Tracking Tennessee's Economy

by Reuben Kyle, Ph.D.

The Current Economic Contraction

Contraction and expansions of the U.S. economy are dated by the National Bureau of Economic Research (NBER) a private, non-profit, non-partisan research organization composed of academic and non-academic economic researchers from across the country. The NBER Business Cycle Dating Committee is the group that determines the date of the beginning and end of phases of U.S. business cycles.

The committee offers the following statement regarding the determinants for dating turning points:

The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. For more information, see the latest announcement from the NBER's Business Cycle Dating Committee, dated 12/01/08.

As of April 2009, the recession was in its 17th month which makes it longer than any post-World War II contraction to date. The recessions of July 1981 to November 1982 and November 1973 to March 1975 both lasted 16 months. By comparison, total employment during the 1981-82 recession fell by 3.1 percent from the beginning of the recession to its bottom while, so far in the current contraction, employment has fallen by over 4.2 percent.

Non-Farm Employment

Non-Farm Employment




Source:  U.S. Department of Labor and MTSU Business and Economic Research Center

The above chart shows the number of Tennesseans in the labor force and the total number employed since January 2005. The labor force is defined as the number of persons, aged 16 and older, who are employed or are actively seeking work. That number typically moves up and down as the economy expands and contracts. The data are provided for non-farm employment only on a monthly basis since farm employment is highly seasonal.

Employment by Sector for Tennessee

Employment by Sector for Tennessee Table


The unemployment rate is not necessarily the best gauge of the state of economy as employers often resist laying workers off at the beginning of a contraction and are slow to recall them as the economy begins to expand again. For example, during the ‘81-82 recession the unemployment rate in July 1981, at 7.3 percent, was lower than it had been the year prior and the unemployment rate peaked in December 1982 at 10.5 percent. In December 2007 the national unemployment rate was 4.6 percent while currently the U.S. unemployment rate is 8.5 percent.

Unemployment Rate

Graph of Unemployment Rate Tennessee and United States Jan 2005 - March 2009

As can be seen from the graph of the U.S and Tennessee unemployment rates the state economy does not track perfectly with the national economy. [That observation is even more true in comparisons among the three Grand Divisions of Tennessee and rural versus urban counties]. Again, comparing Tennessee’s experience in the 1981-82 recession with the current situation and the national economy there are substantial differences.

At the beginning of the national recession in July 1981, Tennessee’s unemployment rate stood at 9.3 percent, almost two percentage points higher than in July 1980 and exactly two percentage points higher than the national rate. In December 2007 Tennessee’s unemployment rate was 5.3 percent, less than one percentage point above the national rate. When the national economy bottomed out in November 1982, the Tennessee unemployment rate stood at 12.3 percent, still nearly two percentage points higher than the national rate. As of April 2009 the Tennessee rate is 9.6 percent or just less than one percentage point above the U.S. unemployment rate.

Table of Unemployment Rate for Tennessee Metropolitan Statistical Areas

Building Permits Issued

Construction activity has been one of the strengths of the Tennessee economy for many years. Nationwide the number of new privately owned housing units permitted in 1981 averaged more than 82,000 units per month by the end of the 1981-82 recession that number had increased by more than 1,200 units. At the beginning of the current recession the average number of units authorized was 116,500 per month and currently the number has fallen to slightly more than 37,000. In Tennessee, from 1981 to 1982 the monthly average number of housing units permitted rose from 973 to 1,233. In December 2007, the number of units permitted was 1,669 down from a peak of 5,000 in March 2006 and in February 2009 the number was 984 units.

Graph of Building Permits Issued in Tennessee January 2007 through February 2009