Joseph Von Nessen, who each year puts together the University of South Carolina’s Economic Outlook, has one word for 2025 at this point:
“Uncertainty.”
Not that things look bad at the moment. “The bottom line is that when we look at South Carolina’s economy from the 30-thousand-foot level, it remains strong,” says Von Nessen, research economist at the Darla Moore School of Business. “We have steady rates of consumer spending, an historically strong labor market, and strong gains in wages.”
Both the state and the nation look good going by the most-cited metrics. And while the economy has been strong for some time now, there’s an additional reason to be optimistic right now.
“The durable goods bubble is gone,” he says. By that, he refers to the long stretch that began early in 2020, when everyone was staying home and investing in renovations, home office furniture, and exercise equipment. They had stimulus money coming in, and they certainly weren’t taking it out and spending it on eating in restaurants or flying on airliners.
That bubble steadily deflated after its initial surge, but didn’t finish doing so until 2024. Now, consumer spending is back on an even keel. “We’re done with the correction.”
So why the uncertainty?
It’s there, he says, and “It’s having an effect on consumer and business sentiment.”
Part of the problem is “the anticipation of potential tariffs.” You may have heard some talk about such things recently. And more talk. And more talk.
“The uncertainty and the back-and-forth on tariff policy tends to cause paralysis in the business community,” says Von Nessen. “Businesses have a hard time planning when they don’t know what market environment they will face, and this can sometimes cause them to pause investment decisions.”
Another reason is that the effect of past inflation, which got started with all those trillions of federal stimulus dollars that dragged us out of oblivion as COVID concerns faded. Inflation is only 3 percent right now, and has been at relatively low rates for a couple of years now. In fact, wage increases started outpacing price rises in about July 2023.
And wages are currently growing at 4.1 percent. But that doesn’t mean people are feeling good about it.
It also doesn’t mean prices rolled back, which would require deflation, which the nation experienced during the Great Depression. That means consumers haven’t fully recovered the purchasing power they had before the pandemic. Since December of 2019, prices are up 25 percent, and wages only 20. And that has a psychological effect.
Von Nesses says that has been “the real weak spot” of our otherwise strong economy for several years. And remember, we’re still fighting inflation. “We haven’t reached the target of 2.0 percent.”
Add to that the fact that tariffs have a tendency to lead to more inflation. And there’s a price to good news as well: Rising wages tend to push up prices as well.
Of course, going back to where we started, the economy is strong at the moment. But both businesses and consumers have good reasons to be unsure of the future. And it will be some time before we can see whether that uncertainty melts away.
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