Economic Update Don Bruce Research Professor Boyd Center for Business and Economic Research January 2019
January 2019 http://cber.haslam.utk.edu/erg/erg2019.pdf http://cber.haslam.utk.edu/ 2
National Economy The U.S. economy has now enjoyed 9 years of economic growth since the Great Recession With 5 more months, the longest expansion on record Real GDP grew by 4.2% in 2018Q2 and by 3.4% in 2018Q3 Nonfarm employment grew by 1.6% in 2018. Unemployment rate stood at 3.9% in December (flat throughout 2018) January 2019 http://cber.haslam.utk.edu/ 3
Tennessee Economy Personal income grew by 2.1% in 2018 Nonfarm employment grew by 1.8% in 2018 Manufacturing employment was up by about 1% The unemployment rate has been steady, around 3.5% Revenue growth has been strong Reserves and balances are in very good shape, but we could not sustain a significant recession without significant cuts January 2019 http://cber.haslam.utk.edu/ 4
Forecast Expansion continues as projected 60% Expansion picks up steam 15% Driven by stronger productivity growth and low unemployment Slowdown 25% Drop in consumer confidence, and/or slowdown in residential and commercial real estate, investment January 2019 http://cber.haslam.utk.edu/ 5
3.5 The U.S. can expect continued moderate economic growth in the next few years 3.0 Growth in Real GDP (%) 2.5 2.0 1.5 1.0 0.5 0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Bureau of Labor Statistics and IHS Markit, U.S. Economic Outlook, January 2019 (copyright). January 2019 http://cber.haslam.utk.edu/ 6
Consumers are Driving the Expansion 7.00% Percentage change (same quarter previous year) 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% January 2019 http://cber.haslam.utk.edu/ 7
Light Vehicle Sales have been restored offering little capacity for further growth 20.0 18.0 Unit Sales (millions) 16.0 14.0 12.0 10.0 8.0 Source: IHS Markit, U.S. Economic Outlook, January 2019 (copyright). January 2019 http://cber.haslam.utk.edu/ 8
Consumer Debt Balance Rising Again 16.0 14.0 12.0 Other Student Mortgage Trillions of Dollars 10.0 8.0 6.0 4.0 2.0 0.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 January 2019 http://cber.haslam.utk.edu/ 9
Rates Rise as Economy Confronts Full Employment and Inflationary Risks Rise 6.000 5.000 Federal Funds Rate 10-Year Treasury Note Yield 3-Month Treasury Bill Rate 4.000 Rate (%) 3.000 2.000 1.000 0.000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: IHS Markit. January 2019 http://cber.haslam.utk.edu/ 10
Investment may respond to tax reform over time, but limited improvement so far 8.0 Percentage Change, Previous Quarter, SAAR 6.0 4.0 2.0 0.0-2.0-4.0-6.0-8.0-10.0 January 2019 http://cber.haslam.utk.edu/ 11
U.S. Nonresidential Fixed Investment: Expect Moderation as Tax Cut Stimulus Fades 25.0 Total Equipment Intellectual Property Products Structures 20.0 15.0 10.0 Growth (%) 5.0 0.0-5.0-10.0-15.0-20.0-25.0 Source: IHS Markit. January 2019 http://cber.haslam.utk.edu/ 12
Housing Starts Plateau Well Below Pre-recession Levels 12.0 Tennessee U.S. 2.5 Tennessee (thousands) 10.0 8.0 6.0 4.0 2.0 2.0 1.5 1.0 0.5 U.S. (millions) 0.0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 0.0 Source: U.S. Dept. of Housing and Urban Development, State of the Cities Data Systems (SOCDS) database; UT-Boyd Center; and IHS Markit. January 2019 http://cber.haslam.utk.edu/ 13
Deficits Rise Rapidly in the Future (billions) 2028, $1,513 2009, $1,416 2023, $1,143 2018, $807 2017, $666 2004, $413 Source: IHS January 2019 http://cber.haslam.utk.edu/ 14
