♪ opening music ♪ Welcome to "This Week In South Carolina."

I'm Gavin Jackson.

This week, we're taking one of our regular looks at the economy, and to do that we're joined by Doctor Joey Von Nessen.

He's a research economist at the U.S.C.

Darla Moore School of Business.

Joey, welcome back.

Good to see you as always.

Joey Von Nessen> Good to see you, Gavin.

Thanks for having me.

Gavin Jackson> So we've had some news since we last talked.

And of course, one of the big decisions that happened recently was the Federal Open Market Committee voted to cut interest rates by 25 basis points, or point two five percent in September.

This was the first cut this year.

This was not unexpected.

The markets anticipated this.

So not much of a surprise.

But what did you hear from those comments from Federal Reserve Chairman Jerome Powell in his press conference that stood out to you?

Well, it's re ally different that we're seeing this year and that Jay Powell specifically alluded to was that we're seeing two sided risks or risks from both higher and, the potential for higher inflation, as well as a weaker job market.

And remember that the Fed has that dual mandate, right.

They're trying to keep prices stable, trying to keep inflation low and trying to maximize employment.

And this is the first time in a number of years where they've had a risk on both sides and had to manage both sides of that equation.

So they're really walking a fine line.

And that is something that has made the outlook more cloudy as we look ahead to 2026, and has made the Fed's decision making process a bit more challenging this year.

So, that's new in 2025 and something that I think Chair Powell really hasn't seen in his tenure.

Gavin Jackson> And to that extent, Joey, I mean that's probably a reason why they wanted to take a smaller step at the point two five percent instead of point five percent.

I don't think there is much support for the half point decrease either.

Joey Von Nessen> No.

It's very clear that the job market has been softening in 2025.

We've seen sluggish job growth throughout the summer months.

So no question that the job market is slowing.

But at the same, time we've seen inflation actually tick up in 2025.

So we're moving in the wrong direction on on that front.

So the Fed has again to walk this fine line.

They want to stimulate the economy, help to shore up job growth.

But at the same time they don't want to cause inflation to tick up because it already has upward pressure, because of the tariff activity and the ongoing trade uncertainty that we're seeing.

This year.

Gavin Jackson> And we'll talk about all those factors, of course, talk about the labor market, talk about tariffs and inflation.

But when we talk about inflation, what are we seeing right now?

What have we seen in the past couple of months?

You're mentioning not going in the right direction.

It seems pretty sticky and stubborn.

What's fueling that and where do we see that going?

Joey Von Nessen> Well, a lot of that has to do with the new tariffs that have been implemented in 2025.

And so if we kind of step back and look overall at tariff policy in the U.S., the effective tariff rate, meaning the average rate that is being paid on goods that are imported into the U.S.

has increased by about three fold from about two and a half percent to over eight percent, again depending on the specifics of how you measure that.

So that has been a real increase in the tariff rate in the U.S., which means that imports are more expensive and we're seeing in some cases those costs passed along to consumers, passed from businesses to the consumer.

And so that's led to an uptick in inflation by a moderate amount from about two and a half percent to two point nine percent where it is today.

And we don't know that it's yet peaked.

In other words, we may continue to see inflation tick up between now and early 2026.

And so that's the risk factor that the Fed is taking into account when they're trying to assess how much they want to lower interest rates to stimulate the labor market.

Gavin Jackson> And we do see that ticking up and that potential to go further, and we talk about that cooling labor market, it seems like we're almost dance around the word of stagflation.

I don't know how you feel about that.

I don't feel like we hear too much about that being mentioned, but these factors seem to be, going in that direction.

Can you talk about stagflation and the potential threat for that and what that means?

Joey Von Nessen> Sure.

So what does stagflation mean first?

So step back and define it.

So essentially it just means weak economic growth coupled with high inflation, right.

So you've kind of got the worst of both worlds there.

The good news is we are not in a stagflation period right now.

