ECONOMIC O V E R V I E W. November 2000 Index as of February (Continued on page 2.) CENTER FOR BUSINESS AND ECONOMIC RESEARCH

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1 TE N N E S S E E ECONOMIC O V E R V I E W November 2000 Index as of February 2001 T E N N E S S E E FIGURE 1 Monthly Percent Change in the Tennessee Leading Index (Seasonally Adjusted at Annual Rate) Tennessee s leading index fell in November at a seasonally adjusted annual rate (SAAR) of 9.0 percent. This second consecutive monthly decline in the state s index, a barometer of economic activity expected to occur in six to nine months, resulted from downturns in four of the index s five components. The primary contributor to the negative movement of the index was a spike in initial claims for unemployment insurance. In November, the number of new jobless claims surged to 50,622, an increase from October of 11,339 claims. This is the highest number of initial claims reported since October 1995 when the state unemployment rate reached 5.3 percent. The second-strongest negative influence on Tennessee s leading index came by way of a 12.3 percent (SAAR) loss in inflation-adjusted taxable sales. November s $63.7 million drop in inflation-adjusted taxable sales brought the series down to $5.8 billion, the lowest level in 18 months. Average manufacturing CENTER FOR BUSINESS AND ECONOMIC RESEARCH COLLEGE OF BUSINESS ADMINISTRATION THE UNIVERSITY OF TENNESSEE hours worked per week declined 11.2 percent (SAAR) to 39.5 hours per week negating advances made by this series over the past two months. And finally, the U.S. leading index* continued it s downward slide falling 4.3 percent for the second consecutive month. The only positive component of Tennessee s index in November was construction employment. Since the beginning of the year, this series has performed extremely well, suffering only three minor setbacks. Construction employment rebounded nicely from October s 0.9 percent (SAAR) slip with a strong gain of 7.7 percent (SAAR), for an increase of 800 jobs. Unfortunately, other November labor market data for the state offer few encouraging signs. On the favorable side, total nonagricultural employment was able to make a weak advance of 0.8 percent (SAAR) with the addition of 1,800 jobs this in spite of a second consecutive monthly surge in the number of new jobless claims. Nearly 45 percent of the new nonagricultural jobs were added in the construction sector. On the unfavorable side, employment in Tennessee s manufacturing sector fared poorly again as it declined for the fourth straight month. Manufacturing (Continued on page 2.) INSIDE TN ECONOMIC DATA... 3 U.S. ECONOMIC DATA... 4 MSA PERSPECTIVE... 5 CHATTANOOGA... 6 KNOXVILLE... 7 MEMPHIS... 8 NASHVILLE... 9 TRI-CITIES SELECTED CBER PUBLICATIONS. 11

2 (Continued from page 1.) employment fell 2.4 percent (SAAR) in November with the loss of 100 jobs. Another disturbing sign from the state labor market was the jump in the unemployment rate. Since January of 2000, Tennessee s unemployment rate had hovered around 3.6 percent. In November 2000, the rate jumped four-tenths of a percentage point to 4.1 percent. This is the first time since March 1999 that the state rate has been equal to or higher than the national unemployment rate. On the national front, the U.S. leading index lost ground for the second consecutive month, falling 4.3 percent (SAAR). Negative pressures on November s U.S. leading index came from an increase in initial claims for unemployment insurance, a decrease in average weekly manufacturing hours, poor vendor performance, fewer manufacturers new orders for consumer goods, and falling stock prices. Positive pressures came from an increase in manufacturers new orders for non-defense capital goods and materials, a rise in building permits, and an improvement in the index of consumer expectations. The two remaining components of the national leading index, interest rate spread and money supply, remained unchanged in November. The U.S. coincident index*, a barometer of current economic trends, was able to rebound and advance 1.0 percent (SAAR) in November after October s 2.0 percent (SAAR) drop. Two component series of the coincident index, personal income and nonagricultural employment, both increased in November, while industrial production declined. Conference Board Economist Ken Goldstein interprets these national index changes as signals that the economy is continuing to cool off, run up against limits to growth, and suffer from financial market distortions. However, with the U.S. leading index only 0.6 percent (SAAR) behind what it was a year ago, Goldstein says, That is not a mark of any major contraction in business conditions. So the outlook remains one of slower growth, not slowed growth." This month s continued slide by Tennessee s leading index is disappointing. Since Tennessee s economy tends to reflect national trends, the state index s decline is not unexpected. The same growth restraints pressuring the national economy also constrain the state s economy. Hopefully, Federal Reserve interest rate reductions made in January 2001 have not come too late to head off a recession. Expectations for the state economy in the near-term remain cautious. FIGURE 2 Tennessee Quarterly Leading Index FIGURE 3 Total Nonagricultural Employment FIGURE 4 Real Personal Income (1996 Dollars) *NOTE: Annual benchmark revisions to the national indexes have been made so as to bring them up to date with revisions in component data. Because of new scaling procedures initiated with this release, month-to-month changes in the indexes are now larger than they would have been for the past index series. 2

