KNOXVILLE -– Tennessee’s economy has performed well in early 2007, and a relatively stable housing market has spared the state from the continuing downturn in the industry nationally.
The University of Tennessee’s Center for Business and Economic Research (CBER) announced these findings as part of the mid-year update to the Economic Report to the Governor, which was released in January.
The report analyzes the current economic conditions in the state and nation and provides a forecast of Tennessee’s economy into 2009. This report features a supplement analyzing the state and national housing markets.
“The state economy has shown considerable resiliency in the face of high energy prices and a national housing market slump,” said Matt Murray, CBER associate director and project director, who helped develop the report.
Nation’s Housing Market Slides
The U.S. housing market has been in decline the past two years, causing sluggish economic growth overall. Sales of new homes have dipped by 30 percent since 2005.
“When household wealth suffers a setback, consumers tend to slow their spending. Construction employment and earnings also sag, as do building material and home furnishing sales,” the report states.
There has been little change nationally so far in 2007.
Sales of new houses in April were about 16 percent higher than in March — a bigger increase than economists forecast and the biggest monthly increase in 14 years. However, the sales were 11 percent below estimates made last April.
Sales of existing homes did not show any rebound, decreasing 11.2 percent in the past year.
In the South and particularly Tennessee, the housing market has not been as dire, mainly because it remains more affordable than in other regions, Murray said. In 16 Southern states and the District of Columbia, there were 561,000 new homes sold in April, which accounted for more than 57 percent of all new sales in the nation.
New home prices were climbing but then fell. The national average single-family home price dropped by nearly $26,000.
Owning a home has become more expensive as average housing costs have risen about 10 percent per year. In the South, however, households making the median income have 124 percent more income than needed to qualify for a loan.
“While the state has had a slower growth trajectory because of national economic conditions, we have largely been spared the direct and dire consequences of the nation’s housing slowdown,” according to the report.
Tennessee Conditions Look Good
The overall construction industry in the state has done well despite the housing market decline because of nonresidential construction growth. Construction employment was up 8 percent in 2006, and it has grown 15.1 percent in the first quarter of 2007 for seasonally adjusted jobs.
“Tennessee’s construction sector has been buoyed by growth in nonresidential construction, keeping contractors and their employees on the job site,” Murray said.
Non-farm jobs rose by 1.5 percent in the first quarter of 2007, the same rate as all of 2006. The leisure and hospitality services sector saw a big increase in jobs for the first quarter with an 8.6 percent seasonally adjusted gain.
Manufacturing jobs recorded a seasonally adjusted gain of 0.6 percent for the first quarter after seeing the rate fall 2.1 percent last year. Unfortunately, the report notes that manufacturing jobs are likely to fall for the year as a whole.
State unemployment rate was down 4.8 percent after an average of 5.2 percent last year, which was the lowest annual average for Tennessee since 2001.
Little Change Expected
The state and national economies should expand into 2009.
“The state and national economies are expected to continue to expand into 2009 with the rate of growth expected to accelerate in 2008 when the nation’s housing sector begins to stabilize,” Murray said.
Inflation-adjusted personal income, wage and salary income are expected to grow at moderate rates from last year in Tennessee. Rent, interest, and dividend income will grow but will be below last year’s growth. Non-farm job growth in the state should be 1.2 percent for 2007.
For more information and to see the full report, visit CBER’s Web site, http://cber.bus.utk.edu/.
Matt Murray, CBER (865) 974-6084
Elizabeth Davis, Media Relations (865) 974-5179