And the easiest way to see that is the fact that unemployment remains very low in the U.S., despite the fact that we've seen sluggish job growth, The unemployment rate is only four point three percent, which is very strong.

It's still historically low by many measures.

And so overall, the economy is continuing to grow.

And we do have low unemployment.

But, as we look forward, if we do begin to see a deterioration of the labor market and we see an uptick in inflation, that's where you can begin to see, the potential for stagflation.

If we see very weak growth for a significant period of time and we're just not able to get this, this inflation down to, closer to two percent, which is the Fed's target.

Gavin Jackson> So again, watching that inflation rate where that's going and also watching the labor market and seeing if unemployment starts ticking up, then we'll start seeing some maybe flashing red lights that we could be getting into stagflation territory?

Joey Von Nessen> Yes, and looking ahead over the next several months and into 2026, what the Fed is looking at and what all economists are looking at, is whether or not that 25 basis point decrease, number one, what does it do to the labor market.

And number two, how does it impact inflation.

And does it start to stimulate the economy to the point where we see inflation moves significantly?

Or, does it not, or does it remain fairly steady at around three percent?

That would be the ideal scenario where we see stronger job growth, no real movement on inflation.

And that would put us in better position as we look ahead to 2026.

Gavin Jackson> So we're talking about some different factors here, but of course I know we always talk about recessions, but it doesn't seem like that's even a factor.

We're talking about potential stagflation, but not anywhere near anything that could be considered a recession.

Even though there's always rumblings of people looking at certain indicators and trying to extrapolate from there.

Joey Von Nessen> I would say at this point, no.

The best word I would use to describe the current state of the economy is sluggish.

[laughs] So we've seen sluggish growth this year, but it's been positive, right.

We're not seeing a contraction.

We're not seeing negative growth.

It's been sluggish and we can see that in G.D.P.

numbers.

G.D.P.

growth for the first half of this year has been about one point five percent, which is down about a full percentage point from 2024, two and a half percent.

So a real decrease, but still positive growth overall.

And the other important factor here, when we look at the impact of these tariffs and trade policy, is that the reason we've seen slower growth is because of a slowdown in the goods sector, not so much in the services sector.

So if we break out the economy and just look at goods versus services, the service sector has continued to do well this year and it's been driving most of that G.D.P.

growth.

The goods sector has pulled back.

And that's true whether we're looking at manufacturing or retail trade or logistics, transportation or warehousing, all the sectors that are tied directly or indirectly to international markets, international trade.

And so we have a real bifurcated market with strong services sector, a weaker goods market.

And again, that's largely due to what we've seen and with respect to tariffs this year.

Gavin Jackson> And we'll talk more about tariffs in a minute.

But, what can we expect to see from the Fed for the rest of the year?

What was, what was the, Chair Powell signaling for the rest of the year in terms of rate cuts and where he sees things going?

Joey Von Nessen> I think it's clear that they're open to more rate cuts, when they meet again.

So they'll meet again the last week of October and then again in December.

We may see additional rate cuts.

He's open to that.

If we don't see this first round of rate cuts increase or significantly increase inflation.

That's, that's the wild card there.

So they want to shore up the labor market, but I think they're in a wait and see approach.

They've been very clear that they don't have a specific, specific target of where they're looking to go.

They're lowering interest rates.

They're going to wait and see what happens, especially with inflation, how that affects markets, and then make a decision later.

But I think it's very clear that they're wanting to stimulate job growth.

And they will if they can depending on how inflation unfolds.

Gavin Jackson> We're in kind of an interesting space right now as a country and an economy.

You know, we saw Powell, who has been under immense pressure from President Donald Trump to lower these rates and try and get a grip on inflation, as if it's as easy as just waving a wand at this, which we all know it's not.

And we all know that Chair Powell is not the only person responsible for these decisions.

It's F.O.M.C.

that makes that call.

And of course we're talking about the stubborn inflation in the current labor market.

These are all factors beyond everyone's control.

But we've also seen him.