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5 N ovember was predominately a disappointing month for economic activity in the five largest Tennessee metropolitan statistical areas (MSAs). As shown in Figure 5, four of the five regions experienced a declining index in November, with Nashville the sole positive mover. Inflation-adjusted taxable sales were down in all five areas. Employment reports were similarly dismal. Figure 6 documents that every regional economy suffered setbacks in total nonagricultural employment growth for November. Manufacturing employment was down this month in every MSA. Figure 7 shows an increase in the rate of unemployment in every MSA except Chattanooga where the jobless rate fell a slight one-tenth of a percentage point. Good news was to be found in the November labor markets as construction employment was up in every region except Nashville. FIGURE 6 MSA Employment Growth November 2000 FIGURE 5 MSA Index Growth November 2000 FIGURE 7 MSA Unemployment Rate November 2000 (seasonally adjusted) Tennessee s Largest MSAs 5

6 The Chattanooga Metropolitan Statistical Area (MSA) index of leading economic activity continued to lose ground as it posted a fifth consecutive monthly loss. November s slippage of 1.4 percent (SAAR) brought the index to it s lowest point since January The year-over-year percent change in Chattanooga s leading index was also down for the fifth straight month, falling 2.0 percent (SAAR) in November. With only one component series able to advance in November, there was not enough positive pressure to shore up Chattanooga s index. Employment in the construction sector advanced for the second consecutive month, surging upwards by 80.9 percent (SAAR) with the addition of 500 jobs. On the negative side, inflationadjusted taxable sales continued to struggle, down 36.8 percent (SAAR) from October. Since the beginning of 2000, this series has managed positive growth only four times. Average weekly manufacturing hours dropped 15.9 percent (SAAR) in November to negate last month s gain, and Tennessee s leading index fell 9.0 percent (SAAR). Labor market data not used in the compilation of Chattanooga s leading index paint a similarly dismal picture for the area economy. Total nonagricultural employment suffered a severe setback as it declined 6.5 percent (SAAR) in November. This loss of 1,300 jobs is the largest drop in the level of total nonagricultural employment since November Manufacturing jobs in the area continue to disappear as the level of manufacturing employment fell 4.6 percent (SAAR) in November with the loss of 200 jobs. In addition to job loss in this sector, manufacturing average weekly hours also decreased sharply in November, falling 15.9 percent (SAAR). Fortunately, two bright spots are evident in the Chattanooga labor market data this month. First, the unemployment rate dropped one-tenth of a percentage point to 3.0 percent, and second, construction employment made a strong advance of 80.9 percent (SAAR) with the addition of 500 new jobs. Expectations for the near term depend on the Chattanooga MSA s ability to rebound from setbacks in inflation-adjusted taxable sales and in total nonagricultural employment, especially in the manufacturing sector. Unfortunately, recent volatility of both inflation-adjusted taxable sales and manufacturing employment gives little reason to anticipate a significant turnaround in the nearterm. 3?! "#$%&,!.01,2. -#3%#%.01,2. --#'%#%& 4!.01,2. -#3%#%& 4!+!56123,7*/#%, /-.01,2. -#3%#% "811/# 9%#% "811/# 9%#% #%1:71-4*,.-0*,+82-(;7*7,48,* --/-:/& #%1:71-4*,.-0*,+82-( //0*-. -,4+ 7& FIGURE 8 Chattanooga Quarterly Leading Index 6

