Tennessee economic growth to slow but no recession forecast

Tennessee and Georgia have enjoyed above-average job growth over the past dozen years since the Great Recession rattled the global economy in 2007.

But the pace of hiring is expected to slow in Tennessee over the next couple of years and fall slightly below the national average, according to the annual economic forecast delivered to Tennessee's governor today. Economists at the University of Tennessee Boyd Center for Economic Research said the threat of trade restrictions, a global economic slowdown and limits on available workers will limit Tennessee's economic growth in 2020 and 2021.

Matt Murray, associate director of the Boyd Center and the principal author of the economic forecast, puts the chances at a recession, or decline in economic growth, at no more than 30% in the next year. Barring unforeseen circumstances, Murray said Tennessee's economic expansion, already the longest on record after more than 10 years of consecutive growth, should continue this year and next, albeit at a slower growth rate.

"While our short-term forecast [for the next 10 quarters ahead] does not call for a recession, we do project slower positive economic growth in the near term," the UT economic forecast concludes.

From its peak at 10.5% in 2009, the state's jobless rate has fallen to 3.3% in November, the most recent month for which data is available. Tennessee's jobless rate has been below 4% for the past two years, which Murray said suggests "the economy is hovering around its full employment level" where everyone who is willing and able to work is doing so.

"As a result, labor force growth is largely constrained to new entrants from school, migrants and those remaining on the sidelines and not participating in the labor force, and there is less room for job growth going forward," Murray said.

Matt Murray, associate director of the Center for Business and Economic Reasearch of the University of Tennessee speaks at the Chattanooga Manufacturers Association annual meeting at the Chattanooga Convention Center Wednesday. / Staff Photo by Ashlie White

Tennessee's employment growth of 2.5% in 2016, 1.6% in 2017 and 1.8% in 2018 is forecast to grow only 0.9% this year and 0.5% in 2021. Tennessee's job growth is expected to be less than the 1.2% gain in jobs forecast for the U.S. as a whole this year and the 0.8% increase in jobs nationwide next year.

Employment will be buoyed in mid 2020 by the hiring of about 350,000 temporary workers for the 2020 census, which will help temporary boost the U.S. economy.

Murray said Tennessee also is being aided this year by the $800 million expansion of the Volkswagen plant in Chattanooga, which is adding 1,000 jobs as VW begins to produce an electric-powered SUV.

But the UT economists expect the Federal Reserve Board will raise interest rates again by late 2020 and they remain worried about ongoing trade disputes that could limit global trade. Tennessee has been one of the top states in the country for foreign direct investment, attracting more than $37 billion of investments from foreign-based companies.

"A cloud of uncertainty surrounding trade policy with China, coupled with a global economic slowdown, has led to a more moderate pace of growth for much of 2019 in the form of weakened business spending and lower net exports," Murray said. "In the manufacturing sector, we have seen some pullback in both orders and output due to the ongoing trade war with China as will as a systemic slowdown of global economic growth. As a result, manufacturing employment in Tennessee will only grow by 0.6% in 2020 and then contract by 0.5% in 2021."

Unemployment is expected to average 3.5% over the next couple of years, Murray.

The projected economic growth in a consumer-driven economy should generate more tax revenue for the state, but the growth in such revenues may still be muted and Murray cautioned state lawmakers against making major spending increases or tax cuts without other changed to keep Tennessee's budget balanced.

"This is a time to be conservative with state budgeting because of where the economy stands," he said.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.