TENNESSEE ECONOMIC OVERVIEW

(March Index as of June 19, 1996)

Evidence of continued strength in the Tennessee economy continues to pour in as both the Tennessee coincident and leading composite indices of state economic activity advanced in March. The coincident index, a barometer of the current economic climate, rose for the fifth straight month and has risen in seven of the previous eight months. The increase in the composite leading index, a yardstick of economic activity six to nine months into the future, also represented a fifth consecutive step forward. Other economic information from the Tennessee labor markets and the U.S. economy corroborate the view that the Tennessee economy has settled into a modest and sustainable growth pattern that is unlikely to experience large fluctuations in the foreseeable future.

March's value for the Tennessee coincident index rose at a seasonally adjusted annual rate (SAAR) of 4.8 percent as two of the three index components advanced. The U.S. composite index of coincident indicators inched up by 1.0 percent (SAAR), and the Memphis help-wanted index also made a positive contribution to the index with a jump from 121 to 130. Weighing in on the downside was a decrease in Tennessee commercial and industrial electricity consumption, a second straight decrease after a cold January and February demanded unseasonably heavy electricity consumption.

The Tennessee leading index registered a 1.7 percent (SAAR) gain as advancing components of the index outnumbered declining components three to two. The U.S. composite index of leading indicators weighed in on the positive side with a 2.4 percent (SAAR) increase, a third advance in four months for this broadly based input to the Tennessee leading index. Inflation-adjusted taxable sales showed continued strength, with a 35.5 percent (SAAR) burst, benefiting from depressed levels of sales in the previous month. Tennessee taxable mortgages, also adjusted for inflation, continued a bumpy ride with a 34.5 percent (SAAR) increase. Conversely, a negligible 4.3 percent (SAAR) expansion in initial claims for Tennessee unemployment insurance (UI) and a sizable reduction in Tennessee construction potentials partially offset the three positive components. Recall that a Tennessee construction potential (contract award) is defined as a project that is within sixty days of ground-breaking, the traditional beginning of the physical construction process. While the 74.5 percent (SAAR) dip in construction potentials may appear precipitous, the downturn must be tempered by the fact that the construction potentials series contains significant volatility, as witnessed by the previous two months of significant upswings.

News emanating from the Tennessee labor markets reinforced the positive indicator movements. The Tennessee unemployment rate fell sharply to 5.1 percent in March, down three-tenths of a percentage point. Meanwhile the U.S. unemployment rate inched up to 5.6 percent. The combination of these two opposing movements has once again positioned the Tennessee unemployment rate quite favorably below the national average. This gap between the national unemployment rate and the Tennessee rate, once a predictable mainstay for state economy, has re-established itself and reiterates the positive economic climate reflected in the coincident and leading indices. In other labor news, total nonagricultural employment surged forward at a SAAR of 14.2 percent, thereby pushing total employment up for the first quarter. The large increase in total employment came despite a seventh consecutive monthly dip in manufacturing employment. Both Tennessee and the U.S. have experienced diminished manufacturing employment concurrently with moderate growth in total employment. Finally, continued weeks claimed for unemployment insurance fell sharply in March, thereby mitigating the small increase in initial UI claims that served to dampen the increase in the Tennessee coincident index. Thus, the aggregate landscape of the state labor market doesn't appear to contain any snares or impediments to sustained economic growth.

U.S. consumer sentiment rebounded from two consecutive monthly declines with a 98.4 percent (SAAR) outburst in March. The rise in the consumer sentiment index suggests that consumers are gaining confidence in the economy and their ability to earn income sufficient to support purchases. The modest year-over-year growth in taxable sales could benefit from an upward spike in consumer confidence in Tennessee. Strength on both the consumer and producer sides of the Tennessee economy has laid the foundation for guarded optimism concerning the Tennessee economy in the near term. The decline in the Tennessee unemployment rate relative to the U.S. may be indicative of the flexibility inherent in the Tennessee economy, allowing it to reshape and meet the new demands of industry. March's coincident and leading indices give every indication that the trend of moderate growth without serious setbacks should continue well into the summer months.