We've also seen the president attempt to force out Lisa Cook on the board of governors and other moves that have been threatening the Fed's independence.

Can you talk about Federal Reserve independence and how crucial that is to, not only our economy, but the world's economy?

Joey Von Nessen> Well, it is crucial, and it's crucial that they are looking at their dual mission and only focused on that and staying away from the politics.

And I think in Jay Powell's comments this week, he also reiterated that, that even though sometimes that's hard to, that people don't believe that when they say it.

That is really what they are focused on because they are risk managers.

He used that term as well, trying to manage the risk of high inflation and the risks of unemployment.

And so that's their dual mandate.

They've been clearly focused on that and I think that's going to continue.

And it has to continue.

That's very important for their credibility.

It's important for the U.S.

economy and for us to make sure that we can resolve and minimize as much as possible uncertainty.

Gavin Jackson> Joey, going to tariffs, we've been talking about that and talking about how that's led to some sluggish growth in the economy, specifically the goods that we've been importing and manufacturers who are trying to producers goods, trying to get an idea about where things are going with investments and who's buying what.

But what are we seeing, drill down a little bit more when it comes to the maybe positive aspects and also the negative aspects of what we've been seeing with the tariffs, especially in South Carolina when we, you know, we have the Port of Charleston, we have S.C.

Ports.

What ramifications may we've been seeing there and also our manufacturing sector as a result?

I mean, has there been any good coming out of the tariffs, or is it still remains to be seen because it has been somewhat haphazardly implemented over the past couple of months?

Joey Von Nessen> Well, it remains to be seen as to whether we're going to see significant on shoring of manufacturing activity as a result of these tariffs.

But, there is a lot of good news in especially in South Carolina, if we look at growth this year, we've actually been number one in employment growth among all states.

We've consistently been in the top five for population growth, and we're continuing to see investments in South Carolina in manufacturing and other sectors.

Just recently we've seen Scout Motors, and they announced an expansion of their plant in Blythewood.

We've seen an announced expansion of Volvo, which will be coming over there over the next several years.

So it's important to distinguish between the short run in the long run in that even though we are having these short, short run fluctuations associated with tariffs and, which is creating more uncertainty, about the cost structure for these businesses and for investment activity, it's also very true that in South Carolina, we have an enormous competitive advantage and that is not going to go away that long run advantage that we have just because of the short run fluctuations.

So if we look at our geographic location, if we look at the, our population growth, if we look at, all of the, infrastructure advantages that we have, that's, that's not going away.

And in fact, South Carolina has become, has those competitive advantages have increased since the onset of the pandemic for a variety of reasons.

So in the long run, we're still very bullish on the outlook, even though, what we're seeing right now is a bit a bit fog year for for where we're headed over the next 6 to 12 months.

Gavin Jackson> So do you feel like we're a little bit more insulated from maybe some of these ramifications?

Or maybe we're we're better off than some other states in the country when it comes to how things are going with our economy?

Joey Von Nessen>Yes, absolutely.

Especially in the long run.

When we look at, investments that we're seeing in this region again, because we have more growth in the southeast in general.

Population growth, one, an important factor that I think is always critical to emphasize, because with more people moving to this region of the country, that means that, companies like Amazon and Walmart and others that are looking to import goods and distribute them to an increasing customer base throughout the southeast, South Carolina is ideally suited geographically for those types of companies and manufacturers that are continuing to locate here that want access to the U.S.

market.

One of the reasons that tariffs have the potential to generate more on shoring is because we have such a large market in the United States, and companies are aware of that, and they want access to this market and South Carolina is, again, geographically suited very well for manufacturers who want to make products here, service the American market, and oh, by the way, have access to the global market.

South Carolina's ideally situated for both, for the logistics, for both of those scenarios.

Gavin Jackson> So good news for South Carolina, but, Joey, what we're talking about the tariffs, we're talking about the U.S.

