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KNOXVILLE, Tenn. — Tennessee’s economy will be stable with moderate growth through 1998, the University of Tennessee’s annual Economic Report to the Governor says.

Drs. Bill Fox and Matt Murray say in the report that the state’s short-term outlook matches projections for the national economy. Fox and Murray are economists with the UT-Knoxville Center for Business and Economic Research.

The report says the rapid growth of Tennessee’s economy in recent years has slowed as expected but further declines are not projected.

“The risks of further deceleration in growth are slim, as are the chances for sharply stronger growth,” Fox and Murray say.

Pointing to national indicators, the economists say there is only a 10 to 15 percent chance the slowdown will end in a recession in the next 12 months.

Tennessee agriculture, in its first full year under provisions of the 1996 federal farm bill, is expected to benefit substantially from the change in federal income support for agriculture, the report says. “Federal payments are substantially higher than what farmers would have received under the old policy,” it says.

Through 2005, the authors say the long-term forecast includes the following highlights:

— Tennessee personal income will continue its exceptional growth, rising 3.6 percent, based on a compound annual growth rate. The predicted income growth rate for the U.S economy is 2.2 percent.

— Growth in inflation-adjusted gross state product will be 3.2 percent between 1996-2005.

— Tennessee will create 706,000 new jobs, as non-agricultural employment grows at 2.7 percent between 1996-2005. U.S. employment growth during the period is projected to advance at a rate of 1.3 percent.

— Tennessee taxable sales are expected to rebound, rising about 6 percent in 2002.

Regarding the current slowdown, the authors cite the following examples of stress in the state’s economy:

— Loss of 14,000 jobs in nondurable goods (textiles, clothing and leather) manufacturing between March 1995 and March 1996.

— Overall job growth during the March 1995-96 period down a full percentage point below the growth rate measured in the previous three years.

— State sales tax collections up 5.9 percent during fiscal 1996 with a similar rate so far this year — compared with 10 percent growth during fiscal 1995.

Fox and Murray say Tennessee’s economic foundation remains solid, evidenced by a statewide unemployment rate under 5 percent in February 1996. They also cite “reasonably strong” growth outside the manufacturing sector.

The report recommends continued investment by state government on infrastructure and human capital to be matched by private sector spending for productive facilities and equipment.

“Growth in the future will increasingly rely on work force quality,” the authors say, noting that Tennessee no longer has an abundant labor force in some regions and in some occupational classifications.

“Perhaps the greatest deficiency in Tennessee’s education and training system is the lack of sufficient training for youth who do not attend college.”

The report says training options for students planning to go to work from high school might include career academies, magnet schools, and apprenticeship programs. Fox and Murray also say older adults need more training opportunities, especially those who never finished high school.

The report was prepared by CBER in cooperation with the Tennessee Department of Economic and Community Development, Tennessee Department of Revenue, and Tennessee Department of Employment Security.

Contact: Dr. Matt Murray (423-974-5441)