Two experts on the state economy say structural problems in the manufacturing sector are more likely the cause of South Carolina's high unemployment rate than erroneous methodology, as suggested by Gov. Mark Sanford's top economic aide.

A third expert says Sanford and John Rainey, chairman of the state Board of Economic Advisors, are right, however, in seeing a perplexing "disconnect" between one of the nation's highest unemployment rates, on the one hand, and strong job growth and increasing tax revenues on the other.

The confusion over what's behind the disappointing jobless number may have as much to do with electoral politics as with macroeconomics: Tommy Moore, Sanford's opponent in the November election, is making a big issue out of the high unemployment rate, while Sanford, in response, is accentuating more positive economic indicators.

According to the latest data, South Carolina's unemployment rate was 6.2 percent in July. That's half a percentage point better than June, but still 1.4 percent higher than the national average and the fifth-highest rate in the country.

Advertisement

Sanford has said there's a "disconnect" between the jobless figure and signs of a healthy economy, such as strong job growth, increasing tax revenues and a surging gross state product. He said a university should study the issue, but he won't call for it himself, he said, because that would be seen as a political move.

Rainey has suggested the unemployment figure has been calculated erroneously because of a state law exempting small businesses with 20 or fewer employees from monthly payroll reports.

But Clemson University economist Bruce Yandle said he thinks the best explanation for the jobless figure is a structural problem in the economy.

South Carolina depends more on manufacturing than other states, he said, and that sector has been shedding jobs because of productivity improvements and the ongoing decline in the textiles and apparel industries.

"I think there's a structural problem in South Carolina's economy, and I think that structural problem is a problem that through time disappears, but it hasn't yet," said Yandle, a former chairman of the state Board of Economic Advisors and executive director of the Federal Trade Commission during the Reagan presidency.

Yandle said he's not questioning Sanford and Rainey "so much as saying, 'Let's dig deeper.'"

"I'm saying that another explanation is there's some difficulties in the South Carolina economy."

Sam McClary, labor market analyst with the state Employment Security Commission, said Yandle is "exactly right."

"We're experiencing good job growth, but that's mostly in the metropolitan areas," McClary said. "In our rural areas, where manufacturing is predominant, we have extremely high unemployment rates. That's what's keeping our unemployment above the national average."

McClary said the U.S. Bureau of Labor Statistics -- which conducts monthly surveys used to estimate state unemployment rates -- has checked its methodology "and they have found that the model was performing as designed."

Rainey could not be reached for comment.

Mark Vitner, senior economist with Wachovia Corp., said he -- like Sanford and Rainey -- is perplexed by the high unemployment figures.

"In some areas, the unemployment rate just doesn't make sense," Vitner said. "Charleston's economy is stronger today than any time that I can think of in recent history. Yet the unemployment rate only recently dropped below 5 percent."

Likewise, Vitner said he recently visited business leaders in Orangeburg, where the unemployment rate was reported as 8.7 percent in July, "and they told me they're having difficulty finding workers for all types of jobs, skilled and unskilled."

Vitner said South Carolina's gross state product grew at a 6.3 percent rate in the second quarter, the best in the Southeast.

"If the second half of this year is as strong as the first half," he said, "we could end the year with a 5 percent unemployment rate, and people would say, 'Hey, maybe it's not broken after all.' Unfortunately, the economy's cooling off."