Supreme Court, which on November 5th will take up and fast track the challenges to the tariffs that Trump began imposing in February to determine their legality under the International Emergency Economic Powers Act, which was passed back in the 70s to deal with an unusual, any unusual and extraordinary threat which has its source in whole or substantial part outside the United States to the national security, foreign policy or economy, in the United States.

So, a lot of these tariffs have been implemented due to, what the president has talked about, that increase of fentanyl trafficking from Mexico and Canada, our two biggest trading partners, talk about NAFTA and then, of course, there's also the reciprocal tariffs that have been applied to other countries.

Some of our competitors, some of our allies that are still trying to figure out where things stand.

So, when you talk about the global economy and how people have been handling these tariffs, is it still I mean, it's like a wait and see like we mentioned, but, I mean, is it really the best way to be approaching this?

I feel like we're in such a different place than we're used to when we have these massive trade agreements and there's stability, and now everyone's kind of like, it's 10 percent today, it's gonna be 50 percent tomorrow.

I mean, is that the best way to approach this?

Well, arguably, I think we are seeing already that this uncertainty is having a bigger effect than the tariffs themselves.

And because of exactly what you point out, is, companies going to wait and see mode and they don't know what the outlook is going to be.

They don't know what their cost structure is going to look like.

And so as a result, we see businesses pausing these major investment decisions because we look at manufacturers, they've got to look, 12, 24, 36 months out.

And they're, when they're, when they're making these decisions, and if they don't know what tariff policy is going to be, then they just have to step back and wait.

And of course, with a lot of these tariffs and legal dispute, as you mentioned, going before the Supreme Court, more uncertainty as to whether they're going to uphold the tariffs or not.

We don't know.

And again, that just, broadens this level of uncertainty that makes it challenging to, to make any type of investments, and that, in turn, makes the outlook a bit more uncertain.

Gavin Jackson> And like I said, it starts to trickle through, too, because I'm thinking if I read a New York Times article recently about John Deere on the West and how, you know, they're taking like a $300 million hit, and they're going to expect to take another $300 million hit the rest of the year, and how they've had to close some plants, they've had to let go of some people.

Of course, that goes back to American agriculture and what we're seeing with soybeans and trade routes based on what China's importing and what we're exporting to other countries.

So it's still very fluid.

And I think there's still some ramifications that we're seeing affect, folks.

But do you think that's going to be, you know, a lot?

It seems like a lot of companies have had to absorb that this year.

Or do you think maybe in year two, year three of this, regardless of what happens, in the Supreme Court, then we could really see things hitting the consumer more if these costs are finally passed along to them in, in the bigger ways?

Joey Von Nessen> Yes.

And that's the uncertainty.

Are we going to see more of these tariffs, of these price increases passed along to consumers?

I think almost certainly we will to some degree.

One way to see that is to look at the surge in import activity that occurred in the first quarter of this year, as companies were looking to get ahead of these tariffs.

Right.

So stocking up on inventory before those prices went up.

And right now we're continuing to see businesses be able to utilize that existing inventory.

But eventually it's going to run out and they're going to have to restock and that's going to require higher prices or pivoting their supply chains or a combination of both, more likely.

But regardless, at that point, can they eat those costs or do they have to pass them along to the consumer?

Because keep in mind that businesses are, do not want to have to pass these costs along to the consumer because that's going to impact their demand.

And we're already seeing consumer spending pull back in 2025 because the other factor that's, at play this year that we don't hear as much about anymore, but it's still true, and you and I have talked about this many times, is that consumers have lost a lot of purchasing power since 2019, since the onset of the pandemic, and they have not yet recovered it.

So anything that exacerbates price increases is going to make it more difficult for consumers to continue spending.

So it's a higher risk this year.

Gavin Jackson> And I'm assuming that when those calls get passed on to consumers, if they do get passed on to them, that's also going to continue to keep inflation high <Yes> and cause the problem we've been talking about, too.

I think I also saw that when it comes to consumer spending, a lot of people that are spending are people that are better off than other folks.

