KNOXVILLE — A three-month slide in the state’s economic growth may not be the signal of doom it once was, a University of Tennessee economist said Friday.
Tennessee’s monthly index of leading economic indicators fell 6.5 percent in May, the third straight monthly decline. The index, compiled by UT’s Center for Business and Economic Research, predicts economic conditions in the near future.
UT economist Matt Murray said a three-month downturn often means a recession looms, but this three-month period may be an exception.
“A strictly literal reading of the index would say that the economy will contract in six to nine months, but I do not believe that is going to be the case,” Murray said. “There is just too much strength in the national and state economy. If we were moving into a recession soon, we would have broader indications of slippage in the economy.
“A third consecutive drop in Tennessee’s leading index is disappointing, but there are still ample indications of a healthy state economy.”
May’s index was 4 percent above the same month a year ago, Murray said. Personal income growth, low unemployment, and the “new economy” of the 90s are causing economists to re-evaluate the likelihood of recession, he said.
May’s decline stems mostly from a sharp rise in unemployment insurance claims, which reached their highest level since March 1998. Taxable sales dropped 6.5 percent, construction employment was down 2.8 percent, and the U.S. leading index fell 1.1 percent. The only improvement was in manufacturing hours, which rose .7 percent.
“This is the new economy, and it admittedly is a new economy that economists do not fully understand,” Murray said. “We have seen exceptionally strong productivity growth in the last couple of years, causing workers earnings to grow. At the same time, firms have not raised prices as a result of those higher earnings paid to their workers, which would trigger inflationary pressures.
“We’ve been aided by technological advances, the Internet and computing. We are just now beginning to explore the new economy and the new relationships that have been established.”