Report: Modest Economic Growth Continues, Some “Sore Spots” Persist
Modest employment gains, an uptick in consumer spending on automobiles, and marginal improvements in the housing industry are indications the US and Tennessee economies are inching toward recovery.
But it will be at least another year or two before the economy shows significant growth, according to the forecast in the fall 2012 Business and Economic Outlook, released today.
The study, prepared by the UT Center for Business and Economic Research (CBER), predicts the trajectory of the state and national economies by examining several economic and fiscal factors.
“Growth will improve as 2013 unfolds, while 2014 promises to yield much stronger growth for most measures of economic activity,” said Matt Murray, CBER associate director and the report’s author.
Slower European economic growth has negatively affected exports from the United States, according to the report. The upcoming presidential elections and the looming fiscal cliff also stalled the recovery by adding to policy and market uncertainty.
“Despite some sore spots, there are also encouraging signs,” Murray said, noting that in spite of the increased lifespan of modern cars, consumers have purchased more of them in recent quarters. Housing prices, construction, and investment also have been going up.
“Automobiles and housing are two sectors that typically lead the economy out of the recession,” he said. “As these sectors continue to improve in the quarters ahead, so will overall economic growth, especially as the economy moves through 2013.”
Inflation and gas prices have been going down, which is “good news for consumers and those on fixed incomes,” Murray said. “But the decrease in inflation is bad news for those who have earnings or retirement income that is linked to inflation.”
There is some progress for Tennessee. This year, the state’s unemployment rate will likely average 8.2 percent, compared to 9.2 percent in 2011, according to the report. Tennessee’s unemployment rate mirrors the nation’s with only small differences.
- Tennessee’s nonfarm employment is expected to increase 1.6 percent this year, compared to 1.4 percent for the nation.
- The strongest growth will take place in natural resources, and mining along with construction, which will be buoyed by an improving outlook in the housing sector.
- Manufacturing will enjoy its second consecutive year of employment gains this year, the first time such back-to-back gains have been seen since the 1990s. Job growth in this area will likely be 2.7 percent, well ahead of the 1.6 percent pace for nonfarm employment.
- Wage and salary income growth will slow in 2013, but other sources of income—including proprietors’ income and rent, interest, and dividend income—will all improve.
State revenue performance
Sales tax collections in Tennessee have continued to grow although revenue performance has weakened along with the overall economy, according to the report.
Taxable sales had a mixed performance in the first half of the year, growing at 9.3 percent in the first quarter and slowing to 5.8 percent in the second quarter on a year-over-year basis.
Sales tax revenue in September was up only 2.8 percent over the previous year, and collections for the month were still below pre-recession levels. This suggests a weak third quarter showing for sales tax collections.
Taxable sales will likely be up 5.9 percent this year and next due to strong growth in a variety of sales classifications, including automobile dealers. Quarterly seasonally-adjusted growth rates will rebound starting in the fourth quarter of the year and remain strong through 2013.
“The anticipated rebound in the housing market will be instrumental in sustaining sales growth in 2013 and 2014,” Murray said.
To read the entire report, visit http://cber.bus.utk.edu/tefs/fall12.pdf.
Matt Murray (865-974-6084 or 865-974-0931, firstname.lastname@example.org)
Lola Alapo (865-974-3993, email@example.com)