When the race resumes: Beaufort County might be among the last to emerge from recession

February 2, 2010 

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Unfinished construction sits in the Wellstone development Tuesday morning in Bluffton.

SARAH WELLIVER

Beaufort County has natural amenities, commercial and residential developments approved for construction, and a reputation as a desirable retirement and tourism destination.

To the north, Boeing plans to build a production facility in North Charleston for its new "Dreamliner" passenger jet, which could attract spin-off industry in and near Beaufort. To the south, a new container-ship port in Jasper County is being negotiated between Georgia and South Carolina, and its arrival could bring thousands of jobs to the region.

These are among the many reasons to believe Beaufort and Jasper counties are poised to emerge from the current recession healthy -- perhaps even healthier than before -- according to two state economists.

The question now: When, exactly, will that recession end?

Both Doug Woodward and Don Schunk say we probably won't know the answer until the recovery is well under way.

And we don't appear to be there yet.

"Most households feel like it's over when things noticeably start to improve again," said Schunk, a research economist at Coastal Carolina University. "I think it is well into 2010 before the typical person -- whether it is a household or business owner -- before it really seems like we're starting to grow again and starting to recover."

Woodward, the director of research for the Moore School of Business at the University of South Carolina, said encouraging indicators are emerging. He thinks a modest rise in personal income and consumer spending statewide are possible in 2010. But like Schunk, he believes many people will consider the economy "recovered" only when lagging indicators, such as unemployment, improve considerably.

That's not likely to happen in 2010 in South Carolina, Woodward said.

During USC's 29th annual Economic Outlook Conference in early December, Clemson University's Bruce Yandle joined Schunk in his assessment that the state could stagnate once various government-intervention programs dissipate, and Woodward warned "a relapse is possible."

As for Beaufort County, both Woodward and Schunk say the recession could linger even after the rest of the state considers the recovery underway. That is because the national recession had its genesis in industries that have been vital to Beaufort County for decades -- real estate and real estate financing.

As problems in the sub-prime mortgage market seeped into other sectors of the home-financing industry, markets such as Beaufort County that are fueled by vacation- and second-home sales began their downturns. Those markets likely will be the last to recover, too, Woodward and Schunk agree. Construction simply isn't likely to lead the economy back to health, as it did after the doldrums of the early-2000s.

"This is my concern: That credit spigot hasn't opened for small businesses and individuals, and it will need to be to have a true economic recovery," Woodward said. "The indications I get (are that) small business are having a hard time getting loans and getting credit."

Even after credit markets come around, Beaufort County's real estate industry will face two hurdles.

First, "real estate is not going to be viewed as a safe investment, as it has been over the previous decade," Schunk predicted. A "tremendous supply-and-demand imbalance" must be overcome before investors and second-home buyers feel safe sinking their money into real estate again.

Second, even those ready to buy now cannot easily do so, Schunk said, echoing what local real estate agents have reported anecdotally during the past two years -- there are willing buyers for homes in Beaufort County, but they can't close a deal until they sell properties they own elsewhere. Credit-market recovery could help break that logjam, though it will take time for that to translate to real growth because in many markets, there is a glut of homes built but never occupied.

That excess inventory also is a problem in Beaufort County, Woodward said, and builders won't really be back in business until it is sold off. That means other industries likely will suffer for a while, too.

"(Construction) is a major job generator and has a pretty big multiplier effect on other industries," said Woodward, who owns a home on Hilton Head Island that he visits about twice a month. He notices the partially built residential developments along U.S. 278 when he drives in for weekend getaways.

"It's a problem in Beaufort County, and it's a problem in Jasper County," Woodward added. "I don't see any way it's coming back in building for several years. We need home sales and appreciating home values for it to be revived. The market right now is for $150,000 homes. You're actually seeing slight appreciation in that price range. It's the high end that is suffering. It's going to continue to be a very difficult time for those builders."

Woodward thinks that in the meantime, some builders will sustain themselves on redevelopment projects. In fact, he said that is not only a good way to keep some businesses afloat, it should help shore up the county's future once the recovery is in full swing.

As an example, he cites the Town of Hilton Head Island's renovations of the entrance to Coligny Beach. "If the private sector responds to that," he said, "there might be opportunities there that will help draw more tourists and strengthen another important part of the economy in the long run."

Rest assured of one thing, Woodward says: The county's reputation as an attractive tourism destination is intact.

"Tourism will come back," he said. "That's nothing to be too concerned about over the long run. I always hear positive things about the Lowcountry from visitors from other regions. Having something other regions can't reproduce is an asset, and it's something Hilton Head and Beaufort have going for them."

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