Yesterday’s Hootie opener inspired us to stick around the Palmetto State. More than 50,000 years ago, what we now call South Carolina was home to Native Americans from the Cherokee, Cree, and Santee tribes. In 1670, the English established a large settlement which, forty years on, was divided into the two colonies of North and South Carolina. They were joined by continental Europeans who built plantations to grow rice and indigo, a natural dye used to color cotton which remains a top agricultural product to this day. In winning independence from England during the Revolutionary War, South Carolina hosted more battles than any other American colony. Less than 100 years after its 1788 admittance as a U.S. state, South Carolina was the first to secede from the Union as Civil War barreled down on a splintering nation. Luckily for all, South Carolina rejoined the Union in 1868.
Today the state reaps riches in agriculture, farming products like soybeans, wheat, corn, eggs, turkeys, and cattle. South Carolina’s diverse industrial footprint brags a range from autos to aerospace and aviation to advanced manufacturing. Of all the industries, the one that likely first sprang to mind for you as it did for us, is tourism.
The numbers don’t lie. Through last year, the Palmetto State ranked eighth highest in terms of hospitality intensity. By “intensity,” a term QI assigns to auto and industrial states, among other classifiers, we refer to the ratio of the accommodation & food service industry vis-à-vis South Carolina’s gross domestic product. In 2021, it was 3.9%, compared to the 2.8% national average. By way of comparison, the top three states were Nevada (9.3%), Hawaii (8.8%) and Vermont (4.7%), all well-known vacation destinations.
South Carolina’s coast is the travel magnet. Myrtle Beach in the north and Hilton Head Island to the south lure beachgoers. Centrally located on the Atlantic, Charleston also is a huge draw. Travel + Leisure dubs Chucktown a World’s Best Awards honoree: “With its charming architecture and powerhouse culinary scene, Charleston has reigned as T+L readers’ favorite U.S. city for an impressive nine years running.”
Not all who venture there on summer outings do so by automobile. Total passenger traffic through Myrtle Beach International, Savannah/Hilton Head International and Charleston International airports, measured by the sum of enplanements and deplanements, advanced at a 50.1% annual rate through the 12 months ended April. The three coastal airports’ passenger traffic trend in concert. We only illustrate Savannah/Hilton Head (green line) because the other two haven’t yet released May data. A look back shows that this market flagged the hotel downturn in the Great Recession of 2007-09 as well as its subsequent recovery.
The post-pandemic picture is one of extremes. As of late, travelers are still out and about, but Savannah/Hilton Head has fell sharply in May to 31.4% year-over-year (YoY) from triple digit growth for most of 2021 (green line). While just one relatively small U.S. airport, the descent in passenger traffic runs parallel to the compression for U.S. hotel occupancy (orange line) and U.S. hotel rate inflation (purple line). To contextualize “small,” since the start of 2021, total passenger traffic at Hilton Head Island airport was 3% of the total of the three aforementioned South Carolina airports combined. Even with limited history in hand, 2022 (light blue shaded area) has decelerated markedly compared to 2021 (yellow shaded area). Moreover, the YoY deterioration is accelerating: January -18.5%, February -5.0%, March -23.5%, April -21.6% and May -42.0%.
Travel is the most discrete of all consumer purchases. Households may book trips well in advance but cancel them at the drop of a suitcase. The significant purchasing power headwinds consumers face are manifesting as downside risks to the Palmetto State’s growth. That said, its manufacturing footprint makes up 15% of the state’s economy, above the 11% national average placing it 11th on the U.S. list of most industrially intense states.
The Port of Charleston is South Carolina’s main water-based gateway. It feeds supplies, inputs, and production materials up through the Interstate 26 corridor to upstate points such as Spartanburg, BMW’s massive assembly plant hub. We know the Federal Reserve’s monetary tightening has the auto sector in its sights given prices have been a main driver of post-pandemic inflation. Higher interest rates will slow activity given so many purchases rely on financing. The latest anecdata suggest the Fed’s tightening is having the intended effect. On Tuesday, used car vendor CarLots announced it was closing 11 dealerships across the country resulting in a headcount reduction of 25-30%.
Backing out to the bigger trade picture for South Carolina, at -0.4% YoY, total trade flows at the Port of Charleston turned negative in May for the first time since February 2020 (red line). Arrested volumes are reflected in China-to-U.S- East-Coast container cost inflation. At 4.8% YoY in June, rate growth has ground to a halt after sporting double-digit expansion from January to April (yellow line).
It’s tragically poetic that this first state to secede from the Union is also the first to see a rise in initial jobless claims, which have risen by 30% YoY so far in June (blue line). If this canary in the coal mine marks a turning point for the labor market, South Carolina may also be the first state economy to corroborate the mountain of evidence we’ve amassed showing the nation is in recession.