KNOXVILLE, Tenn. — Tennessee’s monthly index of leading economic indicators is charting a steady course of growth through 1996, University of Tennessee economists said Tuesday.
But, cautioned UT economist Matt Murray, “there are some risk factors out there that could derail the economy as we move through the year.”
A continued downward trend in the stock market “could wreak havoc on business and consumer confidence and…bring the economy to its knees,” Murray said.
Another potential problem is a Federal Reserve increase in interest rates to override fears of inflation, he said.
“There seems to be a pessimism creeping over investors in recent weeks and a concern about inflation. As I’ve said repeatedly, I think those concerns are grossly overstated and unwarranted.”
Murray’s position was reinforced Tuesday when the Labor Department announced that, despite the biggest jump in food prices in three years, consumer prices overall edged up a mere 0.1 percent last month — an annual rate of only 3.5 percent and the best showing on inflation since November.
Fundamentals of the Tennessee and U.S. economies are solid, and “barring some unforeseen shock we should continue to enjoy economic growth through 1996,” he said.
The latest Tennessee index, based on April data, was the sixth monthly improvement, and Murray said that signals growth into early 1997. The index is a barometer of economic activity six to nine months into the future.
Despite some mixed signals from the labor market, Murray said, “the Tennessee economy appears poised for continued growth in coming months.”
The index speaks to the direction of the economy, not the pace of growth or decline, Murray said.
Four of the index’s five components improved. The U.S. index rose for the third straight month, and Murray said that will fuel the state’s economy.
Mortgages rose sharply for the second straight month, indicating a healthy housing market. Construction contracts were up. And initial claims for Tennessee unemployment benefits fell.
On the negative side, the state’s sales tax declined sharply. Murray also expressed concern about the state’s labor picture, especially declines in manufacturing and nonagricultural employment.
Ironically, while the overall state index improved, the indexes for Memphis, Nashville, Knoxville and Tri-Cities slipped. Chattanooga’s rose slightly for the fourth straight month.
Contact: Matt Murray (423-974-5441)