The South remained a powerhouse of economic growth for the country in the third quarter, leading all other regions in GDP and employment growth. Despite continued oil and natural gas price declines in the third quarter, the West South Central Division (Texas, Louisiana, Oklahoma, Arkansas) led all other census divisions in both GDP and employment growth. According to data from the Visa International Travel platform (VISIT), Orlando and Miami had the second- and sixth-highest international visitor numbers, respectively, of any city in the U.S. or Canada in 2022. Strong fourth-quarter tourism growth in the South Atlantic (Delaware, D.C., Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia) and continued strength in the mining sector in the West South Central likely resulted in the South leading all other regions in GDP and employment growth in the final quarter of 2022.
While we expect the South to weather this year’s anticipated slowdown better than the West and Midwest, a great deal of uncertainty remains. The South has a significant amount of exposure to both the construction and manufacturing sectors, which are expected to be hit hard by the slowdown, suggesting downside risk to our forecast. The manufacturing and construction downturn will be particularly challenging for the East South Central (Alabama, Kentucky, Mississippi, Tennessee), which has recently enjoyed strong growth in those sectors. However, high energy demand from Europe is expected to prevent a major decline in the West South Central’s energy sector in 2023. The South Atlantic is also expected to fare better than most areas due to a high concentration of its employment and GDP in sectors that are likely to be less impacted by the slowdown, including government and healthcare. We believe these mitigating factors will help consumer spending growth remain robust in the South. Additionally, we expect the South to lead all other regions in GDP and employment growth in 2023.