With the effects of the pandemic and economic recovery largely behind it, Tennessee’s economy is expected to find a more stable growth path and expand faster than the U.S. overall in 2025, according to a new report by the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville.
The 2025 Economic Report to the Governor of Tennessee, using data available through the second quarter of 2024, projects that Tennessee’s economy will have grown at a slightly slower rate than the nation in 2024 but will experience faster growth in 2025.
“This is largely driven by timing, as Tennessee’s economy recovered much more quickly from the pandemic and is therefore stabilizing sooner as well,” said Larry Kessler, research associate professor at the Boyd Center and project director.
Tennessee’s inflation-adjusted gross domestic product (real GDP) is projected to have grown by 2.4% in 2024 and to grow by 2.5% in 2025, while the U.S. economy is expected to grow by only 2% in 2025 after a growth rate of 2.7% in 2024. Tennessee’s slight dip follows substantial growth of 9% in 2021 and 4% in 2022, indicating a rapid economic recovery and ongoing stabilization.
“Tennessee is on track to see continued economic growth over the next two years, albeit at a slightly slower pace as the economy continues to normalize,” said Kessler.
Similarly, job growth in Tennessee has moderated as the recovery winds down. The state added nearly 58,000 jobs in 2023 but is expected to record only 22,500 jobs in 2024 and 36,400 jobs in 2025.
“The state continues to add workers, but job gains have slowed,” said Kessler. “Still, around 184,000 more people are working in Tennessee today than there were prior to the pandemic.”
Labor Force in Tennessee
Although job growth across Tennessee will remain positive, gains are expected to be smaller as the state’s economy cools, potentially making it more challenging for some job seekers to find work. That change could lead to an increase in Tennessee’s unemployment rate. After reaching an all-time low of 3% in the summer of 2024, the state’s unemployment rate is projected to rise to an annual average of 3.3% in 2025 and 3.4% in 2026.
Strong and sustained growth in wages and salaries is expected to boost nominal personal income by 6.1% in 2024 before decreasing to 4.6% in 2025. After adjusting for inflation, those increases equate to 3.6% in 2024 and 2.6% in 2025.
Jobs are expected to grow faster than the U.S. average in 2025 in many of Tennessee’s sectors, including natural resources, mining and construction, which will grow by 3.3% in Tennessee compared to 1.8% nationally. That growth is attributed to projects like Ford’s EV battery manufacturing complex in West Tennessee, Orano’s uranium enrichment facility in Oak Ridge, and the new Tennessee Titans stadium in Nashville.
“In the last year, as companies continue to automate, we are seeing higher investment amounts per project but fewer jobs committed. However, these new jobs are also bringing higher wages,” said Stuart C. McWhorter, commissioner of the Tennessee Department of Economic and Community Development. “With the recent announcement and multi-billion-dollar investment from Orano, we believe that Tennessee will continue to attract additional R&D and nuclear investment to the state, and we stand ready to support new and innovative companies that pair well with our skilled workforce, strong business climate and exceptional quality of life.”
Real estate investment, construction spending and construction employment are expected to receive an additional boost in 2025 if the Federal Reserve continues to reduce interest rates as anticipated.
Tennessee Population Projections
Tennessee added 77,513 new residents between 2022 and 2023, a 1.1% increase that was more than double the U.S. growth rate of 0.5% during the same period. That growth placed Tennessee sixth in population growth among all states, behind only South Carolina, Georgia, North Carolina, Florida and Texas.
The Boyd Center updated its population projections earlier this year, predicting that Tennessee’s population will grow by 600,000 residents between 2020 and 2030. From 2030 to 2040, growth is expected to moderate to 427,000 new residents. This smaller increase is attributed to a slowdown in the record high levels of domestic in-migration following the pandemic, lower fertility rates and higher deaths among an aging population.
Artificial Intelligence and Tennessee’s Economy
The third chapter of the report focuses on the rapid growth of artificial intelligence and its potential economic implications. Tennessee is already preparing for AI integration through higher education and workforce development initiatives.
According to U.S. Census data, roughly 5% of U.S. firms use AI to produce goods and services, with Tennessee ranking 17th at 4.9%. Nationally, the highest AI adoption rates are in information (18.1%); professional, scientific and technical services (12%); and educational services (9.1%). The lowest adoption rates are in construction (1.4%); agriculture, forestry, fishing and hunting (1.4%); and transportation and warehousing (1.5%).
AI is expected to enhance economic efficiency, with a survey on AI adoption revealing that 55% of AI-adopting manufacturing firms in the U.S. reported cost savings while 66% reported revenue growth. AI is also expected to reduce task completion times significantly; a Microsoft analysis found that workers using AI tools could reduce task completion times by up to 73%. The report cites law clerks, tax preparers, proofreaders and pilots among the most AI-exposed professions, while the least exposed are HR managers, sales managers, cashiers and bartenders.
About the Boyd Center for Business and Economic Research
The Boyd Center for Business and Economic Research, a nonpartisan research hub within UT’s Haslam College of Business, conducts academic research on various public policy projects, including education, health, e-commerce, taxation, welfare and labor.
Since 1975, the Boyd Center has provided Tennessee’s governor with an annual economic report that includes an in-depth analysis of state and national trends and forecasts.
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MEDIA CONTACT:
Erin Hatfield (865-974-6086, ehatfie1@utk.edu)
Cindi King (865-974-0937, cking126@utk.edu)