Southbound - Spring 2019

Celebrating the longest economic recovery in U.S. history, yet red flags are flying

By Michael Randle, Editor

The Great Recession ended in June of 2009. So, as of June 2019, the U.S. economy has enjoyed the longest period of growth since World War II. The current recovery has beaten the former longest from 1991 to 2001, commonly called the “go-go ’90s.”

Unlike other recoveries, this one has seen slow but steady growth. It took far longer to reach full employment compared to typical recoveries. Today, we are beyond full employment and wages are finally growing at a decent pace. The fact that this expansion hasn’t experienced a boom-to-bust cycle is a good thing. Economic expansions in the U.S. post-WWII have averaged just 58 months. Both administrations should be commended on how they have managed the economy from the depths of 2008 to today.

But there are red flags as the nation celebrates. The biggest challenge may be U.S. demographic decline. I have written much about the subject time and again. With a declining birth rate  and unless we increase legal immigration by triple the million or so we are approving each year, there is no chance we can replace our aging workforce. We are living in a baby bust today and have been since 2002. When you can’t replace aging workers, the economy slows. It’s data, not politics. 

The second threat I see to this long recovery are the tariffs that are currently in place and the threat of more coming (tariffs are political). There is no question that the uncertainties in trade are forcing project activity down in the South. Many companies are freaking out as they cannot adjust their supply chains fast enough to get around the tariffs. When a component is made in China, yet the product is made in the U.S., what do these U.S. companies do? Two choices: eat it or pass along the costs to us. Only two things happen with tariffs; less is sold and what is sold costs more.

In this year’s SB&D 100, we saw 596 projects announced in the South meeting or exceeding our thresholds of 200 jobs and/or $30 million in investment in calendar year 2018. That is down significantly from the 730 projects announced in 2015, the 695 in 2016 and the 680 in 2017, Trump’s first year as president. This year also marks the third consecutive year of declining deals.

In other words, there is no question this 10-year expansion peaked in 2015 or 2016. Economic development project activity is down, but the totals don’t represent a bust by any means. How important is project activity in the South? We are the third largest economy in the world, the largest economy of the four U.S. regions in GDP and population, and the South’s economic frameworks have pulled away in this expansion. Where the South goes, the nation goes.

Don’t let the 75,000 jobs created in May concern you, even though the U.S. has averaged about 200,000 jobs per month since late 2010. Demographics (baby bust, baby boomers retiring) and full employment are going to drive down jobs naturally. But when monthly job gains start to contract, you may be concerned.

The biggest concern I have about this year’s SB&D 100 is this: project activity in the automotive and financial services sectors dropped significantly in 2018. They are half that of 2015 (see the chart is in this issue’s report). When projects in auto and finance drop like that in the South, something is up; it’s called less disposable income, less money on the street.

Hey sis or bro, you can call this column political, but data knows no politics.

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