The trade deficit remains large -200.0 Exports - Imports, Billions of Chained 2012 Dollars -300.0-400.0-500.0-600.0-700.0-800.0-900.0-1,000.0 January 2019 http://cber.haslam.utk.edu/ 15
Tennessee and U.S. Nonfarm Job Growth (year-over-year growth) 6.0% 4.0% Tennessee U.S. Year-Over-Year Growth 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 January 2019 http://cber.haslam.utk.edu/ 16
Unemployment Rates Remain Low 12.0 10.0 Unemployment rate (%) 8.0 6.0 4.0 2.0 Tennessee U.S. U.S. Oct-18 3.7 TN Oct-18 3.7 0.0 January 2019 http://cber.haslam.utk.edu/ 17
Labor Force Participation Rates Show Signs of a Turnaround Participation Rate (%) 68.0 67.0 66.0 65.0 64.0 63.0 62.0 61.0 recession TN U.S. Oct-18 62.9 Oct-18 60.7 60.0 59.0 58.0 Source: Bureau of Labor Statistics. January 2019 http://cber.haslam.utk.edu/ 18
U.S. Forecast Summary - 2019 Real GDP growth at 2.5% (down from 2.9% in 2018) Driven by strong 2.6% growth in consumption Business investment growth of 4.0% Exports up by 4.1%, imports up by 6.0% Federal Funds Rate will reach 2.6% 30-year fixed mortgage rate rising to 4.8% Inflation at 2.0% Unemployment at 3.6% job growth at 1.4% January 2019 http://cber.haslam.utk.edu/ 19
Full Recovery from the Great Recession in Most Sectors (Tennessee, October 2018 as a Share of December 2007) Professional & Business Services Leisure & Hospitality Education & Health Services Other Services Financial Activities Total Nonfarm Trade, Transportation, Utilities Government Manufacturing Mining, Logging, Construction Information 127.8% 125.8% 124.1% 112.1% 110.0% 110.0% 103.8% 103.0% 95.4% 94.0% 88.3% Source: Bureau of Labor Statistics. 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% January 2019 http://cber.haslam.utk.edu/ 20
MSA Nonfarm Employment Growth (Quarter Ending Sept. 2017 to Sept. 2018) Chattanooga 3.1% Morristown 2.8% Memphis, TN-MS-AR TENNESSEE Jackson 2.0% 1.9% 1.9% Nashville-Davidson-- Kingsport-Bristol-Bristol, TN-VA 1.5% 1.7% Clarksville 0.8% Knoxville 0.5% Cleveland Johnson City 0.2% 0.1% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Growth Rate (%) January 2019 http://cber.haslam.utk.edu/ 21
Total Non-farm Employment Growth (Compound Annual Growth Rates, 2007-2017) 2.50% 2.00% 1.50% CAGR 1.00% 0.50% 0.00% Nashville TN Knoxville U.S Chattanooga Memphis January 2019 http://cber.haslam.utk.edu/ 22
September Unemployment Rates Remain Elevated in Rural Tennessee Tennessee: 3.7% United States: 3.6% Note: Data are not seasonally adjusted. 2.7% to 3.7% 3.8% to 4.7% 4.8% to 5.7% 5.8% to 6.5% Source: Bureau of Labor Statistics. January 2019 http://cber.haslam.utk.edu/ 23
Tennessee s Top 5 Export Markets 10.0 9.0 $9.022 2017 8.0 Exports (bil U.S. dollars) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 $4.698 $2.502 $1.984 $1.350 0.0 Canada Mexico China Japan Belgium Source: U.S. Department of Commerce, International Trade Administration. January 2019 http://cber.haslam.utk.edu/ 24
Tennessee s Top 5 Export Categories 2017 Transportation Equipment $7.589 Computer & Electronic Products $5.390 Chemicals $4.450 Misc. Manufactures $3.860 Machinery $2.962 0.0 2.0 4.0 6.0 8.0 Exports (bil U.S. dollars) Source: U.S. Department of Commerce, International Trade Administration. January 2019 http://cber.haslam.utk.edu/ 25