7 Pushed downwards by losses in four of its five components, the Knoxville Metropolitan Statistical Area (MSA) index of leading economic activity fell 7.7 percent (SAAR) in November. This second consecutive monthly decline brings the index to the lowest level of calendar year A look at the year-over-year percent change is also disappointing in that it shows the Knoxville index to be 1.4 percent (SAAR) behind last November s index. This is the third time this calendar year for the Knoxville index to show economic activity lower than that of the same month one year ago. The most notable loss in Knoxville s November economy was sustained by the component series of manufacturing hours. The average number of weekly manufacturing hours dropped 16.9 percent (SAAR) to the lowest level this year, 39.4 hours per week. Other negative pressures on Knoxville s leading index came by way of the 9.0 percent (SAAR) setback in Tennessee s leading index and the slight dip of 4.6 percent (SAAR) in inflation-adjusted taxable sales. The only advancing component in Knoxville s index was construction employment. With the addition of 200 jobs, construction employment grew a healthy 15.1 percent (SAAR) in November. In contrast to the recent strong performance of construction employment, other labor market data not used in the compilation of Knoxville s leading index continued to struggle in November. After advancing five consecutive months, total nonagricultural employment slipped by 1.3 percent (SAAR) in November for a loss of 400 jobs. The downturn in manufacturing employment continued unchecked for the fourth straight month with the loss of another 600 jobs for a decrease of 13.8 percent (SAAR). As stated above, in addition to job loss in the manufacturing sector, the average work week in manufacturing was also shortened by 16.9 percent (SAAR) in November. And for the first time in 18 months, the unemployment rate in the Knoxville area rose above 3.0 percent. The Knoxville unemployment rate increased fourtenths of a percentage point to 3.1 percent in November. With the exception of construction employment, the year-over-year percent change of all Knoxville labor market data series show the area s economy to be weaker than it was in November of last year. The same is also true for inflation-adjusted taxable sales. Unless positive growth is achieved in nonagricultural employment and inflation-adjusted taxable sales, expect the area economy to contract slightly or be flat in the near-term. ABC! "#$%&,!.01,2. -#3%#%.01,2. --#'%#%& 4!.01,2. -#3%#%& 4!+!56123,7*/#%, /-.01,2. -#3%#% "811/# 9%#% "811/# 9%#% #%1:71-4*,.-0*,+82-(;7*7,48,* --/-:/& #%1:71-4*,.-0*,+82-( //0*-. -,4+ 7& FIGURE 9 Knoxville Quarterly Leading Index 7

8 F ollowing on the heel s of last month s downturn, the Memphis Metropolitan Statistical Area (MSA) index of leading economic activity sustained another setback in November, falling at a seasonally adjusted annual rate (SAAR) of 5.3 percent. The year-to-year percent change in the Memphis index was also down by 2.4 percent (SAAR) for the second consecutive month and the third time this year. The decline in the Memphis index was engineered by contractions in three of it s four component series. Inflation-adjusted taxable sales shed $37 million for a loss of 37.2 percent (SAAR), bringing the level of sales to $930 million the lowest in over three years. Other negative influences on the Memphis index came from the 9.0 percent (SAAR) decrease in the Tennessee leading index and the 5.7 percent (SAAR) contraction in average number of weekly manufacturing hours. The only positive component of the Memphis index in November was construction employment growth. Building on advancements made in September and October, employment in the construction sector increased by 16.0 (SAAR) with the addition of 400 jobs. The final component series of the Memphis leading index, the help wanted index, remained unchanged in November. Labor market data for the Memphis MSA give little cause for optimism this month. Total nonagricultural employment declined for the third month, falling in November by 7.5 percent (SAAR). Of these 3,900 lost nonagricultural jobs, nearly 700 disappeared from the manufacturing sector alone. The 12.7 percent (SAAR) manufacturing job loss wiped out October s gain and dropped manufacturing employment to the lowest level in Another pessimistic signal from the labor market came from the three-tenths of a percentage point increase in the Memphis unemployment rate. November s 4.0 percent rate is the first time since March 1998 that the unemployment rate has risen above 3.9 percent. As stated above, the single optimistic labor market signal was continued strong performance by the construction sector. Three consecutive months of growth have nearly restored construction employment to the all-time high level reached in February Unless similar advances can be made by total nonagricultural employment and manufacturing, short-term expectations for the area remain grim. )3! "#$%&,!.01,2. -#3%#%.01,2. --#'%#%& 4!.01,2. -#3%#%& 4!+!56123,7*/#%, /-.01,2. -#3%#% "811/# 9%#% "811/# 9%#% "#$%#%& #%1:71-4*,.-0*,+82-(;7*7,48,* --/-:/& #%1:71-4*,.-0*,+82-( //0*-. -,4+ 7& #%,7*:(, 4* :;,*& FIGURE 10 Memphis Quarterly Leading Index 8

