Skilled and less-skilled immigrants are incredibly important to the U.S. economy

By Michael Randle

At the same time the Baby Boomer generation ages out of the workforce in huge numbers, the Millennial generation now owns the lowest fertility rates of any generation in American history. In fact, the U.S. population has not grown by over one percent since 2002. That is not a good combination for the U.S. economy. In short, many of the workers who are retiring are not being replaced. 

So, what do we do to replace those aging out of the workforce? There is only one answer to that question. . .embrace immigration and pass comprehensive immigration reform. Recent legal immigrants are far more educated than the U.S. population. But less-skilled immigrants are equally as important. 

According to the Bureau of Labor Statistics (BLS), 115 million workers in the U.S. were employed in jobs that do not require a Bachelor’s degree. That’s 74 percent of the entire workforce. In addition, about 24 percent of all jobs are those that do not require any educational attainment. 

As for the future, it looks like more of the same, according to BLS. In 2026, 73 percent of all jobs — 123 million — will not require a Bachelor’s degree and 24 percent of all jobs will not require any educational attainment. 

Richmond Fed report says climate change could significantly dampen economic growth in the South

The Richmond Fed’s August Economic Brief presents evidence that higher summer temperatures could hurt a variety of business sectors in the United States, particularly in the South. The evidence challenges long-standing assumptions that economic damage from climate change would be limited to the agriculture sector or to developing nations. 

By examining changes in temperature by season and across states, the Richmond Fed report found evidence that higher summer temperatures could reduce overall U.S. economic growth by as much as one-third over the next century, with Southern states accounting for a disproportionate share of that potential reduction. 

Last of the American blue jean makers?

With great irony, free trade devastated the blue jean manufacturing industry in the South in the 1990s and now protectionism (tariffs) may be the one policy that will kill it off for good. On December 31, 2017, Cone Mill’s White Oak Plant in Greensboro, N.C. — the last selvedge denim mill in the U.S. — closed permanently. The White Oak plant opened in 1905 and was at one point the largest blue jean mill in the world. Until the last day of 2017, the mill produced denim continuously since 1905. 

Today, made in the USA raw denim is mostly made up of boutique companies as opposed to large factories like White Oak. Small manufacturers like Raleigh Denim Workshop, owned by Victor Lytvinenko and his wife Sarah in Raleigh, N.C., is one of those boutique companies. In a story on Greensboro.com, Lytvinenko said his company has already lost two big accounts in Europe worth tens of thousands of dollars as a result of the tariffs the European Union slapped on American-made blue jeans in response to tariffs President Trump placed on the EU. Simply put, many shop owners in Europe refuse to pay the 25 percent tariff on American-made blue jeans. 

Unfilled jobs are stacking up

In November, the Department of Labor released data that showed there were over 7 million job openings in the U.S., the highest monthly total dating back to the summer of 2001. As of November, about every sector had an increasing number of job openings. Project activity is slowing in some sectors because the skills gap has now turned into a body gap. Simply put, there are not enough people in the U.S. to fill 7 million jobs. Not even close. In fact, the number of job openings has outnumbered the total number of people unemployed in the country every month so far this year and that counts millions who are not employable. 

Many economists believe of the 6.5 million unemployed in this country, only 1.5 million are employable, factoring in the retired who are age 64 or younger, those 16 years of age or older who are still in school, the addicted, family caretakers and the disabled. That being said, that means we have over 7 million job openings for about 1.5 million employable people without a job who want one. 

The labor crunch is affecting one industry in particular. The petrochemical and oil and gas industries in the South have seen project totals of $30 million or more in investment drop from a high of 70 in 2015 to 27 projects in 2017. The money is there for more petro deals, but the workers aren’t. In Louisiana and Texas, many petro deals are simply delayed, waiting for a project to be completed before the labor can move on to another project. 

What’s the secret to rural Southern markets’ success?

For 25 years now, we have tracked economic development projects in well over 2,000 different markets in the South, from tiny hamlets to mega-markets. There are only 154 metropolitan statistical areas in the South, meaning the other 1,800 markets are either micropolitan cities or rural markets. 

There are many successful small economic development cities in the South. Columbus, Miss.; Aiken, S.C.; Mississippi County, Ark.; Cullman, Ala.; and Martinsville, Va.; among others, have consistently outperformed other small and rural markets over the last 25 years in project activity. What’s their secret? In every case, their economic development agencies are well funded. They advertise on a regular basis, their workforce training programs are impressive and they are constantly developing product such as industrial parks and certified sites. 

Take the case of Martinsville-Henry County, Va. Since July, over 500 new jobs and over $75 million in investments have been announced in Henry County. The Martinsville-Henry County EDC has invested years and countless dollars in a new development called Commonwealth Crossing. The 720-acre site is rail-served, and it just secured its first tenant, a Polish glass manufacturer that is investing over $43 million and will create 212 jobs. 