TENNESSEE PERSONAL INCOME
 
                                    93/III  93/IV   94/I  94/II 94/III
----------------------------------------------------------------------
TN Personal Income (MIL $) (1).....  94765  96362  97882  99514 101120
  % Chg Prev Qtr SAAR..............   5.66   6.91   6.46   6.84   6.61
  % Chg Same Qtr Last Yr...........   6.47   4.63   6.94   6.47   6.71
 
TN Personal Income (MIL 87 $) (1)..  74736  75578  76530  77202  77845
  % Chg Prev Qtr SAAR..............   4.34   4.58   5.13   3.56   3.37
  % Chg Same Qtr Last Yr...........   3.87   2.50   5.10   4.40   4.16
----------------------------------------------------------------------
 
                                     94/IV   95/I  95/II 95/III  95/IV
----------------------------------------------------------------------
TN Personal Income (MIL $) (1)..... 104035 104783 106136 107761 109712
  % Chg Prev Qtr SAAR..............  12.04   2.91   5.27   6.27   7.44
  % Chg Same Qtr Last Yr...........   7.96   7.05   6.65   6.57   5.46
 
TN Personal Income (MIL 87 $) (1)..  79720  79865  98823  99964 101397
  % Chg Prev Qtr SAAR..............   9.99   0.73 134.43   4.70   5.86
  % Chg Same Qtr Last Yr...........   5.48   4.36  28.01  28.41  27.19
----------------------------------------------------------------------
 
                                      1993   1994   1995
--------------------------------------------------------
TN Personal Income (MIL $) (1).....  94032 100638 107098
  % Chg Prev Qtr SAAR..............   5.90   7.03   6.42
  % Chg Same Qtr Last Yr...........   5.90   7.03   6.42
 
TN Personal Income (MIL 87 $) (1)..  74269  77824  95012
  % Chg Prev Qtr SAAR..............   3.29   4.79  22.09
  % Chg Same Qtr Last Yr...........   3.29   4.79  22.09

ECONOMIC OVERVIEW,
SELECTED TENNESSEE MSAs

(March Index as of June 19, 1996)

CHATTANOOGA

The Chattanooga economic index engineered its third consecutive
monthly increase in March, rising at a seasonally adjusted annual rate
(SAAR) of 2.5 percent. March's advance was broadly based, as six of the
seven index components made positive strides. Chattanooga nonagricultural
employment rose 9.8 percent (SAAR), a respectable gain even in light of
the 14.2 percent (SAAR) surge in statewide employment. Moreover, initial
claims for unemployment insurance in Chattanooga fell for the fourth
straight month and the seventh month in the previous eight. Also making
positive contributions to the economic index were Chattanooga airport
passengers, up 10.5 percent (SAAR), and the Tennessee leading index, up
1.7 percent (SAAR) . Finally, the reduction in Chattanooga bankruptcies
from 520 to 513 helped propel the index forward. The only component to
work against growth in the index was Chattanooga commercial and
industrial electricity consumption, which fell 48.1 percent (SAAR)
following an unseasonably heavy month of consumption in February.

Further investigation of the Chattanooga business climate uncovers other signals of strength. With the first quarter of nonagricultural employment on the books, Chattanooga appears to have rebounded from a sluggish year of employment growth in 1995 despite the recent two months of declining manufacturing employment. This recent downturn in manufacturing employment is quite consistent with the statewide trend and reflects a broader economy that continues to come to grips with changing terms of trade. The growth in total employment in the first quarter and the decline in the March unemployment rate from 5.1 to 4.8 percent provides compelling testimony to the adaptability of the local economy.

The three-month string of advances in the Chattanooga economic index offers encouraging news, especially considering the broadly based increase in March. This recent strength in the index suggests that Chattanooga has likely weathered the economic storm and should see a steady but slow path of growth in the near term.

