ECONOMIC O V E R V I E W. March 2001 Index as of June 2001 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 March 2001 Index as of June 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) U nable to recover from recent setbacks in key components, the Tennessee leading index of economic activity ended the first quarter of 2001 with a loss. The leading index, an indicator of economic activity expected to occur in the next six to nine months, fell at a seasonally adjusted annual rate (SAAR) of 7.9 percent in March. Following last month s 1.0 percent (SAAR) dip, the March downturn completely negates back-to-back advances made in December and January. In addition to this disappointing month-to-month decline, a look at the year-over-year percent change in Tennessee s leading index reveals the March 2001 level of economic activity in the state to be 2.2 percent (SAAR) less than that posted in March All five component series of Tennessee s CENTER FOR BUSINESS AND ECONOMIC RESEARCH COLLEGE OF BUSINESS ADMINISTRATION THE UNIVERSITY OF TENNESSEE leading index performed poorly in March. Initial claims for unemployment insurance in the state soared to 46,540, an increase from February of 6,141 claims. Inflation-adjusted taxable sales continued to shrink for the second straight month, falling 21.6 percent (SAAR) to $5.9 billion. After a string of four straight monthly advances, construction employment in Tennessee fell 8.7 percent (SAAR) in March due to the loss of 1,000 jobs. Average weekly manufacturing hours also lost ground, dropping 5.9 percent to 39.1 hours per week. The final component series of the Tennessee leading index, the U.S. leading index, also decreased in March, falling 2.2 percent (SAAR). Labor market data for the state that are not used in calculating the leading index offer few encouraging signs this month. On the negative side, total nonagricultural employment contracted 2.3 percent (SAAR) in March. Jobs in Tennessee s manufacturing sector continued to disappear as the level of manufacturing employment decreased unabated for the eighth (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.) straight month. In March, manufacturing employment decreased 3.1 percent (SAAR). As previously stated, construction employment also lost ground in March, dropping 8.7 percent (SAAR). On the positive side, service sector employment in Tennessee expanded for the second consecutive month by increasing 1.6 percent (SAAR) in March. And finally, Tennessee s unemployment rate held steady at 4.1 percent, remaining slightly less than the national rate of 4.3 percent. On the national front, the U.S. leading index lost ground for the second consecutive month, falling 2.2 percent (SAAR). Negative contributors to March s U.S. leading index were stock prices, vendor performance, average weekly initial claims for unemployment insurance, building permits, interest rate spread, and manufacturers new orders for consumer goods. Positive components of the national leading index were money supply, the index of consumer expectations, and manufacturers new orders for nondefense capital goods and materials. The final component of the U.S. leading index, average weekly manufacturing hours, was unchanged in March. The U.S. coincident index, an indicator of current economic trends, managed to increase for the second straight month by 1.0 percent (SAAR). This increase was due to positive contributions from personal income, industrial production, and manufacturing/trade sales. Conference Board Economist Ken Goldstein interprets these national index changes as portending slow growth until late in the second quarter of this year. He also notes that although the U.S. leading index did decline for three months in a row at the end of last year, the economy did not go into recession in the first quarter. Despite this month s poor showing by the Tennessee leading index, there is still little cause for alarm. Overall unemployment remains relatively low, this despite reductions in the level of employment in both the manufacturing and construction sectors. National economic conditions that help shape the state s growth remain relatively stable. On balance, expect flat growth in the Tennessee economy in the quarters ahead. FIGURE 2 Tennessee Quarterly Leading Index FIGURE 3 Total Nonagricultural Employment FIGURE 4 Real Personal Income (1996 Dollars) 2