Workforce training in the Martinsville area is second to none. The area is served by the Patrick Henry Community College, as well as the New College Institute, a new facility where Martinsville-Henry County EDC has its offices. 

The economy is booming, but. . .

Most segments of the economy are booming right now. I like to follow the Dow Jones Transportation Average (DJT) to gauge current economic conditions. The DJT has outpaced the Dow Jones Industrial Average so far this year by 9 percent to 6 percent. Large truck manufacturers can’t make enough 18-wheelers to meet demand. Transportation stocks such as railroads, airlines and truckers are all doing well even in a volatile stock market. 

Amazon announced eight projects in the South in the summer and fall quarters, including its HQ2 in Virginia that will create 25,000 jobs. Apparently, there is no shortage of buyers of all kinds of stuff out there right now. It’s so overwhelming that the transportation industry is having a tough time delivering it all. 

Yet, one critical economic element of the South’s economy isn’t doing so well. Foreign direct investment fell 32 percent in 2017, and has dropped even more the first three quarters of this year. The total FDI of $259 billion last year is a 41 percent drop from the historic high of $439 billion in 2015. 

Why is FDI so critical to the South’s economy? In most years, the South captures roughly half, if not more, of all FDI in this country. Foreign companies love how competitive the South is, especially for manufacturers like Toyota, Nissan, BMW, Mercedes-Benz, Hyundai, Kia, Airbus and the dozen or so new foreign tire plants that have sprouted in the region over the last decade. Together, the small sample listed employ hundreds of thousands of people, both directly and indirectly. In fact, it can be argued that Mercedes in Alabama and BMW in South Carolina have single-handedly transformed the economies of both states. 

Last year, the Bureau of Labor Statistics published a report showing that of the 656,000 new manufacturing jobs created between 2010 and 2014, two-thirds were created by foreign-owned companies. Now those companies are cutting back. Why? It centers on the fact that supply chains to the U.S. are threatened by the Trump tariffs. Remember, these are not tariffs implemented by a Republican-run Congress. These are tariffs imposed by President Trump. These are his taxes on goods — most of which are used by domestic and foreign-owned manufacturers — that are finished in the United States. And you will pay for those taxes. It’s not political. It’s math. 

Southern states are driving this manufacturing surge that has been going on steadily since 2010 after decades of a bloodletting of those same manufacturing jobs. The U.S. has created over 1 million net new manufacturing jobs since 2010, and the majority of those jobs — about 65 percent — have come from foreign-owned companies, not U.S.-based companies. And the value of what we make here in the U.S. has never been higher. We have never been more competitive for foreign and domestic-owned manufacturers. Now, though, the supply chain is in extreme danger as a result of tariffs. 

In 2016, foreign direct investment was rolling, approaching $500 billion. In one year, it dropped to $277 billion. Watch closely, because it is about to drop to $200 million or less if these trade barriers continue and our president remains hostile to globalization. Welcome to the post-American world economy. 

Move your HQ to the South. . .everyone else is

By Michael Randle

Citing housing costs for their employees, operational costs for the company itself and a lack of labor, companies are high-tailing it to the South from California, the Northeast and the Midwest. It’s nothing new, it’s been going on for decades, but never as prevalent as today. 

And we’re not talking about opening operation centers and other satellite facilities in the region. Many of these companies are moving their whole kit and caboodle — their global or North American headquarters — to the American South. South Florida, Northern Virginia, Atlanta, Nashville, Austin, Raleigh and Charlotte are where most of these companies are relocating their headquarters. But the most successful headquarter relocation market is in Texas, especially Dallas-Fort Worth and the many cities that make up that market such as Irving-Las Colinas, Plano, Richardson, Frisco and McKinney. 

Here are some of the headquarter relocations to the South announced just in the fall 2018 quarter. . .some are relocations from within the South: McKesson (San Francisco to Las Colinas, Texas); Norfolk Southern (Virginia to Atlanta); Honeywell (New Jersey to Charlotte); RoundPoint Mortgage (Charlotte to Fort Mill, S.C.); Mimeo (New Jersey to Memphis); Dollar Tree (Matthews, N.C., to Chesapeake, Va.); and PGA of America (Palm Beach Gardens to Frisco, Texas). Again, those relocations were announced in just the fall 2018 quarter. And that doesn’t count the new Amazon HQ2 that went to Arlington County, Va., that was also announced in the fall. 

There have been so many companies that have relocated their headquarters to the South in the last three decades that it seems unfair to list just a few. But the highest profile headquarters relocation in the last few years was Toyota’s move from Southern California to Plano, Texas. Toyota cited incredibly high housing costs for its employees when it announced in April 2014 that it was relocating its U.S. headquarters to Texas. 

