KNOXVILLE, Tenn. — A new report released Thursday by the Boyd Center for Business and Economic Research at the University of Tennessee in Knoxville shows Tennessee's economic growth will slow but a recession is less likely for the state in the next year.
In the U.S., inflation-adjusted gross domestic product (real GDP) is expected to shrink by 2% in the first quarter of 2023 and by an additional 0.4% in the second quarter before recovering. High-interest rates, supply chain pressures, geopolitical instability and high inflation all contribute to the possibility of a recession. Overall, real GDP is expected to fall by 0.2% next year.
Tennessee’s real GDP is forecast to grow by 2.4% in 2022 before slowing to 0.7% growth in 2023. The report said Tennessee’s strong labor market is one reason the state is less likely to experience a recession.
As of Oct. 2022, there were roughly 108,000 more workers on Tennessee payrolls than there were before the pandemic. However, slower economic growth in the state is expected to impact the labor market. Job growth in Tennessee is projected to slow from 2022 to 2023.
The state’s better employment outlook is driven by gains in manufacturing as well as continued strength in the state’s service sectors, the report said.
Large construction projects on the horizon, such as the development of the Ford electric vehicle complex in West Tennessee and the expansion of the FedEx hub in Memphis, will provide boosts to state construction payrolls.
Over the long term, however, retirements, an aging population and declining birth rates will constrain employment growth in Tennessee over the next decade.
The report examined population characteristics related to workforce quality, such as education and health.
Tennessee consistently ranks poorly on health-related outcomes that affect the labor force and long-term economic growth. Tennesseans have a higher prevalence of serious health ailments such as heart disease, diabetes and stroke than their national counterparts.
When it comes to education, Tennessee has a higher percentage of its adult population with a high school diploma or higher (89.7%) than the U.S. as a whole (89.4%).
"On the education front, things are much more promising. As of 2021 Tennessee now has a higher percentage of its adult population with a diploma or higher than the U.S. as a whole," said Larry Kessler, research associate professor at the Boyd Center. "This is the first time that Tennessee’s high school attainment rate among those 25 and older has exceeded the national average."
The final chapter of this year’s report focused on advanced manufacturing in the state. In 2021, the manufacturing sector accounted for more than $55 billion of the state’s GDP. The report, which ranked all U.S. states on their advanced manufacturing industries, said manufacturers have become increasingly reliant on advanced manufacturing. Tennessee's industry ranks in the top 10 overall.
"I think the most important point is that all of these forecasters in the nation are predicting a recession in the U.S. We have a more optimistic outlook for Tennessee. Economic activity will likely slow, but it’s going to stay positive," Kessler said.
Since 1975, the Boyd Center has provided Tennessee’s governor with an annual economic report. You can read the whole report here.