And that's been fueling this with is still going on with the economy in terms of the G.D.P.

and spending power.

So that's kind of worrisome to when you see maybe not the middle and lower class spending as much.

That should maybe be a warning sign when it comes to we're just relying on the upper classes to keep the economy afloat at this point.

Joey Von Nessen> Yes, that's definitely true, that we have seen, higher income households that have been supporting the bulk of consumer spending overall.

That's likely to continue into 2026.

And that is new.

We hadn't seen that before the before the pandemic and especially before 2021 when we started seeing an increase in inflation.

So consumer spending, something that we're keeping a close eye on, and looking at other factors as well that may suggest or indicate whether or not consumer spending is going to, pull back further, if we look at consumer debt, income growth are both leading indicators for spending right now, those have been very stable.

So no real red flags yet.

But those are other leading metrics that give us some good insight as to where consumer spending may be headed.

Gavin Jackson> Joey, you were you were talking about expansions that we saw from some manufacturers in the state, like Scout Motors, which is building that plant on Blythewood for electric vehicles.

We're talking about Volvo doing some expansion down there in the low country, talking about hybrid vehicles.

But there is that attack from the administration when it comes to green energy and, manufacturers focusing on that.

I'm thinking of A.E.S.C.

in Florence, which is making a battery plant, a billion dollar plus investment there that's currently on pause because of, the scale back on federal funding towards, green energy and green energy manufacturing as well as attacking EVs, too.

So I'm wondering when you look at how South Carolina has been positioning itself over the years when it comes to the green economy, do you worry that there could be empty, warehouses, empty factory?

Promises made but not kept when it comes to some of these businesses that moved their locations, that move their whole factories here and then all of a sudden the incentives aren't there, cost, don't seem to make sense on paper, so they just kind of pull out.

Joey Von Nessen> Well, it certainly will have an effect, at least in the short run, with, especially when these consumer tax credits run out this year.

But, it's important to look at South Carolina manufacturing as a global market and that manufacturers that are locating here, in many cases, they want access to the U.S.

market, but also globally to Europe and to China as well.

And there's a very different adoption rate for EVs, depending on the region that you look at.

So in the U.S, fewer than 10 percent of new vehicle sales are EVs, but in China, they're the other end of the extreme.

They're 50 percent of their new vehicles are electric.

And so companies investing in South Carolina, they're largely here because they want access to both markets.

Again, that goes back to us being ideally, situated geographically, to manufacture and ship goods either within the U.S.

or abroad.

And so depending on the market that these companies are serving, they will either pivot or not, depending on how these incentives change and they just have to, move with the market and adjust accordingly.

And that just depends on the individual business.

Gavin Jackson> And that comes back to what we've been talking about in terms of on shore in some of these manufacturing jobs.

Well, here they are.

And now here they aren't.

So we'll see where those go.

A lot of factors at play there.

But when we talk about the labor market, we've been talking about the Fed and their demand, you know, lowering costs and also maximizing employment.

But we've seen a lot of numbers be revised specifically over the summer when it came to unemployment reports.

Over the summer, we saw about each month averaging about 30,000 jobs or so.

And there was also a revision for the 12 months prior to 2025, including the loss of a million jobs, a million fewer jobs created during that time.

So, again, we've talked about unemployment still being low at four point three percent in August.

But what concerns do you have for the labor market going forward?

I mean, I feel like we always talk about a solid jobs report is about 125,000 jobs a month, and you're talking about 30,000 jobs a month.

I mean, is that an indicator or warning sign or where does that put us?

Joey Von Nessen> Well, it certainly puts us at risk of a potential slowdown and contraction.

And so that's one of the reasons the Fed is looking at lowering rates to try and stop that.

The other concern though going forward is that because we have fairly low immigration rates this year, it's actually gone down.

That changes the nature of how we look at job growth overall.

In other words, if we have fewer people entering the labor force, we don't necessarily need as many jobs on a month to month basis to keep that unemployment rate low.