The average price of a home was over $725,000 where Toyota was operating its largest North American headquarters in Southern California. In Plano, the average home costs around $325,000. Toyota relocated about 3,000 people from California and added another 1,200 workers at its new headquarters in Plano, which has been operational since May of 2017. 

Toyota followed fellow Japanese automaker Nissan, which announced the relocation of its North American headquarters from Southern California to Franklin, Tenn., a Nashville suburb, in 2005. Thousands of people work at Nissan’s headquarters near Nashville, as well as the Japanese automaker’s largest North American plant in nearby Smyrna, Tenn. 

Why have Toyota and Nissan relocated their headquarters to the South? It’s the same reason so many companies have migrated to the South over the last seven decades; lower operational costs, and even more important for the employer, the cost of living for its employees. Simply put, the two automakers’ employees could not afford to live close to their company’s headquarters in the Southern California region. Now employees of Toyota and Nissan can purchase a home at their new locations and a vacation home for about the same money as their California homes. 

The American South: the World’s Third Largest Economy

Gross product output is very interesting to watch as the South’s is pulling away from all other regions. In 2016 (latest data available), the 15-state American South contributed a record $6.62 trillion (that’s with a “T”) to the United States’ economy, which saw a GDP totaling $18.57 trillion. The South’s figure represents well over a third of the nation’s output. The West contributed $4.61 trillion, which was more than any other region other than the South. Take California out of the West, and its GDP totals a mere $2 trillion. 

California, by the way, is killing it right now. As always, when the national economy is humming, so does California’s. Who cares if it costs more than double any other state in the South to operate a business there, when you are making money hand over fist? California’s economy collapses during recessions. It always does simply because it is the most costly state to live, work and own a business in the U.S. When times get tough, California businesses ask, “Now, why are we spending so much money to live and operate here, when we can go to Texas for half the cost?” 

Back to gross product. The complete blowout of the South’s gross product in 2016 means the region is no longer the fourth largest economy in the world. The South has been the fourth or fifth largest economy in the world based on GDP for more than 25 years. In 2016, the South blew past Japan and Germany with a gross product that is more than half the size of China’s.  

            

Shown below are the top 10 economies in the world, with regions of the U.S. factored in when it comes to GDP in calendar year 2016. The values are based on U.S. dollars.

The last time we ran this story comparing the economies of the four U.S. regions, Boeing was not set up in South Carolina or Airbus in Alabama. In terms of adding to gross product and exports, aerospace is a huge player in the South. It is the largest export for most Southern states. 

Also, the last time we ran this story we were in recession. The South’s automotive industry was in the tank, as was the region’s financial services industry. Today, those two huge Southern sectors are at the top of their game. So, it isn’t any wonder that total output in the South is at all-time highs at $6.6 trillion. Never before has any U.S. region reached the $6 trillion output threshold. The South is pushing for $7 trillion today. 

There are several ways the South achieved its rise to third place in 2016. It has diversified its economic base like no time ever. Its in-migration from other U.S. regions is back to levels not seen since the 1980s, 1990s and before the Great Recession. Well-educated immigrants from other countries now want to live in the South as opposed to other regions because the South remains the least expensive place in the U.S. to live and operate a business. 

Furthermore, the South is unlike any of the other three regions in this very important demographic: No U.S. region has the number of mid-major markets the South has — Austin, San Antonio, Raleigh, Charlotte, Nashville, Orlando, Memphis, Knoxville, Charleston, New Orleans, Richmond, Birmingham, Jacksonville, Louisville, Greenville and so many others. The region is home to mega-markets such as Atlanta, Dallas-Fort Worth, Houston, South Florida and D.C. But it is the vast number of mid-majors that solidify the South’s economy and help spread the wealth. Want proof? Name a major market in Illinois other than Chicago? Name one in New York? In contrast, Florida and Texas have 10 mid-majors each. 

*Gross Domestic Product with U.S. Regions Included

1. United States $18.6 trillion
2. China $11.2 trillion
3. U.S. South $6.6 trillion
4. Japan $4.9 trillion
5. U.S. West $4.6 trillion
6. U.S. Northeast $4.2 trillion
7. Germany $3.2 trillion
8. U.S Midwest $3.4 trillion
9. U.K. $2.6 trillion
10. France $2.5 trillion 

Source: World Bank. *2016 calendar year. 

Why mess with a good thing?

The South’s economy, the third largest economy in the world, has been humming along nicely since 2010 when 594 projects were announced meeting or exceeding SB&D 100 thresholds. It was an awesome comeback year after the recession of 2009 cratered the “100” with just 367 projects, the lowest on record. In fact, the last four years are the best years in SB&D 100 history, averaging 693 projects announced in the South every year with at least 200 jobs and/or $30 million in investment. 

