What’s in store for Tennessee’s economy?
Consumer confidence, continued spending is key with increased role of auto industry in Southeast
General Motors’ strike has neared week four.
Boeing continues to ground $30 billion worth of its troubled 737 MAX airliners, a key U.S. export.
Steel prices are up.
Farm incomes are down.
Is this what the start of a recession looks like?
While business analysts debate the question, a new employment report provided Tennessee and the nation a definite “no”.
Employers added 136,000 jobs nationwide in September, lowering the unemployment rate to 3.5%, a level unmatched since the late-1960s boom years, U.S. Department of Labor data shows.
“The economy continues to grow,” said University of Tennessee economist William Fox, noting only the skilled worker shortage kept employment growth last month from nearing the 200,000 new jobs common in prior months.
“It’s much slower employment growth than we were experiencing before. It’s slowing,’’ Fox said. “That’s really a function of a fully employed economy or nearly fully employed.’’
New jobs but ...
While the strike, the Boeing woes, the tariffs and trade war are not enough to trip the economy, analysts point out spending on new plants and equipment has dropped. The services industry is growing but more slowly. The manufacturing sector already has faltered. What is left to drive the economy? Millions of shoppers.
Ticking off the air attack on Saudi oil refineries, the tariffs and trade war, the impeachment inquiry against President Donald Trump, as well as a strike against the country’s largest automaker and the airliner woes at the country’s leading exporter, economist Joel Naroff said consumers are shaking off negative news and spending freely.
“These kinds of attacks on the economy would have had a lot more impact just a few years ago,” said Naroff, head of Naroff Economic Advisors in Holland, Pennsylvania. “It’s not falling apart, but the economy is not doing particularly well. Had all this happened three years ago or four years ago when the unemployment rate was 6.5%, not 3.5% like it is today, you would have had a different outcome. Consumer spending is the cushion that is keeping the economy afloat.”
That float has relied on loans and credit cards. Consumer debt has surpassed $4 trillion. That makes consumer confidence in the months ahead critical to the nation. And analysts say it will be important to Tennessee’s industrial base in a way it has not been in the past.
That’s because of the rise of the auto industry and the recent effort by autoparts manufacturers to diversify.
The Southeast now ranks as the country’s largest car and truck producer after southeast Michigan. Nearly a third of the nation’s automobiles are assembled within five hours of Nashville.
Over the last decade, Tennessee emerged as the No. 2 auto-making state, with 75,000 autoworkers, GM, Nissan and Volkswagen vehicle assembly lines, and 336 auto-parts factories, up from 276 plants in 2015.
“When you link your economy to the up-and-down cycle of the industrial sector, you have to deal with the downturns in the cycle as well as the upturns,” Naroff said.
Before the severe 2008 economic crash, this wasn’t as obvious for Tennesseans. Many parts plants tended to rely on an exclusive customer. After the crash, many suppliers diversified. They signed deals to supply several automakers as cushion against the next downturn, said former Toyota executive Carol Sampson, executive director of Foundations Human Resources Consulting in Lexington, Kentucky.
Retired Nissan executive Ashley Frye remembered the automaker, whose North American headquarters is located outside Nashville at Franklin, never laid off workers during his years at the company. Its suppliers in turn ran even when the U.S. economy slowed.
Now with those suppliers also serving, say, Toyota at Blue Springs, Mississippi, and General Motors in Spring Hill, Tennessee, the part-makers are integrated into the wider economy in a way they have not been in the past.
This integration has aided diversified suppliers and prevented layoffs during the GM strike, which began Sept. 16. Suppliers have waited out the strike without mass layoffs. But if the strike continues, workers could be idled. Analysts say factories supporting GM seem close to sending employees home.
GM strike could idle parts workers
“Were starting to get to the point where we’re going to see layoffs,” said Diane Swonk, chief economist in Chicago for international consultant Grant Thornton LLP. “The strike hasn’t pushed downstream into manufacturing and caused a full-blown recession in the manufacturing sector, but it is exacerbating the situation.’’
The widely watched measure of the industrial economy’s health, released by the Institute for Supply Management, a group of purchasing managers, slipped to 47.8 in September from 49.1 in August. Readings above 50 signal growth.
Could the manufacturing slowdown underway followed by layoffs of autoparts workers in large numbers finally dim the mood of consumers? That’s an open question.
In 1998, the United Auto Workers union’s 54-day walkout at GM barely dented total U.S. economic output for the year. GM then employed almost twice the number of U.S. autoworkers as now, though the strike came as the U.S. economy was accelerating quickly. The present strike occurs as economic growth slows after expanding 10 straight years.
Coming at the tail of the expansion, mass layoffs in the parts plants might worry consumers, although probably not worry them enough to cut back on spending.
“The economy is slowing from nearly 3% growth last year to nearly 2% this year,” said UT’s Fox. “That’s a pretty drastic change. But as long as they are getting wage gains, getting job creation, and the financial markets are rising, why would consumers be particularly discouraged?”
Source: Knoxville News Sentinel
The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org
Published October 11, 2019