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KNOXVILLE – A slower national economy will temper Tennessee’s growth in 2007, but the state will still generate 31,900 new jobs and personal income will grow 5.5 percent for the year.

These are among the projections included in the annual Economic Report to the Governor of the State of Tennessee prepared by the University of Tennessee’s Center for Business and Economic Research (CBER).

“The problems of 2006 will weigh down on the economy in 2007. But stronger economic growth will begin to emerge toward the end of 2007. Overall, the state’s economy will still see decent growth for the year,” said Matt Murray, CBER associate director and project director, who helped develop the projections.

The report provides an overview of current economic conditions for the state and the nation, the short-term economic outlook through 2008 and the long-term economic outlook extending to 2016.

Factors charting the course

“The sagging housing market, higher interest rates and energy prices are primary factors contributing to the slowdown,” Murray said. “The most important of those appears to be the sagging housing market.”

New home sales and housing starts faltered in 2006 causing ripples across the economy.

“Housing starts were down by nearly 13 percent last year, and housing prices fell in many markets across the country,” Murray said. “Strength in non-residential construction helped avoid a collapse in the building sector last year.”

Rising interest rates also contributed to the economic cool down. The Federal Reserve intended the slow down after raising interest rates 17 consecutive times prior to July 2006, he said.

Murray added that rising commodity prices, energy prices and labor costs in 2006 have increased inflationary risks for the economy, but falling energy prices in recent months have helped ease concerns about inflation and put more money in consumers’ pockets. Commodity prices have recently stabilized, and this has helped avert a more serious slowdown.

Jobs will grow, but slowly

In 2007, the number of jobs statewide is expected to grow by 1.2 percent. The growth should be very close to last year’s rate.

Job growth will continue to be driven by gains in services jobs, especially education and health services and leisure and hospitality services.

“Professional and business services will rebound and see very strong growth over the short run and the long run, generating nearly 93,000 new jobs by 2016,” the report states.

Manufacturing will see further setbacks as the number of new jobs are predicted to fall 0.6 percent this year.

“Manufacturing jobs for the state and nation are in long-term decline and there is no going back,” Murray said. Despite the loss of manufacturing jobs, the report shows that the output of the state’s manufacturing sector continues to grow as a result of productivity gains.

Last year, Tennessee’s annual unemployment rate, while above the national average, was the lowest annual average recorded in the state since 2001. With slower predicted job growth for 2007, the state’s unemployment rate will inch forward.

Personal income

Personal income growth is expected to slow to 5.5 percent this year, about .5 percent behind last year.

The report also notes that Tennesseans’ incomes last year ranked fourth among southeastern states, behind Virginia, Florida and Georgia. However, Tennesseans incomes aren’t growing as fast as their counterparts nationwide. In 1994, Tennessee’s inflation-adjusted per capita income was $22,819, or 92.4 percent of the national average. In 2006, the state per capita income was $28,338, or 89.3 percent of the national average.

“Improvement in the state’s (personal income) standing relative to the nation hinges on making sound education investments in people and in the infrastructure that supports economic development,” Murray said.

Spending our money

Statewide, taxable sales are expected to rise 4.2 percent in 2007 — with even more growth expected in 2008, partly because of an anticipated rise in home and business construction.

Automobile sales will continue to slip in 2007, as they have for the past two years. Sales are expected to accelerate in 2008.

The state’s gross domestic product — the total value of all goods and services produced in the economy — will increase by 2.7 percent (net of inflation) in 2007 compared to 3.1 percent last year.

There are two special supplements to this year’s report. The first focuses on the shifting distribution of income in the U.S. and Tennessee. The second is about environmental issues confronting the state, including those facing the Great Smoky Mountains National Park.

For more information and to see the full report, visit CBER’s Web site,

Matt Murray, (865) 974-6084,
Amy Blakely, (865) 974-5034,