2020 - Haslam College Of Business - UT

AN ECONOMIC REPORTTO THE GOVERNOROF THE STATE OF TENNESSEETHE STATE’SECONOMICOUTLOOKJANUARY2020

AN ECONOMIC REPORTTO THE GOVERNOROF THE STATE OF TENNESSEEMatthew N. Murray, Associate Director and Project DirectorBoyd Center for Business and Economic ResearchPREPARED BY THEBoyd Center for Business and Economic ResearchHaslam College of BusinessThe University of TennesseeKnoxville, TennesseeIN COOPERATION WITH THETennessee Department of Finance and AdministrationTennessee Department of Economic and Community DevelopmentTennessee Department of RevenueandTennessee Department of Labor and Workforce DevelopmentTHE STATE’SECONOMICOUTLOOKJANUARY2020

CONTRIBUTORSAN ECONOMIC REPORT TO THE GOVERNOR OF THE STATE OF TENNESSEEAUTHORSUT Boyd Center for Business and Economic ResearchMatthew N. Murray, Associate Director and Project DirectorWilliam F. Fox, DirectorEnda P. Hargaden, Assistant Professor of EconomicsMatthew C. Harris, Associate Professor of EconomicsLawrence M. Kessler, Research Assistant ProfessorVickie C. Cunningham, Research AssociateAlex S. Norwood, Research AssociateAdrienne M. Sudbury, Graduate Research AssistantHoward H. Baker Jr. Center for Public PolicyKatie A. Cahill, Associate DirectorThe Agri-Industry Modeling and Analysis GroupBurton C. English, Professor of Agricultural EconomicsKimberly L. Jensen, Professor of Agricultural EconomicsR. Jamey Menard, Research LeaderDepartment of Agricultural and Resource Economics, The University of Tennessee Institute of AgricultureAndrew Muhammad, Professor of Agricultural Economics and Blasingame Chair of ExcellenceAndrew Griffith, Assistant Professor of Agricultural EconomicsDavid Hughes, Professor of Agricultural Economics and Greever Chair of ExcellenceAaron Smith, Assistant Professor of Agricultural EconomicsEdward Yu, Associate Professor of Agricultural EconomicsPROJECT SUPPORT STAFFUT Boyd Center for Business and Economic ResearchBrittany Blair, Business ManagerErin Hatfield, Communications CoordinatorThe preparation of this report was financed in part by the following agencies: the Tennessee Department of Finance and Administration, the TennesseeDepartment of Economic and Community Development, the Tennessee Department of Revenue, and the Tennessee Department of Labor and WorkforceDevelopment.This material is the result of tax-supported research and as such is not copyrightable. It may be freely reprinted with the customary crediting of the source.ii 2020 TENNESSEE ECONOMIC REPORT

PREFACEThis 2020 volume of An Economic Report to the Governor of the State of Tennessee is the forty-fourth in aseries of annual reports compiled in response to requests by state government officials for assistance inachieving greater interdepartmental consistency in planning and budgeting efforts sensitive to the overalleconomic environment. Both short-term, or business cycle-sensitive forecasts, and longer-term, or trendforecasts, are provided in this report.The quarterly state forecast through the first quarter of 2022 and annual forecast through 2029represent the collective judgment of the staff of the University of Tennessee’s Boyd Center for Businessand Economic Research in conjunction with the Quarterly and Annual Tennessee Econometric Models.The national forecasts were prepared by IHS Markit. Tennessee forecasts, current as of December 2019,are based on an array of assumptions, particularly at the national level, which are described in ChapterOne. Chapter Two details evaluations for major sectors of the Tennessee economy, with an agriculturesection provided by the University of Tennessee Institute of Agriculture. Chapter Three presents thelong-run outlook and forecast for the state. Chapter Four discusses public health and wellbeing inTennessee. It highlights poor health as an economic problem in the state, and shows that improvinghealth across the state—over the long term—will lead to improved economic growth and prosperity forindividuals and in distressed areas.The primary purpose of this annual volume—published, distributed, and financed through theTennessee Department of Finance and Administration, Tennessee Department of Economic andCommunity Development, the Tennessee Department of Revenue, and the Tennessee Departmentof Labor and Workforce Development—is to provide wide public dissemination of the most-currentpossible economic analysis to planners and decision-makers in the public and private sectors.Matthew N. MurrayAssociate Director and Project DirectorBoyd Center for Business and Economic Research2020 TENNESSEE ECONOMIC REPORT iii

CONTENTSTABLE OF CONTENTSCHAPTER 1: THE U.S. ECONOMY. 11.1. Introduction.11.2. The U.S. Economy: Year in Review.3Consumption .3Investment.4Interest Rates.6Government Purchases.6The Declining Fertility Rate.7International Trade.9Inf lation & Prices.9The Labor Market.9Productivity & Wages .101.3. The U.S. Forecast.11Consumption.11The Labor Market.11Investment and Interest Rates.11Federal Budget.12International Trade.13Inf lation & Prices.13Predictors of the Next Recession.141.4. ALTERNATE SCENARIOS.16CHAPTER 2: THE TENNESSEE ECONOMY: SHORT-TERM OUTLOOK. 172.1. Introduction.172.2. The Current Economic Environment.18The Labor Market.18Income and Taxable Sales .25New Business Filings, a Leading Indicator?.27State Finances across the Nation.28The Southeastern States and Tennessee.282.3. Short-Term Outlook.282.4. Tennessee Forecast at a Glance.312.5. Tennessee’s Agricultural and Forest Industries and Rural Economy.32Introduction.32Agriculture and Primary Forestry.32Commodity Market Trends and Outlook.39U.S. and Tennessee Agricultural Trade Outlook.39Infrastructure.42iv 2020 TENNESSEE ECONOMIC REPORT

