In spite of reduced federal spending, a global slowdown, and a conflict in Syria that has contributed to rising oil prices, the national and Tennessee economies are still growing.
The growth will continue through this year and is expected to accelerate in 2014 and beyond, according to the forecast in the fall 2013 Tennessee Business and Economic Outlook released today.
The study, prepared by the UT Center for Business and Economic Research (CBER), predicts the course of the state and national economies by examining many economic and fiscal factors and trends.
The US unemployment rate is expected to average 7.6 percent this year, down from 7.8 percent in 2012. It is expected to fall to 7.1 percent in 2014 and to 6.5 percent in 2015.
“While growth is subdued due to reduced federal government spending and a global slowdown, the expansion has shown a much-welcomed resilience,” said Matt Murray, CBER associate director and the report’s author. “The outlook for 2014 is encouraging, but the economy continues to confront a number of domestic and international challenges.”
The heightened crisis in Syria and the federal budget deadlock have dampened expectations. Additionally, the housing market has begun to rebound, although higher interest rates have tempered the growth in the residential sector. But the national economy should be able to adapt to these pressures and still see a 2.6 percent growth in its gross domestic product and a 1.7 percent increase in nonfarm employment growth in 2014, according to the report.
Consumer spending has weakened because of the elimination of the payroll tax holiday and the sequestration of federal government has limited spending, but they have not derailed the country’s economic expansion.
“Nonresidential fixed investment, residential fixed investment, and exports will be the primary drivers of economic growth next year, while federal and state government spending will be the primary drags on growth,” Murray said.
The economic growth is good news but many problems remain, including a decline in the labor force participation rate. Millions of people are still unemployed and millions more are underemployed. Additionally, there are many discouraged workers who have left the labor market due to bleak employment prospects, according to the report.
Tennessee Economy
Tennessee’s economy has generally tracked the national economy, outpacing the nation in some measures and lagging behind in others, according to the report.
“Tennessee continues to see much stronger growth in manufacturing employment than the nation,” Murray said. “On the downside, the state’s unemployment rate is now well above its national counterpart.”
Manufacturing employment in Tennessee is expected to increase 2 percent this year, compared to 0.6 percent for the nation.
The state’s unemployment rate, however, will average 8.2 percent for 2013, compared to 7.6 percent for the nation. Tennessee’s unemployment rate was 8 percent last year and is expected to drop to 7.6 percent in 2014 and 7 percent in 2015.
Other findings:
- Personal income in Tennessee is expected to grow 2.6 percent this year, slightly lower than the nation’s 2.7 percent rate of growth. It is expected to improve to 4.4 percent in 2014.
- Professional and business services, leisure and hospitality services, and manufacturing sectors will see marginally slower growth next year compared to this year.
- Within the nondurable goods sector, food, beverage, and tobacco; plastics and rubber; and miscellaneous goods will see growth this year.
- Eating and drinking establishments and food stores will experience strong growth this year.
- Taxable sales growth for 2013 is expected to be 3.2 percent, well behind the 4.7 percent growth rate of 2012. It will see modest improvement in 2014 to a projected 3.5 percent.
- Automobile dealer sales were especially hot in 2012, up 10.1 percent, as consumers continued to satisfy their demands for vehicle upgrades. A cooling of sales will take place this year, with a rebound to 4.4 percent growth in 2014.
State Revenue Performance
Tennessee’s total revenue collections grew by 2.6 percent in fiscal year 2013, which is lower than the regional average of 3.9 percent and the national average of 4.2 percent.
In fiscal year 2014, state total collections are projected to reach $12.3 billion, up 3.2 percent from this year. That is a higher growth rate than the regional and national averages, according to the report.
The Southeast region significantly outperformed the rest of the nation in corporate income tax collections for all four quarters of 2012, with an average growth rate of 11.4 percent compared to 1.6 percent for all other states. Tennessee did well in the same period with an increase of 15.9 percent in corporate income tax collections, the report states.
Read the entire report on the CBER website (pdf).
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CONTACTS:
Matt Murray (865-974-6084 or 865-974-0931, mmurray1@utk.edu)
Lola Alapo (865-974-3993, lalapo@utk.edu)