And so that makes us look to other ways to support or stimulate economic growth.

So if we want to get back to where we were in the last several years of close to three percent G.D.P.

growth, how do we do it?

Well, if you're trying to grow an economy, and you want to produce more goods and services, you can either bring more people in to produce more, or you can take the people that you have and make them more productive, right?

They can produce more in a given amount of time.

And so if we're not bringing in as many people and if that's going to be the new norm for the next several years, then we have to make our existing workforce even more productive.

And so that's where A.I.

and these technology changes can provide a real value because we may have to look more at productivity gains going forward as opposed to the labor market in order to get back to these rates of growth we've seen in recent years.

Gavin Jackson> When you talk about A.I.

Joey, though, are you concerned?

I know we've talked about this before, and it's still very much an emerging technology that a lot of companies are looking to deploy into their workplace.

But are you concerned about what that could mean when it comes to, you know, grad students going through the Darla Moore School of Business, graduating and trying to get a job in the market and how maybe A.I.

could be taking those jobs?

What's your read on A.I.

right now and how that affects job potential?

Joey Von Nessen> Well, from a company perspective, they, I would say at a 30,000-foot view, they're still trying to get their heads around where A.I.

can really be of value.

Trying to better understand what it can do, what it can't do.

We all know the AI hallucinates, right?

When you're typing things in and trying to get, trying to get information.

So just trying to get a sense of of what it can and can't do realistically and how it can add value in the workplace.

So I think most companies are still trying to figure that out.

But, in the tech space, in the tech sectors, we're already seeing, some significant disruptions.

If you look at new college graduates, in their 20s, they now have a higher unemployment rate than the national average, which is the first time that's happened in more than 30 years.

Part of that, that's not all due to A.I.

Part of that is due to the fact that the tech sector over hired in 2020, in 2021, when we were all staying home and we're more reliant for online services.

But that is a real potential going forward.

So I think we really don't know yet.

But it's certainly true that, A.I.

is going to continue to be adopted in the workplace, and we're going to see shifts in, in worker tasks as they begin to integrate it and use it more.

In some cases, that will make workers more productive, but it's going to change the nature of the workplace.

There's no question about that.

Gavin Jackson> And with a minute, Joey, when we talk about the nature of the workplace and these H-1B temporary visas for highly educated foreign professionals, the Trump Administration is now implementing a 100,000 dollar fee for these visas.

How does that affect people in South Carolina?

Do a lot of employers here rely on those temporary visas?

Joey Von Nessen> Yes.

And it really again, it depends on the industry.

That's typically is more high skilled labor, so that's where we're looking at, everything from tech to, to engineering.

And then more generally when we look at immigration, and, when immigration goes down, which sectors are most affected.

We also have to look at unskilled labor as well.

So construction, agriculture, retail in some cases.

So all those sectors are, facing more uncertainty because of the, the new immigration policies.

Gavin Jackson> And really quickly, we saw the O.E.C.D.

come out with its global economic growth forecast, with many economies appearing more resilient than expected for the year.

Growth expectations for the U.S.

were lifted to one point eight percent for this year and one point five percent growth for U.S next year.

What do you make of those forecasts?

Joey Von Nessen> I think that's fair.

Right now, I think the single biggest factor that we need to be looking at to gauge where the momentum of the economy is headed is inflation.

If inflation picks up, that's going to make it harder for consumers to continue to spend and consumer spending is the biggest contributor to to overall G.D.P.

So that's the, that's really the factor to watch.

And right now there's still a lot of uncertainty and I don't think we're, we haven't hit the peak of inflation yet.

And it may tick up above three percent, but we'll see in the coming months, Gavin Jackson> We'll be watching.

With Doctor Joey Von Nessen with the U.S.C.

Darla Moore School of Business, thanks as always.

Joey Von Nessen> My pleasure, Gavin.

Thank you.

And that's it for us this week.

For South Carolina E.T.V.

I'm Gavin Jackson.

Be well South Carolina.

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