UT report: Slowing growth ahead in ’20
Tennessee is expected to face slowing economic growth in the next year, while avoiding a recession, according to a report by the University of Tennessee.
The Economic Report to the Governor of the State of Tennessee, released Tuesday by the university’s Boyd Center for Business and Economic Research, indicated the state could see slower job growth, leading to less new income and lower demand for goods and services.
“We are seeing overall growth of GDP, as well as other measures of economic activity, begin to slow,” economist Matt Murray, the report’s author, said. “That is not a sign of a recession on the immediate horizon. Instead it’s a sign of the maturity of the current business cycle.”
A slowdown would follow more than a decade of economic growth for both Tennessee and the U.S., reflected in job and overall GDP gains. The state’s unemployment rate fell as low as 3.2% in 2019, down from 10% in 2009.
Murray said he expects the state’s unemployment rate to bottom out and stay in the 3% range.
Conflict with Iran
As the U.S. faces the prospect of retaliation from Iran after the airstrike that killed Iranian Gen. Qassem Soleimani, Murray said there could be negative economic consequences, such as reduced consumer spending and fewer business investments. He said he does not foresee a significant impact unless there was an interruption of oil supplies or a major military escalation.
“The effect of these events coming out of the Middle East (is) going to dampen economic growth, but without significant escalation, would not have a significant effect on the direction of the economy,” Murray said.
Manufacturing, car sales
Other potential economic headwinds for Tennessee include uncertainty surrounding trade policy and a global slowdown, according to the report. Tennessee manufacturing employment is likely to grow this year and outperform the nation, but it is expected to contract in 2021, the report found.
Vehicles sales have declined as consumer demand has been satisfied following the Great Recession. Cars also last longer, a factor contributing to declines in the manufacturing sector, Murray said.
With growth slowing, Murray advised Tennessee legislators to avoid making major changes to spending or revenue collection.
“Don’t look at this an opportunity to be particularly ambitious in your spending plans,” he said. “At the same time, don’t look at this as an opportunity to be cutting taxes. This is a time to be conservative with fiscal budgeting because of where the economy stands.”
Urban vs. rural
Disparities are further widening between urban and rural areas within Tennessee, with job growth concentrated in Nashville and other metro areas. In rural Tennessee, several counties have lost jobs.
“What’s taking place in Tennessee is really a mirror image of what is taking place across the country,” Murray said. “There is significant hardship in rural Tennessee and in rural America with the decline in jobs. As job opportunities fade, people are leaving.”
In rural communities struggling economically, those with greater job prospects are more likely to leave, making it more difficult to attract employers to those areas. Businesses are drawn to metro areas because of the support services available and a greater pool of workers.
“You have these two forces working together: Businesses wanting to locate closer to metropolitan America and households wanting to live in or near metropolitan places to enjoy the amenities available,” he said.
The report also points to differences in educational attainment and overall health status between rural and urban areas. “Improving health across the state, over the long term, will lead to improved economic growth and prosperity for individuals and in distressed areas,” Murray wrote in the report.
The report also highlighted a massive decline in farming income in Tennessee in recent years. In 2013, the net farm income was $1.4 billion, compared to $297 million in 2018 and $203 million in 2016. Trade disputes are likely to hinder any profitability improvements in 2020, the report said.
Source: Knoxville News Sentinel, by Jamie McGee
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 January 10, 2020