KNOXVILLE

Knoxville received a much-needed boost in its economic index for
March, surging at a seasonably adjusted annual rate (SAAR) of 21.5
percent following declines in five of the past six months. The magnitude
of the increase in the economic index for the month propelled the index
into positive overall growth for the first quarter, a heartening
accomplishment after a slow January and February. Advancing index
components led decliners by five to one, with only the increase in
Knoxville bankruptcies from 606 to 618 contributing adversely to the
economic index. All three labor-related index components fared well in
March, highlighted by an 8.5 percent (SAAR) bulge in total
nonagricultural employment. Moreover, the Knoxville help-wanted index
bolted upward and initial claims for unemployment insurance fell sharply
in March. The remaining positive index components were inflation-adjusted
Knoxville taxable sales, which reversed two consecutive declines with a
resounding increase, and the Tennessee leading composite index, which
rose 1.7 percent (SAAR).

Favorable movement in the labor market components of the Knoxville economic index, taken in conjunction with the decline in the Knoxville unemployment rate from 4.6 to 4.3 percent, suggests that the labor market is at or near a full employment level. Manufacturing employment held steady in March despite a statewide decline, and the number of new incorporations in Knoxville rose sharply from 105 to 143. The escalation in the help-wanted index, coupled with the lower claims for unemployment insurance, together point toward a potential shortfall in the labor required for substantial growth. On the consumer side of the Knoxville economy, inflation-adjusted taxable sales more than offset declines in January and February to end higher for the first quarter.

The increase in the economic index for March underscores the positive signals that the Knoxville labor market has been sending in recent months. Large growth rates in employment and the economic index will be difficult to engineer, however, due to the already fortuitous position of the Knoxville labor market. Expectations are for steady, moderate growth in the short term, with few surprises in either the positive or negative direction.

MEMPHIS

The Memphis economic index extended its streak of advancing months
to eight with a resounding 9.9 percent seasonally adjusted annual rate
(SAAR) increase in March, pushing the value of the index to a
twelve-month high. The relatively large upswing in the index was
attributable to favorable movements in all five index components. Memphis
nonagricultural employment rose for the sixth straight month and has now
experienced two consecutive quarters of flourishing growth. The Memphis
help-wanted index and the number of new incorporations also advanced in
March, helping to propel the index. Further support for the Memphis index
was obtained from the 26.4 percent (SAAR) decline in initial claims for
unemployment and the 1.7 percent (SAAR) advance in the Tennessee leading
composite index.

Additional economic data echo the positive sentiment expressed by the recent strength in the economic index. Taxable sales rebounded in March after a slow February, and construction potentials also rose. Since the Memphis economic index is heavily represented by labor market components, its recent success reflects favorably on the local labor scene. This sentiment gains reinforcement by the March dip in the Memphis unemployment rate from 4.6 to 4.4 percent, well below the state rate of 5.1 percent. One lingering source of concern is manufacturing employment, which experienced a 19.4 percent (SAAR) setback in March after a similar dip in February. Manufacturing employment represents roughly twelve percent of the total nonagricultural employment in Memphis. Tennessee, like many states, has experienced a gradual erosion of jobs in several manufacturing sectors. Memphis now appears to be deeply entrenched in this adjustment process. Growth in total nonagricultural employment is encouraging, but the lasting effects of the shift from manufacturing employment remain to be seen. Nonetheless, the predominately positive trends in the Memphis data suggest a generally prosperous local economy.

Two consecutive quarters of prolific growth in the Memphis economic index supply a clear indication of local strength. The low unemployment rate and a labor market near full employment are encouraging signals, although the weakness in manufacturing employment illustrates some underlying pains. Expect the local economy to enjoy sustained growth in the months to come.