3 ! "#$%&&&&&&&&&&&&&&&&&& && &&&&&&&& && &&&&&&&& &&,!.01,2. -#3%#%&&&&&&&&&&&&&&&& && &&&&&&&& && &&&&&&&& &&.01,2. --#'%#%&&&&&&&&&&&&&&&&&& && 4!.01,2. -#3%#%&&&&&&&&&&&&&&&&&& && &&&&&&&& && &&&&&&&& && 4!+!56123,7*/#%&&&&&&&&&&&&&&&&&&& && &&&&&&&& && &&&&&&&& &&, /-.01,2. -#3%#%&&&&&&&&&&&&&&&& && &&&&&&&& && &&&&&&&& && *+8/.01,2. -#3%#%&&&&&&&&&&&&& && &&&&&&&& && &&&&&&&& && "911/# :%#%&&&&&& &&&&&&&& && &&&&&&&& && "911/# :%#%&&& &&&&&&&& && &&&&&&&& && -11./4,* #3%#%&&&&&&&&&&&& && &&&&&&&& && &&&&&&&& && )*/, 1 8,.#;1:%#%&&&&&&&&&&&&& &&& '(!)*+<7*-*&&&&&&&&&&&&&&&&& & '(!.<7*-*/-*&&&&&&&&&&&&&& & )*/, 1 8,.#;1:%#%&&&&&&&&&&&& &&& '(!)*+<7*-*&&&&&&&&&&&&&&&&& & '(!.<7*-*/-*&&&&&&&&&&&&&& & #%1871-4*,.-0*,+92-(&&;7*7,49,*--/-8/& #%1871-4*,.-0*,+92-( //0*-. -,4+ 7& #%1871-4*,.-0*,+92-( //0*-. -,49,* 5,*64,*8+1,0. ->+/,,4.01,2. -87*-2& #%1871-4*,.-0*,+92-(&&0*-. -,4,..*8>;7*7,48,,.8 12//#;%& &&,

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5 March was a difficult month for economic activity in all but one of Tennessee s metropolitan statistical areas (MSAs). As shown in Figure 5, four of the five regions suffered decreasing leading indices. Memphis was the only MSA to post an advance, and thanks to a surge in the area s help-wanted index and in inflation-adjusted taxable sales, it was a big one 19.4 percent (SAAR). Nashville s leading index lost the most ground, falling 8.6 percent (SAAR). Tennessee s labor markets were all hit by substantial job losses as depicted in Figure 6. Service sector employment was down in every region this month. Despite setbacks in aggregate employment growth, the unemployment rate increased in only two of the five areas: Tri-Cities and Chattanooga (Figure 7). Inflation-adjusted taxable sales were mixed across the state in March. While Memphis experienced a surge in taxable sales of nearly 48 percent (SAAR), taxable sales in Chattanooga were down 49 percent (SAAR). FIGURE 6 MSA Employment Growth March 2001 FIGURE 5 MSA Index Growth March 2001 FIGURE 7 MSA Unemployment Rate March 2001 (seasonally adjusted) Tennessee s Largest MSAs 5

6 T he Chattanooga Metropolitan Statistical Area (MSA) leading index of economic activity ended the first quarter of 2001 on a disappointing note. After posting gains for three consecutive months, Chattanooga s leading index dropped at a seasonally adjusted annual rate (SAAR) of 8.5 percent in March. Advances made in January and February were wiped out by the index s poor performance in March leaving it at the same level as December Increases made by two of the component series of Chattanooga s leading index were not sufficient to counteract the negative impact of this month s downturn in inflation-adjusted taxable sales and in the Tennessee leading index. On the positive side, construction employment continued to gain ground in Chattanooga, increasing in March by 11.0 percent (SAAR) with the addition of nearly 100 new jobs. Average manufacturing weekly hours also managed to increase by 0.5 percent (SAAR) in March to end a four-month string of losses. On the negative side, inflation-adjusted taxables sales was the big loser component of Chattanooga s leading index in March, falling $20 million or 49.0 percent (SAAR). The other negative component, the Tennessee leading index, decreased 7.9 percent (SAAR). Unfortunately, March labor market data not included in the Chattanooga leading index echoed the index s poor performance. Employment in Chattanooga s manufacturing sector shrank 3.9 percent (SAAR), while service sector employment decreased 6.8 percent (SAAR). Overall, total nonagricultural employment in the area contracted 10.3 percent (SAAR) in March for a net loss of 2,150 jobs. Consequently, Chattanooga s unemployment rate spiked to 3.2 percent the highest rate of unemployment in the area since November Chattanooga s economy, like other metropolitan areas in the state, is positioned such that short periods of growth are negated by periods of decline. This situation is not unexpected given the current stagnation in growth that is being experienced by both the state and national economies. What is most disappointing about the Chattanooga economic situation is that the year-to-year change in the leading index reveals current activity to be down 3.4 percent (SAAR) from the same month in The ability to shore up job losses in aggregate employment and to sustain gains in construction employment are key factors in nearterm expectations for the area. Flat to slow growth will continue through the summer. 3?! "#$%&&&&&&&&&&,!.01,2. -#3%#%&&&&&&&&.01,2. --#'%#%&&&&&&&&&& 4!.01,2. -#3%#%&&&&&&&&&& 4!+!56123,7*/#%&&&&&&&&&&&, /-.01,2. -#3%#%&&&&&&&& *+8/.01,2. -#3%#%&&&&& "911/# :%#%&&&&&& "911/# :%#%&&& #%1871-4*,.-0*,+92-(&&;7*7,49,* --/-8/& #%1871-4*,.-0*,+92-( //0*-. -,4+ 7& FIGURE 8 Chattanooga Quarterly Leading Index 6

7 F ollowing on the heels of last month s downturn, the Knoxville Metropolitan Statistical Area (MSA) index of leading economic activity sustained another setback in March, falling at a seasonally adjusted annual rate (SAAR) of 5.3 percent. The year-to-year percent change in the Knoxville index was also down by 1.8 percent (SAAR), the fifth consecutive month of decline. The drop in Knoxville s index was engineered by contractions in three of its four component series. Inflation-adjusted taxable sales shed $12 million for a loss of 16.0 percent (SAAR), bringing the level of sales to $849 million. Other negative influences on the Knoxville index came from the 7.9 percent (SAAR) decrease in the Tennessee leading index and the 6.8 percent (SAAR) contraction in construction employment. For the second consecutive month, employment in the construction sector decreased with a loss of 102 jobs. The only positive component of the Knoxville index in March was average manufacturing weekly hours. Rebounding from last month s 19.1 percent (SAAR) drop, the average number of weekly manufacturing hours increased by 11.4 percent (SAAR) to 40.0 hours per week. Labor market data for the Knoxville MSA give little cause for optimism this month. Total nonagricultural employment declined sharply by 16.1 percent (SAAR) with the loss of 4,980 jobs. This is the first drop in aggregate employment to be experienced by the Knoxville labor market since August of last year. As stated previously, jobs were lost in the construction sector in March and also in the services sector where employment dropped 16.1 percent (SAAR). Conversely, jobs were added in the manufacturing sector where the level of employment expanded 2.8 percent (SAAR). The unemployment rate in the Knoxville MSA held steady in March at 3.0 percent still well below Tennessee s unemployment rate of 4.1 percent. With pessimistic signals emanating from the Knoxville labor market, most notably the sharp contraction in aggregate employment, short-term expectations for the area remain grim. Positive growth in nonagricultural employment and inflation-adjusted taxable sales is critical to future growth in the area. Unfortunately, recent downturns in the state economy give little reason to anticipate a significant turnaround. ABC! "#$%&&&&&&&&&&,!.01,2. -#3%#%&&&&&&&&.01,2. --#'%#%&&&&&&&&&& 4!.01,2. -#3%#%&&&&&&&&&& 4!+!56123,7*/#%&&&&&&&&&&&, /-.01,2. -#3%#%&&&&&&&& *+8/.01,2. -#3%#%&&&&& "911/# :%#%&&&&&& "911/# :%#%&&& #%1871-4*,.-0*,+92-(&&;7*7,49,* --/-8/& #%1871-4*,.-0*,+92-( //0*-. -,4+ 7& FIGURE 9 Knoxville Quarterly Leading Index 7

