2007 first-quarter forecast - No major slowdown expected in region's economy

As Charleston area employers close the books on 2006, the economic outlook for the opening quarter of the new year is mostly favorable.

The latest set of predictions call for most local business indicators to continue moving in the right direction, thanks in part to healthy tourism and job trends.

Home sales and airport traffic are among the key exceptions, according to the forecast, which is published quarterly by Charleston Southern University and the Charleston Metro Chamber of Commerce's Center for Business Research.

Overall, though, no big surprises are expected. More likely, the upcoming quarter will be marked by the steady but unglamorous growth that has come to define the region's economy.

"Charleston has been historically protected from economic cycles," said Mary Graham, the chamber's senior vice president for public policy.

The outlook shows that tourism, already Charleston's largest industry at $5.4 billion annually, is continuing to shine as a pillar of the local economy. The hotel industry, for instance, should stay ahead of last year, with the average occupancy rate expected to edge up to about 72.5 percent through March, compared with 70.6 percent last year.

Also, lodging owners likely will be able to charge more for those rooms. Daily rates are projected to keep rising, with the average room fetching about $127, up $7 from the first quarter last year.

A notable soft spot in the local tourism business turned up in the projected passenger volume at Charleston International Airport. The airport is expecting to see about 20 percent fewer travelers walking through its concourses through March, pushing its first-quarter figure to a three-year low.

Charleston International still is feeling the impact of the loss early last year of its only low-fare carrier, Independence Air, said Sue Stevens, airports director.

To that end, the airport, working with the chamber and the Convention & Visitors Bureau, agreed last month to hire a consultant to help woo a discount airline. The goal is to increase traffic and lower fares.

CSU economist Al Parish, who helps put together the quarterly forecast, attributes the mostly strengthening tourism business in part to location. The Charleston region is situated within a reasonable driving distance of four major metropolitan areas: Charlotte; Atlanta; Jacksonville, Fla.; and Raleigh-Durham.

The city drew heavily from those populous regions after the terrorist attacks of 2001, when airline travel cooled. And even now, as long security lines and new carry-on restrictions make air travel more of a hassle, some visitors are discovering that driving can save them time and money, Parish said.

While tourism is directly responsible for an estimated 78,000 local jobs, the industry also plays an indirect role in driving population and overall employment, said Quince Cody, president and chief executive officer of the Dorchester County Chamber of Commerce.

Cody, who provides input to the quarterly forecast as part of a 20-member outlook board, said people tend to relocate to places they've visited in the previous 10 years. He said tourism has blossomed into other forms of growth in the rapidly expanding Summerville area.

"All you have to do is get off Exit 199 (from Interstate 26), and you see that business and employment are just unbelievable," Cody said.

The region's tourism engine also has made it easier to attract new employers. That's especially the case when high-ranking executives already have visited the area, either on business or vacation, said Karen Kuchenbecker, director of marketing for the Charleston Regional Development Alliance, which promotes the three-county area as a business destination.

"Because we are such a high-destination market, it allows the market to pre-sell itself before we get involved," she said.

Looking ahead, the job market in Charleston is on track to remain one of the strongest in the state.

According to the chamber forecast, the first-quarter unemployment rate will to drop a hair to 5.1 percent. Some of the tightening is attributed to an estimated 2,000 new jobs courtesy of a few key developments, including DaimlerChrysler's new van plant in North Charleston and the construction of American LaFrance's new assembly plant near Jedburg.

But the expanding employment base is not enough, at least not yet, to reverse the downturn in the local housing market, a national trend that showed up in local sales data last March.

While the final tally is not in, home sales were down about 12 percent in 2006 compared with the previous year, according to the latest figures from the Charleston Trident Association of Realtors' Multiple Listing Service database.

Forecasters expect the pullback to continue in the first three months of the new year even though mortgage interest rates are projected to remain attractive at 6.3 percent for a 30-year loan. The chamber outlook calls for a 10 percent decline, which translates into roughly 3,000 first-quarter home sales.

Parish said part of the problem is an oversupply of condominiums.

Meanwhile, new construction also is easing. Totaling 2,000, the projected number of newly issued residential building permits is basically flat compared with the fourth quarter and down more than 20 percent from the 2006 first quarter.

But the pullback in the local housing sector doesn't foreshadow an economic recession, experts stressed.