CONTENTSFarmers Markets, CSAs, Wineries, and the Green Industry.43Financial Indicators for Tennessee Farming Industries.45Primary Forestry in Tennessee.46Food, Fiber, and Forestry Manufacturing in Tennessee.46Economic Impacts from the Agri-forestry Industrial Complex.48Rural Economies and Well-Being.48Summary.49References.50CHAPTER 3: THE TENNESSEE ECONOMY: LONG-TERM OUTLOOK. 533.1. Introduction.533.2. Nonfarm Employment.54The Impact of Autonomous Vehicles on Tennessee Employment and Tax Revenues.603.3. Unemployment.623.4. Population and Labor Force.633.5. Artificial Intelligence in the Economy.65Sources.663.6. Income, Earnings and Output.673.7 Forecast at a Glance.70CHAPTER 4: PUBLIC HEALTH AND ECONOMIC WELLBEING IN TENNESSEE. 714.1. Introduction.71Achieving Health.724.2. Measuring Health Outcomes and the Determinants of Health.73Policies to Improve Health .774.3. The Case for Poor Health Being an Economic Drag on Tennessee.794.4. County Level Relationships between Health and Economic Growth – Tennessee and the U.S.854.5. Conclusion.88APPENDIX A: FORECAST DATA. 1Quarterly History Tables.2Annual Forecast Tables.26APPENDIX B: HISTORICAL DATA. 45Quarterly History Tables.46Annual Forecast Tables.702020 TENNESSEE ECONOMIC REPORT v

CONTENTSFIGURES AND TABLESCHAPTER 1: THE U.S. ECONOMY . 1Figure 1.1: U.S. GDP Growth Continues to Outpace International Competitors in 2019.1Figure 1.2: GDP Growth was Positive, but Slowing, in 2019.2Figure 1.3: Consumer Sentiment Fell Slightly in 2019.3Figure 1.4: Spending on New Auto Vehicles Continues to Decline, in Real Terms.4Figure 1.5: The Real Price of New Houses has Fallen Slightly in Recent Years.5Figure 1.6: Total Fertility Rate.7Figure 1.7: Decline in Overall Fertility is Driven by Younger Women.8Figure 1.8: Variations in Unemployment Rates, by State (2019).10Figure 1.9: Unemployment Rates by Age, Educational Attainment, Race and Ethnicity, and Gender(October 2018, Seasonally Adjusted).12Figure 1.10: The Federal Funds Rate Fell in 2019.13Figure 1.11: Recession Predictor: Yield Curve.14Figure 1.12: Recession Predictor: Sahm Curve.15CHAPTER 2: THE TENNESSEE ECONOMY: SHORT-TERM OUTLOOK. 17Table 2.1: Nonfarm Employment Growth across the Southeast Since the Great Recession .19Figure 2.1: Tennessee’s Workforce Has Largely Shifted From Manufacturing to the Service Sector.20Figure 2.2: Job Levels in Most Tennessee Sectors Have Fully Recovered Since the Great Recession.21Figure 2.3: Building Permits in both the US and Tennesseeare Still Well Below Pre-Recession Peak Levels.22Figure 2.4: Most Tennessee Counties Are Seeing Some Employment Growth in the First Quarter of 2019.22Figure 2.5: Since 2000, Labor Force Participation Rates for Both Tennessee andthe U.S. Have Been Declining, but the State Rate has Seen a Recent Uptick .23Figure 2.6: Unemployment Rates are Low Throughout Much of the Southeast Region.24Figure 2.7 Unemployment Rates are Lowest in CountiesContaining or Surrounding the Larger Metro Areas, September 2019.25Figure 2.8: The Majority of Southeast States Have Per Capita Income LevelsBelow the National Average. 2019Q2.26Figure 2.9: Only Three Tennessee Counties Have Per Capita Income Levels Above the National Average .27Figure 2.10: The Number of New Business Filings in Tennesseehas Increased for 31 Consecutive Quarters.27Figure 2.11: Nonfarm Job Growth is Projected to Trend Downward for Both Tennessee and the U.S. .29vi 2020 TENNESSEE ECONOMIC REPORT

CONTENTSTable 2.2: Selected U.S. and Tennessee Economic Indicators, Seasonally Adjusted, January 2020.30Table 2.3: Tennessee Cash Farm Receipts, 2014-2018.33Table 2.4: Tennessee Harvested Acres, Production, and Yieldfor Corn, Cotton, Soybeans, and Wheat, 2014-2019*.35Table 2.5: Marketing Year Average Prices for Tennessee, 2014-2019*.35Figure 2.12: 2019 MFP Payment Rates by County in Tennessee.36Figure 2.13: Estimated Per Planted Acre Subsidies for Tennessee Corn, Cotton, Soybean,and Wheat Producers, 2014-2018 (Excluding ARC/PLC Payments for 2018 Crop Year).38Table 2.6: Tennessee Agricultural Exports Reported by ERS, 2017 and 2018.40Table 2.7: Tennessee Agricultural Exports (Total Agriculture and Select Products)Before an

2020 TENNESSEE ECONOMIC REPORT iii Matthew N. Murray Associate Director and Project Director Boyd Center for Business and Economic Research PREFACE This 2020 volume of An Economic Report to the Governor of the State of Tennessee is the forty-fourth in a series of annual reports compiled in response to requests by state government officials for assistance in