to be independent.

And I think going forward we just as in the past, we've seen them focus exclusively on that dual mandate.

They're trying to keep prices stable and also to maximize employment.

And looking ahead, they're in a very precarious situation in which they're dealing with this uncertainty as well.

And you could see this in the recent vote where we saw the fed reduce rates by 25 basis points.

But it was the first time in recent years that we actually saw three different votes.

We saw votes for 25 basis point reduction.

We saw votes for a 50 basis point reduction.

So a more aggressive rate cut, and then also votes for no rate cuts at all.

And, so that really illustrates the, the disagreement among the fed in the debate, given that we are headed into 2026, where the labor market and inflation both remain concerns and again, exacerbates and continues that uncertainty that we've seen all year.

Gavin Jackson> Everyone's healthy debate, it sounds like from what we're seeing, Dr.

Joey Von Nessen> I think so from a fed perspective.

Yes.

And we can, we can talk about and kind of lay out the cases on both sides on why it is or is not appropriate to continue to lower rates next year.

But that's a debate we're going to continue to have.

Gavin Jackson> When speaking about that, let's look at the past year and then look going forward, because this interference seems to have reached a detente.

As rates have declined, we've been seeing those cuts.

And also we've seen some assistance from Treasury Secretary Scott Bessent, who's really kind of slowed that momentum when it comes to possibly trying to get rid of Powell before his term's up in May.

But for background, Powell was first appointed fed chair by Trump in 2018, reappointed by Biden in 2021, and his term is up in May.

There's already a shortlist for a new chairman, which is Trump's right to pick.

But again, all this stemmed from high interest rates, that the Federal Open Market Committee is tasked with taming as and that was a result of Covid, right.

It's still the ripple effects of Covid, that high inflation that we're still dealing with that's a little bit stickier than they thought it was going to be.

So where do we go in 2025 with the F.O.M.C.

and where do you see that going in 2026 based on what they're saying?

Dr.

Joey Von Nessen> Well, what they're saying in general right now is, if you look at the median vote for where they see in terms of what they're expecting expected to do next year, we're looking at maybe 1 or 2 rate cuts in 2026.

So the recognition is that we do have a, a labor market that is is fairly weak right now where job growth has not been not been strong, but there are still inflationary pressures.

So the, the argument really in favor for more aggressive rate cuts is I like to use the analogy of a roller coaster where, you know, when you get to the top of that roller coaster and you're just starting to go over the edge, and then it happens all at once, right.

And so that's often what we see when we see a deteriorating labor market.

It slowly, begins to recede and then it, recedes more aggressively.

And, so if that is a risk, which it is, then that would suggest that we need more aggressive rate cuts.

But, on the flip side, if we look at the unemployment rate in the U.S.

and in South Carolina, it's still very low.

It's still historically low.

We continue to have positive if weaker job growth and we still have inflationary pressures.

And there is, we have not seen evidence yet that inflation has peaked after it started taking back up again in 2025.

So again, we don't want to get too far out in front here and risk that, risk a resurgence of inflation.

The other factor is when we look at lower, lower job growth that we've seen in 2025.

Part of that, and the fed has talked explicitly about that, is because we also have lower labor supply because of lower immigration.

So it may be the case that we don't need as many jobs created on a month to month basis as we did previously, because we don't have as many new people coming into to the labor market.

So all of these factors are at play again, making this debate, a healthy debate, but generating a lot of uncertainty.

A concerning debate, too.

I mean, because when you talk about like that, Joey, I mean It sounds like this could possibly pop off into, like, a perfect storm situation where everything kind of almost spirals in a sense, because, it's almost like a stagflation scenario where G.D.P.

is low, there's high inflation or in this case, you know, just stubborn inflation and high unemployment, which is, again, like you said, not that high right now, but still increasing.

So, is that more likely a possibility where we we could be flirting with, stagflation in 2026?

I think stagflation is probably more likely than a recession.

But stagflation again, usually, represents a less healthy labor market than what we're seeing right now.

So, slow hiring is not the same as a, as a weak labor market.

Again, if we look at the unemployment rate at the U.S.

level, 4.6 percent, and it's been between about 4 and 4.5 percent all year, full employment is typically considered, an unemployment rate of 5 percent or better.

And in South Carolina, historically, our unemployment rate during periods of economic expansion, if you throw out recessions, is 6 percent.

So we still have a very healthy labor market overall.

So, a slowdown in job growth, again, has to be put into perspective.

But but yes, I think if we're looking at the the possibility of stagflation versus recession, I think stagflation would be more likely, although we're not necessarily forecasting that for next year.

Gavin Jackson> It's interesting when you talk about historic rates for unemployment, because those seem high, because we've been just maybe, lucky with the low numbers.

And it's almost kind of going back to the, the mortgage market when we look at those historic averages for mortgages, which we've been kind of around versus the two and the three percent, everyone got spot with back in the past and that we're still longing for.

And we can talk about housing in a moment.

I want to wrap with the fed here.