8 P ropelled upward by gains in three of it s five component series, the Memphis Metropolitan Statistical Area (MSA) index of leading economic activity surged 19.4 percent in March. The chief contributor to this month s upturn was a spike in the Memphis helpwanted index. Since September 2000, the help-wanted index has hovered around From February to March, this index soared to Inflation-adjusted taxable sales rebounded from last month s loss by increasing $32 million in March. Construction employment was also up in March by 3.5 percent (SAAR) as a result of the addition of 78 jobs. On the negative side, average weekly manufacturing hours fell for the second consecutive month to 41.1 hours per week a 5.3 percent (SAAR) loss from February. The Tennessee leading index was also down in March by 7.9 percent (SAAR). Additional labor market data not used in the compilation of the Memphis leading index were mostly negative this month. Total nonagricultural employment decreased 12.5 percent (SAAR) in March. While this downturn is disappointing, it should be noted that the level of total nonagricultural employment remains ahead of the level seen in the same month a year ago. The manufacturing sector sustained a huge hit in March as employment in the sector fell 19.6 percent (SAAR) with the loss of 1,083 jobs. This fifth consecutive monthly loss drops manufacturing employment to the lowest level since December Memphis service sector employment was also down 6.9 percent (SAAR). Despite these severe setbacks in employment, the Memphis MSA unemployment rate remained unchanged in March at 3.6 percent. As stated above, the single optimistic labor market signal for the area this month was the rebound of construction employment. The Memphis MSA economy has ended the first quarter of 2001 on a good note with the 19.4 percent increase its leading index. Unfortunately, this gain rests on advances made by two volatile components inflationadjusted taxable sales and the Memphis helpwanted index. Widespread weaknesses in the local labor market serve to constrain expectations for the near-term. Periods of flat to slow growth will probably occur throughout the summer. )3! "#$%&&&&&&&&&&,!.01,2. -#3%#%&&&&&&&&.01,2. --#'%#%&&&&&&&&&& 4!.01,2. -#3%#%&&&&&&&&&& 4!+!56123,7*/#%&&&&&&&&&&&, /-.01,2. -#3%#%&&&&&&&& *+8/.01,2. -#3%#%&&&&& "911/# :%#%&&&&&& "911/# :%#%&&& "#$%#%&&&& #%1871-4*,.-0*,+92-(&&;7*7,49,* --/-8/& #%1871-4*,.-0*,+92-( //0*-. -,4+ 7& #%,7*8(, 4* 8;,*& FIGURE 10 Memphis Quarterly Leading Index 8

9 T he Nashville Metropolitan Statistical Area (MSA) index of leading economic activity continued to lose ground as it posted a second consecutive monthly loss. The setback in March of 8.6 percent drops the index to its lowest point since October The year-over-year percent change in Nashville s leading index was also down for the ninth straight month, falling 3.4 percent (SAAR) in March. With only two of the five component series advancing in March, there was not enough positive pressure to shore up Nashville s leading index. Inflation-adjusted taxable sales increased 13.2 percent (SAAR) in March, while construction employment completed an entire quarter of positive growth with job growth of 2.9 percent (SAAR). Negative pressure resulted from downturns in Nashville s help-wanted index, average manufacturing weekly hours, and the Tennessee leading index. The Nashville help-wanted index continued to slip, falling 60.9 percent (SAAR) in March to the lowest point since May Average weekly manufacturing hours dropped 8.4 percent (SAAR), and the Tennessee leading index fell 7.9 percent (SAAR) in March. Labor market data not used in the compilation of Nashville s leading index were mixed this month. Total nonagricultural employment suffered a setback as it declined 7.1 percent (SAAR) in March. This loss of 4,230 jobs drops aggregate employment to the lowest level since August Nashville service sector employment also lost