9 B uilding on increases made in the last two months, the leading index of economic activity for the Nashville Metropolitan Statistical Area (MSA) rose at a seasonally adjusted annual rate (SAAR) of 0.6 in November. Unfortunately, the year-to-year percent change in Nashville s index was down 2.2 percent (SAAR) in November revealing the area s current level of economic activity to be less than that of the same month a year ago. The chief contributor to this month s upturn was a welcome surge in the area s helpwanted index. Average weekly manufacturing hours also gained ground in November, increasing by 4.4 percent (SAAR) to 39.5 hours worked per week. Fortunately, the positive influences of these two component series were strong enough to surmount setbacks in the three remaining components. The Tennessee leading index slipped 9.0 percent (SAAR) in November, construction employment declined 8.9 percent (SAAR), and inflation-adjusted taxable sales shed $7 million for a 5.5 percent (SAAR) loss. Labor market data not used in the construction of Nashville s leading index offer little cause for optimism. The unemployment rate in Nashville rose above three percent for the first time this year to settle at 3.1 percent in November. Total nonagricultural employment shrank 5.2 percent (SAAR) with the loss of 3,090 jobs. Over one quarter of these jobs (890) disappeared from the manufacturing sector alone where the level of employment fell 10.4 percent (SAAR). Another 300 jobs were lost from the construction sector. The recovery of Nashville s leading index from summer s decline is promising. In a month when all other MSA leading indices lost ground, Nashville fared well. However, consecutive losses in total nonagricultural jobs, particularly in the construction sector, do not bode well for the area. This month s leading index advance is directly attributable to the help-wanted index a volatile series that cannot be relied on as a sole support for future growth. If weaknesses in the Nashville labor market can be shored up, expectations for the area s shortterm economy are guardedly positive, otherwise expect little growth in the months to come. 3C! "#$%&,!.01,2. -#3%#%.01,2. --#'%#%& 4!.01,2. -#3%#%& 4!+!56123,7*/#%, /-.01,2. -#3%#% "811/# 9%#% "811/# 9%#% "#$%#%& #%1:71-4*,.-0*,+82-(;7*7,48,* --/-:/& #%1:71-4*,.-0*,+82-( //0*-. -,4+ 7& #%,7*:(, 4* :;,*& FIGURE 11 Nashville Quarterly Leading Index 9

10 P ressured by downturns in three of it s four component series, the Tri- Cities Metropolitan Statistical Area (MSA) index of leading economic activity sank 13.6 percent (SAAR) in November. This month s slippage brought the index to it s lowest point since December The yearto-year percent change in the Tri-Cities leading index was also down for the fourth straight month, falling 2.6 percent (SAAR) in November. Three of the four components in the area s index sustained setbacks this month. The biggest loser, average number of weekly manufacturing hours, decreased 28.4 percent (SAAR) in November, negating advancements made by this series from the past two months. Inflation-adjusted taxable sales sank 22.9 percent (SAAR). This loss of $6 million brought inflation-adjusted taxable sales down to $303 million, the lowest level in And finally, Tennessee s leading index dipped 9.0 percent (SAAR). The only component of the Tri-Cities index able to advance in November was construction employment. With the addition of 90 jobs, construction employment was able to post a weak increase of 1.0 percent (SAAR), hardly enough to counter the negative impact of the other components. Labor market data not used in the compilation of the Tri-Cities leading index continued to struggle in November. After advancing two consecutive months, total nonagricultural employment fell 2.8 percent (SAAR) in November for a loss of 500 jobs. The downturn in manufacturing employment continued unchecked for the fourth straight month with the loss of another 72 jobs, a decrease of 1.9 percent (SAAR). In addition to job loss in the manufacturing sector, the length of the average manufacturing work week also contracted by 28.4 percent (SAAR) in November. And finally, the Tri-Cities unemployment rate inched up two-tenths of a percentage point to 3.7 percent in November. The short-term outlook for the area depends on the region s ability to reverse the downturn in inflation-adjusted taxable sales and build on recent advances made by construction employment. Unfortunately, the signals from the state s leading index suggests this may not be possible.! "#$%&,!.01,2. -#3%#%.01,2. --#'%#%& 4!.01,2. -#3%#%& 4!+!56123,7*/#%, /-.01,2. -#3%#% "811/# 9%#% "811/# 9%#% #%1:71-4*,.-0*,+82-(;7*7,48,* --/-:/& #%1:71-4*,.-0*,+82-( //0*-. -,4+ 7& FIGURE 12 Tri-Cities Quarterly Leading Index 10