How do you think a new chairman, which could happen next spring, will affect the decisions by the F.O.M.C.?

I mean, you're talking about one or two cuts.

Any way we can maybe look at the tea leaves and wonder how this could change things with a new leadership at the head of the fed?

Dr.

Joey Von Nessen> Well, I think any presidential administration is always looking to put pressure to a certain extent on the fed to lower rates, perhaps not as aggressively as they are this time around.

But, but that's typically normal because when you lower rates, that's going to generate more economic activity, more stimulus.

And, and I think certainly based on what we're looking at now, that's more likely next year in terms of seeing a movement towards a fed that, looks to be more, more willing to, to cut rates.

Now, that may change if we begin to see upward pressure on inflation, if the impact of these tariffs has not yet been fully absorbed, and we continue to see inflation move up to three and a half, maybe four percent.

Again, I think that's unlikely.

We can talk about, what is reasonable in terms of expectations about inflation.

But given where we are now, again, a focus more on the labor market appears to be where the fed is, headed in the coming months.

Gavin Jackson> That being said, Joey, let's look at 2026 and again, what you and other economists are forecasting for South Carolina.

I know we've been looking at a lot about the national stuff, but of course that affects all the states in our country.

But when you look at South Carolina and what we can control and what's in front of us, in front of us right now, what are we expecting for 2026?

Dr.

Joey Von Nessen> Mild growth, continuing into 2026 and, very, stable growth as we move ahead.

And as I mentioned before, South Carolina's economy has been very resilient throughout 2025.

So despite this uncertainty and despite a mild slowdown at the national level, South Carolina has seen that too, but not to the same extent that we've seen nationally.

And as we look ahead, we expect for, again, mild growth next year to continue positive growth that is primarily focused in the service sectors.

Health care continues to drive our growth in South Carolina.

Construction is another sector that has done very well because of our population growth.

Construction real estate now is growing at about three times the rate that we're seeing at the national level.

And all sectors in South Carolina have seen some level of positive growth in 2025.

So we expect that to continue into the new year.

Consumer spending remains fairly stable overall.

Again, we have a stable labor market, and population growth continues to be that secret sauce that drives demand.

So positive growth, even if it's weaker growth than what we've seen in the last couple of years.

Gavin Jackson> So making us kind of an envy of some other states.

Dr.

Joey Von Nessen> I think so.

Yes, Yes.

Well, in 2025 our employment growth rate was actually number one in the country.

And population growth has been consistently in the top five.

So we've been doing very well and are poised to weather any major slowdown better than most other states.

So that's, that's good news as we look ahead.

Gavin Jackson> When we talk about potential slowdowns, again, we're not really forecasting that there's no indications of a recession or anything like that, but, that doesn't mean that there couldn't be one triggered by any number of things like we saw this year when there was calls for a potential recession as a result of those tariffs that were then changed up.

But now there's concerns about an A.I.

bubble when it comes to artificial intelligence and how those stocks and those tech stocks are really driving a lot of the gains in the stock market, which has had a fantastic year.

But then there's also concerns about geopolitical issues, but it seems like we've weathered a lot of those with hot wars across the world, as well as trade wars we've still been kind of maintaining.

But say there was a pullback, especially when it comes to top spenders.

Those people that have really been kind of keeping the economy afloat.

You know, maybe more widespread white collar layoffs and then a bubble pops.

I mean, could that be a concerning storm that also compounds some of these other issues and uncertainty that we're talking about that could then lead to dot, dot, dot?

Dr.

Joey Von Nessen> Yes, yes.

Well, you raise a great point.

And essentially what you're talking about is the wealth effect, we hear described as the wealth effect.

The idea that, a significant percentage of consumer spending is being driven by higher income households and that, that is in part due to the stock market, which has performed so well.

And so what happens if we see a pullback?

That's certainly a possibility.

And I think as we look at this, A.I.

bubble, if we want to call it that, where does that go next?

And I think it's effective and helpful to look, backwards to look at other, other stock market booms that are comparable in terms of these technology gains and investment to get a sense of the timing here.

<Dotcom bubble> [laughs] The dotcom bubble.

Perfect.

Yes.

And if we look back there, well, here's the interesting thing.

And here's the million dollar question.

It's all about timing.

<Yeah> Because if you look at the dotcom bubble, we saw significant investments in the late 90s.

The bubble pops in 2001, but we saw sizable productivity gains between 2000 and 2005 that were way higher than we saw in the 90s.

The problem was that investors pulled back before these technologies were incorporated into the business community, and we saw those productivity gains.

So it was a timing issue.

And so the question this time around is will companies begin to incorporate A.I.

into their production processes that will increase productivity before investors begin to pull back?

Now, that's impossible to predict, but it's really all about the timing.

And if that timeline is smoother, then that would limit any pullback in the stock market.

So that's really the big wild card.

Gavin Jackson> Yeah.

And you're putting a lot of faith in investors to have that trust of these companies to nail that in a sense versus Dr.

Joey Von Nessen> Or whether they begin to observe it.

