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Federal stimulus, labor market changes lead to boost in Tennessee GDP according to UT report

Workers in the U.S. brought home more money this year, leading to an increase in shopping and spending which boosted the state's GDP despite rising prices.

KNOXVILLE, Tenn. — Several University of Tennessee organizations prepared a detailed report on the state's economy, submitting it to Governor Bill Lee on Thursday. In that report, experts found that the state's real GDP was mostly recovered from the pandemic, as consumers felt more comfortable spending amid various shifts in aspects of the economy.

One of the largest changes to the state's economy was in its labor market, which recently reached an unemployment rate similar to March 2020. While the unemployment rate dropped, so did the state's labor force participation rate.

Experts said that fewer people were working or looking for work in the state, according to the report. Since the unemployment rate considers the number of people in the labor force, a smaller participation rate can cause a smaller unemployment rate.

"The unemployment rate can fall if there are fewer people seeking employment, which is in fact occurring presently," researchers wrote in the report.

The post-pandemic labor market also treats Black and White workers differently, according to the report. They said that White workers disproportionately left the labor force, choosing not to work. However, displaced Black workers are still searching for suitable jobs.

Those workers are in a position where they can expect more from their jobs, according to the report. The sudden shifts in the state's labor force has given workers the chance to find higher-paying jobs, or less-demanding ones.

"In August 2021, almost 4.5 million workers quit their jobs, and the pattern shows no signs yet of reversing," the report says. "These data suggest that firms having trouble hiring will likely need to increase (or continue increasing) wages or alter working conditions in a meaningful way to attract new workers."

The report says there are around 1 million fewer people in the state's labor force between 20 and 34 years old, and 800,000 fewer people between 45 and 54 years old.

Fewer people with bachelor's degrees were also in the workforce since many are likely to have financial cushions allowing them to take time away from work or shift to one-income households, instead of two-income households.

Some sectors are struggling to recover from the loss of workers. Employment gains in education and health services have stalled, the report said, largely due to worker burnout. Those sectors are not expected to fully recover until 2023.

However, the professional and business services sector has already fully recovered, since that sector has a large proportion of jobs that can be done remotely.

Workers who kept working through the pandemic saw higher personal incomes, according to the report. However, most of those gains were due to federal programs like the 2020 CARES Act and federal stimulus payments. With those programs in mind, personal income in Tennessee grew by 5% in 2020 and is expected to grow by 7.7% in 2021.

When those stimulus programs expire, the report estimates that personal income will grow at a far slower rate — only 2.1% in 2022.

In the meantime though, workers are more likely to spend money on durable goods like computers and cars. The report said sales were up 17.7%, along with food sales which also rose by 9.3% and personal service sales which rose by 5.8%.

Consumers also returned to in-person shopping as COVID-19 vaccines were distributed, according to the report. As vaccines were rolled out, consumers not only felt more comfortable going out but also felt more confident in their spending. More people started feeling like a purchase was worthwhile and felt less pressure to hold onto money, compared to the height of the pandemic.

"Fiscal stimulus coupled with the rollout of vaccines led to an increase in consumer confidence and a dramatic surge in consumer spending," the report says.

Taxable sales grew by 41.3% in the first quarter of 2021 and 23.4% in the second quarter. Due to changes in state law, those taxes include online sales which helped generate more money in the first half of the year. However, spending slowed down in the second half of the year due to the spread of the COVID-19 delta variant.

Still, taxable sales are expected to shoot up by 21.5% in 2021. 

The report was prepared by the Boyd Center for Business and Economic Research at UT. It also discusses the impact of supply chain issues and gives insight on the national economy too.