11 Center for Business and Economic Research College of Business Administration The University of Tennessee, Knoxville Director William F. Fox Associate Director Matthew N. Murray Assistant Professor Donald J. Bruce Research Associates Vickie C. Cunningham Paula Dowell Patricia A. Price Joan M. Snoderly Angela R. Thacker Betty B. Vickers Word Processing Specialist Pat A. Hunley Program Resource Specialist Betty A. Drinnen Graduate Research Assistants Karie A. Barbour John Dupree Sanela Porca Student Assistants Jonathan P. McKernan Ryan L. Russell For further information, contact CBER at 1000 Volunteer Blvd., Suite 100 Glocker Bldg., Knoxville, TN ; telephone (865) ; fax (865) Data reported herein are seasonally adjusted, and therefore may not be directly comparable to data reported elsewhere. The five seasonally adjusted leading index components are Tennessee construction employment, initial claims for Tennessee unemployment insurance, the U.S. leading index, inflationadjusted taxable sales and Tennessee manufacturing hours. See the Fall 1988 issue of the Survey of Business or the 1994 Economic Report to the Governor for a complete discussion of the methodology underlying the Tennessee economic indices. UTK Printing Authorization No. E Selected Economic Publications from CBER The Location Decision of Automotive Suppliers in Tennessee and the Southeast. June A Profile of the Automobile Sector in the U.S., and Southeastern States. June Examining Supply Gaps and Surpluses in the Automotive Cluster in Tennessee. May The Economic Benefits of the U.S. Department of Energy for the State of Tennessee, Fiscal Year April An Economic Report to the Governor of the State of Tennessee on the State s Economic Outlook. Annual. A Study of the Changing Staffing Patterns in the Tennessee Department of Human Services in Response to Families First. August Adequacy of Tennessee s Unemployment Insurance Trust Fund. July Attitudes of Families First Recipients. May The Impact of TennCare: A Survey of Recipients. March Tennesseans Attitudes Toward Learning and the Workplace. March Economic Effects of the Spallation Neutron Source (SNS) and the Joint Institute for Neutron Sciences (JINS) on the State of Tennessee. February Economic Effects of The University of Tennessee, Knoxville Athletic Department. September Business Recruitment and its Impact on the Knoxville and Knox County Economies. May An Economic and Fiscal Analysis of Industrial Development in Anderson County. March Analysis of the Basic Education Formula: Evaluation of its Stability, Equity, and Adequacy. February Tennessee Statistical Abstract. January Biennial. Occupational Wage and Benefit Survey. January The Nature and Consequences of Economic Development in the Loudon County Economy. April Aid to Families with Dependent Children: 1995 Case Characteristics Study. January Survey of Health Care Status. November Natural Gas Transportation Constraints in Tennessee. August A Survey to Determine Insurance Status of Tennessee Residents. August Economic Impact of The University of Tennessee on the State of Tennessee: Academic Year 1992/93. June Measuring the Extent of Health Insurance Coverage in Tennessee. November Employment Security Issues. June Monopoly Leveraging Theory: Implications for Post-Divestiture Telecommunications Policy. March Design of Economic Development Incentives. November Factors to Consider in the Design of Economic Development Incentives. September Rural Economic Prospects: Implications of Economic Forecasts for the South. April Evaluation of the Methodology for Computing the Standard of Need for the Aid to Families with Dependent Children Program in Tennessee. November INTERESTED IN TRACKING THE TENNESSEE ECONOMY? In addition to the Tennessee Economic Overview, CBER publishes the Tennessee Business and Economic Outlook, a quarterly forecast update of the Tennessee and U.S. economies. CBER also produces the Southeast Economic Outlook, which can be found in the Southeast Section of the Wall Street Journal. This article provides an economic forecast for Tennessee and selected Southeastern states. 11

12 NOW AVAILABLE! 2000 TENNESSEE STATISTICAL ABSTRACT Updated with the most current statistical information! A valuable reference for speakers, writers, executives, public officials or anyone with questions about Tennessee. If you conduct business, work, study or live in Tennessee, the Tennessee Statistical Abstract is the reference you cannot afford to be without. Economic and demographic data are presented in easy-to-read tables, maps and graphs for Tennessee counties and cities, as well as Southeastern states. The Abstract may be purchased as a soft-bound book or on diskette in Lotus. Please contact the Center for Business and Economic Research at (865) to order your copy now. The Abstract is now available free of charge on the CBER web site in Lotus worksheets at: For further Tennessee economic data, please visit our Internet site at Center for Business and Economic Research College of Business Administration The University of Tennessee 100 Glocker Building Knoxville, Tennessee Nonprofit Org. U.S. Postage Paid Permit #481 Knoxville, TN