NASHVILLE

Nashville's economic index rose slightly at a seasonally adjusted
annual rate (SAAR) of 1.1 percent in March, marking the fourth advance in
five months. As suggested by the small magnitude of the increase, the
index was mixed with an equal number of advancing and declining
components. Nonagricultural employment imparted a positive impact on the
index with an 8.7 percent (SAAR) increase that offset a February decline
and highlighted a first-quarter increase in total employment. Another
labor indicator, the Nashville help-wanted index, was up in March on the
heels of a similar advance in February. The remaining positive index
component was the Tennessee composite leading index, which advanced at a
SAAR of 1.7 percent. On the downside, inflation-adjusted taxable sales
dipped 22.9 percent (SAAR), a third decline in four months. Nashville
initial claims for unemployment insurance tempered the index with an
upturn of 800 claims. Nashville construction potentials, which dipped for
the month, also restrained the economic index.

Economic data not included in the compilation of the index were also mixed. The Nashville unemployment rate shaved a tenth of a point to 3.2 percent, a remarkably low level consistent with full employment. The number of new incorporations in Nashville plunged in March, equaling a twelve-month low. Manufacturing employment remained unchanged from February, completing a first quarter of positive but anemic manufacturing employment growth. Given the low unemployment rate and the recent strength in total nonagricultural employment, the Nashville labor market appears to be flourishing, with no signs of an impending setback. The small magnitude of the March advance in the Nashville economic index and the overall decline in its first-quarter performance are by no means indicative of a local downturn. The index remains perched at a high level and the unemployment rate is very low. All signs point toward continued prosperity and tempered growth in the Nashville economy.

TRI-CITIES

The Tri-Cities economic index punctuated February's advance with an
even larger upturn in March by posting a seasonally adjusted annual rate
(SAAR) increase of 10.7 percent. Advancing components outpaced their
declining counterparts four to two.  Both labor market contributions to
the index moved favorably in March, as Tri-Cities nonagricultural
employment rose 10.9 percent (SAAR) and initial claims for unemployment
insurance continued to fall following the January spike. Tri-Cities
inflation-adjusted taxable sales also chimed in with a 70.2 percent
(SAAR) gain, more than offsetting two previous downturns. The remaining
positive component was the Tennessee composite leading index, up 1.7
percent (SAAR) for the month. A slight increase in bankruptcies and a
small dip in commercial and industrial electricity consumption partially
offset the upward movement of the index.

Tri-Cities received a much-needed boost from the local labor market for March, but the local economic climate remains quite volatile. March's rise in nonagricultural employment was a particularly encouraging development, as it came on the heels of four consecutive monthly declines. The Tri-Cities unemployment rate continued its unstable progression as it fell six-tenths of a percentage point to 4.7 percent and now resides below the state average of 5.1 percent. Manufacturing employment, roughly 28 percent of total nonagricultural employment in the Tri-Cities, also rose for the first time in five months, an extremely optimistic signal.

March provided very encouraging news regarding the Tri-Cities economy. The strong performance of the economic index was partially fueled by a resurgence in the local labor market, which in turn boosted taxable sales on the spending side. Careful attention will be placed on the employment statistics in upcoming months. Tri-Cities appears to be poised for employment gains that would provide an engine of growth for other facets of the economy.

Center for Business and Economic Research, College of Business
Administration, The University of Tennessee, Knoxville.  For further
information, call CBER (423) 974-5441.

Data reported herein are seasonally adjusted, and therefore may not be directly comparable to data elsewhere. The five seasonally adjusted leading index components are Tennessee construction potentials, initial claims for Tennessee unemployment insurance, the U.S. leading index, inflation-adjusted taxable sales and taxable mortgages. The three seasonally adjusted coincident index components are Tennessee commercial and industrial electricity consumption, the Memphis help-wanted advertising index, and the U.S. coincident index. See the Fall 1988 issue of the Survey of Business and the 1994 Economic Report to the Governor for a complete discussion of the methodology underlying the Tennessee economic indices.

Economic Indicator Tables:  TN, US, and MSAs, March 1996
Tennessee Economic Overview, Current
CBER Home Page 

Last updated June 24, 1996