Yes, we are in the second longest economic expansion in this nation’s history, and the longest consecutive monthly job gain period ever. Yet, as of the spring 2018 quarter, those economic streaks are now in jeopardy. Without Congressional approval, our president slapped tariffs on allies in Europe, Mexico and Canada. According to reports, he did it for “national security” reasons. What does that mean? 

So why is this administration dismantling the global economic order that we — Republicans and Democrats — crafted over the last 75 years? Your guess is as good as mine because the president is really messing with a good thing. We are at full employment and there is nothing wrong with a trade deficit. We might not feel the initial effects of tariffs in the current economic expansion, but we will surely feel them when this expansion slows to a stop, aided by what are essentially taxes on goods made by our allies and others. 

What we need are more free trade deals not less. For instance, over the last decade, the Southern Automotive Corridor has lost out on about 10 auto assembly plants to Mexico. The main reason being is Mexico has free trade agreements (FTAs) with 46 countries. We had FTAs with 20, but that is now down to about 12, maybe less. And those who we slap tariffs on will retaliate and then less is sold and what is sold costs more. 

The last time we set protectionist policies was the passing of the Tariff Act of 1930, better known as Smoot-Hawley. Even then, 1,028 economists signed a petition asking President Herbert Hoover not to sign the bill. He signed it anyway. What happened? The value of global trade dropped from $4.9 billion in 1930 to $1.8 billion in 1933 and the U.S. fell into an extended depression.

But, the current protectionist policies could cause more harm than in 1930. The reason is our economy is so much more global than it was in 1930. Here is an example: The 787 Dreamliner is built in North Charleston, S.C. Its forward fuselage is made in Kansas and in Japan. Its center fuselage and stabilizers are made in Italy. Its wings are made in Japan. Its wingtips are made in South Korea. Its rear fuselage is made at its main plants in Washington and at the North Charleston site. Its engines are made in the U.K. and in the U.S. Its fairings are made in Canada. Its landing gears are made in France, as are its passenger doors. And its cargo doors are made in Sweden. If there is a better example of globalization than how the 787 is made, show it to me. 

Now that the tariff threat is a reality, no country will be a winner and neither will you. Buckle up because your trip on the 787 Dreamliner assembled in North Charleston, S.C. is going to cost more as a result of these tariffs.  

After setting the tariffs on June 1, President Trump said, “Time to get smart!” There is nothing smart about protectionist policies, Mr. President. In fact, it is dangerous foreign policy. Over the years, tariffs have led to recessions, depressions, even wars. Hopefully, this is one of Trump’s on, off, on hold decisions on trade. If not, this is the worst economic decision a president has made since Herbert Hoover made his. 

The South is now home to as many residents as the Midwest and Northeast combined

In less than a lifetime, this critical site selection and labor shed factor has changed dramatically among the four U.S. regions. In fact, population variations in the West, South, Midwest and Northeast are most likely the most formidable demographic in American history. 

When I was born in the mid-1950s, there were only about 30 million people who lived in the 13 states that make up the West region. Today, California alone is home to almost 40 million people. But you have to go all the way to the 13th and 14th most populated states (Washington and Arizona) to find other states that really contribute to the West region’s population, which today is 78.1 million. The West has grown more than two-and-a-half times in 60 years. 

As for the Midwest, Northeast and the South, those three regions in 1957 all had about the same population — between 54 and 56 million. Today, the Northeast is home to 63.6 million people and the Midwest has grown from 55 million people in 1957 to 62 million today. But those figures pale in comparison to growth in the West and South. 

As for the South, 60 years ago it was home to 54 million people. Today, the American South has an estimated 2018 population of 124 million people, or nearly 40 percent of the entire population of the country. So like the West, it has also grown about two-and-a-half times in less than a lifetime. That growth is at the expense of the Midwest and the Northeast since those two regions have barely grown at all, adding just 15 million residents in 60 years combined. That’s about 250,000 more residents per year in the Midwest and Northeast over the past 60 years. The Northeast and Midwest are made up of 22 states. Texas alone adds more jobs per year than the Northeast and Midwest add people.  

In comparison, the American South has added 71 million people in 60 years, or almost 12 million new residents on average every 10 years. That’s about five times the cumulative growth of both the Midwest and Northeast totaled together. That’s an impressive 1.2 million people per year being added to the South’s population every year for 60 years on average. 

The West, the nation’s second largest region, has added 48 million people in 60 years, or an average of 800,000 per year. In an age of extremely tight labor, it is clear that only two regions of the country are growing; the West and the South. In fact, 60 years ago, the South, Northeast and Midwest all had about the same population. Today, the South’s population is roughly that of the Northeast and Midwest combined.