KNOXVILLE—An abnormally harsh winter led to lackluster economic growth the first quarter of 2014, but a dip in unemployment rates and expected increases in housing investments signal stronger gains for the remainder of the year.
The gross domestic product is expected to increase 2.4 percent this year as a whole, compared to 1.9 percent last year, according to the spring 2014 Tennessee Business and Economic Outlook released Friday at the University of Tennessee in Knoxville.
The national unemployment rate will likely average 6.5 percent this year compared to 7.4 percent last year, the report shows. It is expected to decrease to 6 percent in 2015.
The study, prepared by UT’s Center for Business and Economic Research, predicts the direction of the state and national economies by examining many economic and fiscal factors and trends.
“Overall, 2014 should be a year of healthy economic growth for the national economy,” said Matt Murray, CBER associate director and the report’s author.
He noted that nonresidential and residential housing investments and consumer spending on durable goods will drive growth in 2014 and 2015.
Nationally, payroll employment slowed in the first quarter but is expected to be up 1.8 percent, a slight increase from 1.7 percent in 2013.
Exports will increase only slightly, from 2.7 percent last year to 2.8 percent this year. The report indicates the sluggish global growth is related in part to the slowdown in China and the crisis in Ukraine.
Vehicle sales continue to improve and by 2016 will surpass pre-recession levels.
Frigid winter temperatures affected consumer spending due to high natural gas sales and led to the poor performance in the labor market and in employment gains during the first quarter, the report shows. But both sectors are bouncing back and will continue to see gains as the year progresses.
Nonfarm employment will increase by 1.8 percent this year and 1.9 percent next year. The manufacturing sector is also expected to see employment gains over the next three years, according to the report.
The state unemployment rate will average 6.5 percent in 2014 and then fall to 6.1 percent in 2015, according to the report.
“This would be an important milestone, as Tennessee’s unemployment rate has not fallen below 6.5 percent since 2008,” Murray said.
Tennessee’s unemployment rate now aligns with the national rate. In 2013, the state’s rate was 8.2 percent while the national rate averaged 7.4 percent. The state unemployment rate did, however, fall to 6.9 percent in the first quarter of 2014 while the national rate dropped to 6.7 percent. March data show the state rate dipping to 6.7 percent, the same as the national rate of unemployment.
Overall, the state’s economy fared well in the last quarter of 2013 and the beginning of this year, the report shows.
Personal income grew faster than the national average in the last two quarters and taxable sales continued to expand. Nonfarm job growth in the state outpaced the nation during the last quarter of 2013. Tennessee also kept pace with the nation’s employment gains in the first quarter of 2014.
Jobs in Tennessee’s manufacturing sector, however, decreased in the first quarter for the first time in 12 consecutive quarters. In comparison, U.S. manufacturing employment showed moderate growth.
The state will experience 1.6 percent growth in nonfarm payroll this year, slightly below the 1.8 percent gain expected for the U.S. The state and the nation are expected to see job gains in manufacturing this year and in 2015.
For a third consecutive year, manufacturing employment in the state expanded, increasing by 1.7 percent in 2013. This is well above the 0.7 percent rate of growth in manufacturing jobs in the nation. Statewide manufacturing gains have been driven by growth in durable goods employment, which can be attributed in part to growth in the transportation equipment industry.
Taxable sales growth is expected to reach 3.4 percent for the year, compared to 3 percent last year. It is expected to increase another 3.6 percent in 2015. Much of the increase will be driven by hotel and motel sales and sales in other retail service sectors and automobile dealers.
To read the entire report, visit http://cber.bus.utk.edu/tefs/spr14.pdf.