ground in March, falling 5.9 percent (SAAR) with the loss of 1,200 jobs. Fortunately, two bright spots were evident in the Nashville labor market data this month. First, manufacturing employment managed to increase 2.6 percent (SAAR) in March, thankfully ending a sevenmonth streak of declines, and second, the Nashville unemployment rate shed two-tenths of a percentage point, dropping to 3.1 percent. The short-term outlook for the Nashville MSA rests on the region s ability to reverse the downturn in aggregate employment and to build on this month s advance in inflationadjusted taxable sales. Signals from the state s leading index suggest that this may not be easy to accomplish. 3C! "#$%&&&&&&&&&&,!.01,2. -#3%#%&&&&&&&&.01,2. --#'%#%&&&&&&&&&& 4!.01,2. -#3%#%&&&&&&&&&& 4!+!56123,7*/#%&&&&&&&&&&&, /-.01,2. -#3%#%&&&&&&&& *+8/.01,2. -#3%#%&&&&& "911/# :%#%&&&&&& "911/# :%#%&&& "#$%#%&&&& #%1871-4*,.-0*,+92-(&&;7*7,49,* --/-8/& #%1871-4*,.-0*,+92-( //0*-. -,4+ 7& #%,7*8(, 4* 8;,*& FIGURE 11 Nashville Quarterly Leading Index 9

10 C onstrained by the negative movement of three of its four component series, the Tri-Cities Metropolitan Statistical Area (MSA) index of leading economic activity decreased 4.0 percent (SAAR) in March. The year-over-year percent change in the leading index was also down for the eighth straight month, falling 3.0 percent (SAAR) in March. The most notable loss in Tri-Cities economy was sustained by the component series of manufacturing hours. The average number of weekly manufacturing hours decreased 5.5 percent (SAAR) to 38.6 hours per week. Since August of last year, the level of construction employment in the Tri- Cities MSA has hovered around 10,900 jobs. Employment in this sector continued to seesaw around this point in March, dipping slightly by 2.7 percent (SAAR) with the loss of 25 jobs. The remaining negative component series, the Tennessee leading index, decreased 7.9 percent (SAAR) in March. The only component of the Tri-Cities index able to advance in March was inflationadjusted taxable sales. Rebounding from last month s loss, inflation-adjusted taxable sales climbed $7 million or 32.6 percent (SAAR). Labor market data not used to calculate the Tri-Cities leading index offer little encouraging news this month. Total nonagricultural employment in the region suffered a huge setback in March. The level of aggregate employment in the Tri-Cities MSA decreased 15.5 percent (SAAR) due to a net loss of 2,790 jobs. Nearly 600 jobs disappeared from the services sector alone. Employment in the manufacturing sector in the Tri-Cities fared better in March. With the addition of 228 jobs, manufacturing employment grew 6.1 percent (SAAR). The unemployment rate in the Tri-Cities MSA inched up one-tenth of a percentage point in March to 4.1 percent. After peaking in June 2000, the Tri- Cities leading index has suffered multiple setbacks due to fluctuations in the key series construction employment and inflationadjusted taxable sales. In light of this recent history, March s decline in not surprising. Expectations for the region s short-term outlook remain guarded, at best, given the sluggish performance of the state and national economies.! "#$%&&&&&&&&&&,!.01,2. -#3%#%&&&&&&&&.01,2. --#'%#%&&&&&&&&&& 4!.01,2. -#3%#%&&&&&&&&&& 4!+!56123,7*/#%&&&&&&&&&&&, /-.01,2. -#3%#%&&&&&&&& *+8/.01,2. -#3%#%&&&&& "911/# :%#%&&&&&& "911/# :%#%&&& #%1871-4*,.-0*,+92-(&&;7*7,49,* --/-8/& #%1871-4*,.-0*,+92-( //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 Program Resource Specialist Betty A. Drinnen Graduate Research Assistants Karie A. Barbour John A. Deskins John T. Dupree Sanela Porca Student Assistants Danielle P. Gros Chase E. Lindsey Benjamin T. Morson Ryan L. Russell W. Chandler Wilson 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. 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. UTK Printing Authorization No. E

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