GDP growth in the South remained strong in Q1-2022, trailing only the West. High oil prices continued to boost income in the West South Central subregion (Texas, Louisiana, Oklahoma, Arkansas), giving the division the highest YoY GDP growth in the South. Job growth remained strong in Q1, bringing the region back to its pre-pandemic level of employment. Despite very high inflation across the South, estimated consumer spending also remained strong (Figure 5†), particularly in the West South Central, where the estimated YoY growth rate in nominal consumer spending trailed only New England among all census divisions in the nation.
Our forecasts indicate that the South’s strong employment growth since 2021 is expected to slow. This is due in large part to an expected decline in housing construction, which was a major component of the rise in employment in previous quarters. Additionally, the region has already moved beyond its pre-pandemic peak in employment, leading to very tight labor markets, particularly in the South Atlantic (Delaware, D.C., Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia) and East South Central (Alabama, Kentucky, Mississippi, Tennessee). Supply chain issues have also impacted the region, particularly in the auto industry, and will likely hamper further employment growth in the East South Central subregion and the state of Texas. Furthermore, the large decline in residential investment will have a significant impact on GDP in the South. The South finished the second quarter with the highest YoY inflation rate in the nation. These price increases will likely be a headwind to both consumer spending and GDP growth for the rest of 2022. The good news is that favorable net-migration trends and a business-friendly environment for many states in the South should mitigate some of the impact of these headwinds.