Resilience and Risks
A University of Tennessee report shows strong economic recovery in Tennessee — but uncertainties ahead about the pandemic and the workforce.
by jesse fox mayshark • december 17, 2021
The percentage of tennesseans over the age of 16 either working or looking for work has not recovered to its pre-pandemic level. (Graphic courtesy of University of Tennessee)
On paper, 2021 has been a good year for Tennessee’s economy — that is the upshot of an annual report issued yesterday by the University of Tennessee’s Haslam College of Business. But uncertainties linger over the landscape, from the COVID-19 pandemic and other disruptions.
Tennessee's gross domestic product has fully recovered, with expected 5.6 percent growth in 2021.
“In contrast to 2020, which was heavily defined by the pandemic, this year is going to be viewed as a year of recovery from an economic standpoint,” said Larry Kessler, a research associate professor and project director at UT’s Boyd Center for Business and Economic Research, which produces the report to the governor each year.
“Due to the rollout of effective vaccines, a third round of fiscal stimulus through the American Rescue Plan, as well as pent-up demand, we saw consumer spending just surge in the first half of the year, and that helped spur an incredibly strong economic recovery for most of 2021.”
Tennessee’s gross domestic product has recovered to its pre-pandemic level, and is expected to show strong 5.6 percent growth for 2021. The state’s unemployment rate has fallen from a brief peak of 15.8 percent in April 2020 to 4 percent last month, the state announced yesterday. The report predicts a further drop to 3.9 percent unemployment in 2022, which would match the February 2020 level, and a slower but still healthy GDP growth of 4.2 percent.
“Thanks to the hard work & resilience of Tennesseans, our state’s strong economic recovery has accelerated back to pre-pandemic levels for unemployment & GDP,” Gov. Bill Lee tweeted yesterday.
The Volunteer State has had one of the stronger employment rebounds in the country, with the total workforce down just 1.7 percent — about 55,000 workers — from before the pandemic. Only 12 states are closer to their pre-pandemic employment levels, and only Idaho and Utah have surpassed those levels.
Income has held up well, too, despite all the upheaval. A combination of federal and state supports provided relief to individuals, businesses and local governments. Nominal personal income — take-home pay, basically — has grown an estimated 7.7 percent in Tennessee this year, a record.
“The strong rate of personal income growth in 2021 is due almost entirely to fiscal stimulus,” the report says, “which pushed Federal transfer payments (e.g. stimulus checks and enhanced unemployment insurance benefits) up by an annualized rate of over 600 percent in the first quarter of 2021.”
But with those payments falling off sharply in the second half of the year, income growth is expected to slow to 2.1 percent in 2022 before recovering to a more typical recent level of about 5.2 percent in 2023.
However, Kessler emphasized, there are considerable unknowns even in the near term.
“There still are a number of downside risks to economic growth going forward, including continued supply chain issues, higher prices, and new COVID-19 cases and variants,” he said Thursday.
Labor issues are likely to remain a challenge in some industries, as a number of people have exited the workforce altogether or partially, and it is not clear how many will return. As one section heading in the report puts it, “The Labor Market Is Unprecedentedly Chaotic.”
“The pandemic has given many people time to reflect on their work-life balance, and some have decided to leave the labor force entirely,” Kessler said. “Whether that's permanently or temporarily, only time will tell. While others have decided to switch jobs.”
The latter shifts have especially hit the traditionally low-wage hospitality and service industries, he said: “A lot of people have left that sector to find other work because of relatively low pay. Many of those jobs have a lot of in-person contact, and a lot of those workers are being asked to enforce COVID safety protocols, which is probably an unappealing task for many of them.”
Overall labor force participation in Tennessee — the percentage of the population aged 16 and older either employed or seeking employment — was at 60.1 percent in October, down from 61.5 percent before the pandemic.
Knox County was down 9,111 jobs in March 2021 compared to December 2019, a drop of about 3.7 percent. That was in the mid-range of Tennessee counties. Overall the state’s urban counties have fared worse in terms of employment during the pandemic than more rural areas. Davidson County, Nashville’s tourism-dependent home, was down 7.3 percent.
As is typical in economic disruptions, thanks to the stabilizing influences of some large institutional employers — UT, Oak Ridge National Laboratory, Tennessee Valley Authority — Knoxville’s metropolitan area has seen less employment disruption than the Nashville, Memphis or Chattanooga areas.
The report also looks out beyond the near term, projecting trends a decade into the future. One significant challenge Kessler highlighted is population growth. Although Tennessee grew by 8.9 percent from 2010 to 2020, higher than the national average of 7.4 percent, that was down from 11.5 percent and 16.7 percent in the two preceding decades.
Birth rates in the state are falling — from 14 births per 1,000 people in 2007 to 11.8 in 2019 — while death rates are rising, to 10.5 per 1,000 people in 2018 and 2019.
“On net, we are still seeing a pretty dramatic slowdown in total population growth,” Kessler said. “That could translate into a smaller workforce and slower potential economic growth going forward.”