And so it's not, it doesn't have to be faith.

It can actually see that these productivity gains occur.

And what does that timeline look like.

And again, that's very hard to predict.

Gavin Jackson> And we'll talk more about labor and A.I.

in a moment, but I want to ask you just a little bit about, just what South Carolinians are thinking and keep with South Carolina because looking at a recent Winthrop poll, 42 percent of South Carolinians say that their financial situation is about the same as last year.

38 percent say it's worse and 20 percent say they're better off.

So, kind of a mixed bag there, but, overall pretty good.

But we've seen some signals of softening that we've been talking about, including from the ports, our biggest economic driver, with S.C.

Ports President and C.E.O.

Micah Mallace saying recently, quote, "While we expect the next few months to remain challenging for our industry, S.C.

Ports remains focused on compensating for these declines."

Quote.

So they're pointing to softening of imports and vehicle volumes.

So when you see that data coming from the ports, how does that, how does that mesh.

What with what we're talking about?

What kind of ripple effects could that have for the rest of the state?

Dr.

Joey Von Nessen> Well, that's a manifestation of the goods market, which has pulled back that we talked about before, that this slowdown has primarily been in the goods sectors, not in the service sectors.

And the port is front and center.

When you look at the at goods market.

So it's not surprising that they've seen, flatter growth this year.

Now as we look ahead to 2026, we have to look at both again, short run and long run, challenges and opportunities for the state.

So even though we're seeing the short run slowdown, South Carolina remains very competitive.

When we look at manufacturing and looking, looking at, and looking at logistics based businesses, because as, because we are in the, in the southeast, this is where the bulk of the population growth is occurring.

We're expecting to see more population gains in the southeast over the next 30 years than any other region of the country.

That's, that's one forecast that all economists pretty much agree on, that we're going to see more population growth in this region.

So, companies that are looking to manufacture and distribute their goods, if they want to access the U.S.

and global markets, the southeast and South Carolina become very competitive.

So that bodes well.

And in addition, if you look at, companies that are looking to import and distribute goods, like Walmart, for example, Amazon and others, once again, South Carolina becomes very, very attractive.

So in the long run, we're still very bullish on on the state.

Gavin Jackson> Joey, with less than five minutes we just want to talk about the labor market here, too.

And Fed Chair Powell recently said that fed staffers believe that federal data could be overestimating job creation by up to 60,000 jobs a month.

Given that figures published so far show that the economy has added about 40,000 jobs a month since April, that real number could be more like a loss of 20,000 jobs a month.

In August, President Trump fired the head of the Bureau of Labor Statistics because he didn't like the numbers, saying that they were, quote, "rigged in order to make the Republicans and me look bad."

Quote.

We just got new data that found 64,000 jobs were added in November, 105,000 were lost in October, and unemployment is at 4.6 percent, a four year high.

Again, you said that that's not too concerned, but if that keeps ticking up when do you see maybe flashing red lights?

Dr.

Joey Von Nessen> So I think if we continue to see, or we see consistent months of job losses, that's where we begin to, to get very concerned because, again, I think the roller coaster analogy is appropriate, that things happen slowly and then all at once.

So keeping an eye on the jobs data from month to month, and then again, from an unemployment perspective, if we begin to see the unemployment rate tick up, really get above five, five and a half percent, that generates, concern as well.

But it's mainly about the jobs data on a month to month.

How many jobs are we creating or not creating?

And if we begin to see consistent months of job losses, that certainly, provides more reason for aggressive rate cuts in 2026 Gavin Jackson> With two minutes, Joey, revenue is strong in South Carolina.

We have, the, B.E.A.

just estimate that there's 733 million dollars in recurring and 1.7 billion dollars in nonrecurring dollars for lawmakers to budget with this legislative session 2026.

That's also a strong indication, right?

I mean, that has to be, they've been forecasting flat growth and relatively low growth, but it's, it's still maintaining.

So I mean, that has to be a strong fundamental signal that you can point to and say South Carolina is well positioned for the future.

Dr.

Joey Von Nessen> Definitely.

And again, as we look ahead to 2026, we are expecting positive growth next year.

And I think that's an important, point for viewers to keep in mind.

Is that slower growth doesn't mean negative growth.

And we can have slower positive growth going into 2026.

That's what we are expecting at the U.S.

level and in South Carolina.

But really the bottom line is that we just don't have as much wiggle room to absorb another economic shock because we have seen that slowdown, over the past years.

So we again, right now would, estimate that the expectations or the probability of recession is low.

But again, there's not a lot of wiggle room like we've had in the last couple of years.

Gavin Jackson> Okay.

Well, we'll be watching.

That's Dr.

Joey Von Nessen, research economist, the U.S.C.

Darla Moore School of Business.

Thank you so much, Joey, as always.

Dr.

Joey Von Nessen> Thank you, Gavin.

My pleasure.

And thank you for tuning in this week.

For South Carolina E.T.V.

I'm Gavin Jackson.

Be well, South Carolina.

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