On the heels of very strong growth in 2018, experts project that Tennessee and the U.S. will see sustained economic growth in 2019 with the potential that growth could slow as the economy confronts tightening labor markets and rising interest rates.
Patterns of slower growth typically follow many years of sustained expansion, according to a report released by the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville.
“The economy is in good shape and continues to expand, but job gains could slow as a result of a plateau, which has occurred throughout the country,” said Matt Murray, associate director of the center and project director for the 2019 Economic Report to the Governor of the State of Tennessee, which includes a special section examining federal tax cuts and tariffs.
With the economy now in the ninth year of recovery since the Great Recession, Tennessee’s inflation-adjusted gross domestic product grew by 2.7 percent in 2018, two-tenths of a percentage point behind overall U.S. growth. The state’s labor market is especially buoyant as reflected in a record low unemployment rate. However, the fading effects of federal tax cuts and increased spending, along with rising interest rates and brewing tariff wars, are likely to mean slower growth in coming years.
“This is by no means a recessionary outlook,” Murray added. “But, the growth we are projected to see in 2019 is at a slower rate than what we saw in the years leading up to the state of recovery in which we currently operate.”
Tennessee should see non-farm jobs grow by 1.4 percent in 2019, slightly slower than the 1.8 percent pace of job growth in 2018. This means nearly 43,000 new jobs for Tennesseans in 2019. The state’s inflation-adjusted gross domestic product should rise 2.6 percent next year. Tennessee’s expected economic growth will largely mirror growth in the national economy.
“Historically low unemployment rates and an increase in both job growth and per capita personal income are all indicators that prove how well Tennessee’s economy performed in 2018,” said Bob Rolfe, commissioner of the Tennessee Department of Economic and Community Development. “We appreciate the work done by the Boyd Center as their report forecasts trends we can expect to see not only in Tennessee, but across the country for the upcoming year.
“We are eager to build upon the momentum built by Governor Bill Haslam as we continue to work with companies to create high quality, family wage jobs throughout the state.”
A special chapter of the report zeroes in on the implications of federal tax reform and rising trade tensions for economic growth in Tennessee. The net effect of tax reform is likely to be a short-term boost to economic growth through 2019. Tariffs, on the other hand, are leading to higher consumer and producer prices as well as job losses throughout the country.
International trade plays a larger role in Tennessee than in similarly sized states, with exports to Canada, Mexico, and China alone totaling $16.2 billion in 2017. In addition, more than 150,000 Tennesseans work for foreign-owned companies. U.S. tariffs on aluminum and steel are particularly costly for Tennessee’s machinery, automobile and auto part manufacturers.
Other projections from the report include:
The Federal Reserve will continue to raise interest rates in 2019. Inflation accelerated slightly in 2018, which is one factor that will contribute to higher interest rates in the coming year.
The US trade deficit will increase in 2019, with a 4.1 percent increase in exports forecast to be more than offset by a 6.4 percent increase in imports, dampening growth.
Tennessee job growth is projected to slow in 2019, but the professional and business services sector and the transportation and utilities sector will see robust gains.
The state’s unemployment rate will tick up to 3.6 percent in 2019, with the tight labor market drawing more people into the labor force to pursue a job.
Slower economic growth will mean slower growth in sales tax revenues.
Since 1975, the Boyd Center for Business and Economic Research, housed within UT’s Haslam College of Business, has provided Tennessee’s governor with an annual economic report that includes an in-depth analysis of state and national trends and forecasts.