Tennessee Employment in Foreign- Japan Germany United Kingdom France Canada Sweden Ireland Italy Switzerland South Korea Netherlands Brazil China Luxembourg Belgium Australia Spain Mexico Owned Companies (Number of Employees by Country of UBO) 18,161 (121) 11,447 (115) 10,003 (79) 9,306 (75) 7,482 (34) 5,647 (38) 5,372 (40) 5,371 (48) 3,464 (15) 3,040 (47) 2,836 (13) 2,586 (21) 1,948 (6) 1,878 (13) 1,855 (31) 1,186 (10) 1,116 (22) 999 foreign-based establishments with employment of 150,075 51,961 (191) 0 10,000 20,000 30,000 40,000 50,000 60,000 Notes: Countries with employment of 1,000 or more. Number of establishments for each country shown in parentheses. Source: State of Tennessee, <https://www.tn.gov/transparenttn/jobs-economic-development/openecd/tnecd-performance-metrics/openecdbusiness-development-quick-stats/foreign-owned-businesses.html>, accessed September 11, 2018. January 2019 http://cber.haslam.utk.edu/ 26
Narrowing the Educational Attainment Gap Percentage of population aged 25 Yrs & Older 88.0 87.0 86.0 85.0 84.0 83.0 82.0 81.0 80.0 79.0 78.0 High School Graduate or Higher TN U.S. 84.1 84.6 85.0 85.4 83.9 85.7 84.4 86.0 84.9 86.3 85.5 86.7 86.0 87.0 80.9 81.8 82.5 83.2 Percentage of population aged 25 Yrs & Older 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Bachelor's Degree or Higher TN U.S. 27.0 27.5 27.9 28.2 28.5 28.8 29.3 21.7 22.4 22.7 23.0 23.5 23.8 24.4 29.8 30.3 24.9 25.4 77.0 2006 2009 2010 2011 2012 2013 2014 2015 2016 0.0 2006 2009 2010 2011 2012 2013 2014 2015 2016 Source: U.S. Census Bureau, American Community Survey (5-Year Estimates, various years). January 2019 http://cber.haslam.utk.edu/ 27
Unemployment Rate and Earnings Highly Correlated with Educational Attainment 2017 Unemployment Rate (%) 2017 Median Weekly Earnings Less than a high school diploma 6.5 Less than a high school diploma $520 All workers $907 High school diploma 4.6 High school diploma $712 Some college, no degree 4.0 Some college, no degree $774 Associate's degree 3.4 Associate's degree $836 Bachelor's degree 2.5 Bachelor's degree $1,173 Master's degree 2.2 Master's degree $1,401 Professional degree 1.5 Professional degree $1,836 Doctoral degree 1.5 All workers 3.6% Doctoral degree $1,743 0.0 2.0 4.0 6.0 8.0 $0 $1,000 $2,000 Source: Bureau of Labor Statistics. January 2019 http://cber.haslam.utk.edu/ 28
Educational Attainment of Persons Aged 25 Years & Older: High School & Higher Tennessee: 86.0% United States: 87.0% Source: U.S. Census Bureau, American Community Survey (5-Year Estimates 2012-2016). Less than 75.0% 75.0% to 79.9% 80.0% to 86.0% Greater than 86.0% January 2019 http://cber.haslam.utk.edu/ 29
Tennessee s 2016 Per Capita Personal Income tends to be higher when educational attainment is higher Source: Bureau of Economic Analysis. January 2019 http://cber.haslam.utk.edu/ 30
Tennessee Forecast Summary - 2019 Real GDP growth at 2.7% Nonfarm job growth of 1.4% Unemployment rate at 3.6% Personal income growth of 4.3% January 2019 http://cber.haslam.utk.edu/ 31
12.0 Tennessee Fiscal Outlook: Mild Recession Cumulative Balance (bil $) 8.0 4.0 0.0-4.0-8.0-12.0 FY19 FY20 FY21 FY22 FY23 FY24 Scenario #1 (Flat Expenditure Growth) Scenario #2 (Maintenance Expenditure Growth) Scenario #3 (2011-18 CAGR) January 2019 http://cber.haslam.utk.edu/ 32
12.0 Tennessee Fiscal Outlook: Severe Recession Cumulative Balance (bil $) 8.0 4.0 0.0-4.0-8.0-12.0 FY19 FY20 FY21 FY22 FY23 FY24 Scenario #1 (Flat Expenditure Growth) Scenario #2 (Maintenance Expenditure Growth) Scenario #3 (2011-18 CAGR) January 2019 http://cber.haslam.utk.edu/ 33
Boyd Center for Business & Economic Research Haslam College of Business The University of Tennessee 716 Stokely Management Center 916 Volunteer Boulevard Knoxville, Tennessee 37996-0570 phone: 865.974.5441 fax: 865.974.3100 http://cber.haslam.utk.edu Follow us! @UTBoydCenter January 2019 http://cber.haslam.utk.edu/ 34