Opportunities and Challenges for Businesses in 2023
In addition to our regular monthly survey questions, we asked respondents to list what they see as their number one opportunities and challenges in 2023.
Opportunities included: filling backlog of orders as capital expenditures increase output, new residents continuing to relocate from other states, identifying new customers and markets, optimizing operations with more technology integration, improving supply chain leading to lower business costs and higher revenue, increased revenue for outdoor advertising, and securing more government contracts.
Challenges included: possible recession worries, labor availability, rising interest rates, cooling real estate market, possible decrease in consumer spending, keeping costs down, use of bots and artificial intelligence, clearing overstocked inventory, and staffing kitchens at restaurants.
Labor Market Information
The Knoxville MSA’s unemployment rate in December was 2.6% (down from 3.0% in November and down from the 2.9% rate in December 2021.) Knox County’s unemployment rate in December was 2.4% (down from 2.8% in November and down from 2.6% in December 2021.) Tennessee’s unemployment rate was 2.9% in December (down from 3.3% in November and down from 3.3% in last December.) The U.S. unemployment rate was 3.3% in December (down from 3.4% in November and down from the 3.7% unemployment rate recorded last December.)
The size of the total labor force slightly decreased from November to December at the local, state, and national levels. The Knoxville MSA’s labor force decreased 0.4% from 438,554 in November to 436,643 in December. Knox County’s labor force decreased 0.4% from 250,025 in November to 249,013 in December. Tennessee’s labor force decreased 0.4% from 3,300,320 in November to 3,286,597 in December. The national labor force was statistically unchanged, but still slightly decreased from 164,272,000 in November to 164,224,000 in December.
Below is the 13-month unemployment rates trending comparison for the four largest MSA’s in Tennessee –
(Source: U.S. Bureau of Labor Statistics; Tennessee Dept. of Labor & Workforce Development)
Job Market
For the month of December, there were 7,971 unique active job postings in the Knoxville MSA (down 13% from November and down 23.7% from last December.) There were 5,343 unique active job postings in Knox County (down 9.6% from November and down 23.9% from this time last year.)
The Top 10 industries (by number of job postings) in the Knoxville MSA in December were –
The Top 10 occupations (by number of job postings) in the Knoxville MSA in December were –
You can view the 13-month job postings trend for Knox County and the Knoxville MSA below.
(Source: Lightcast – formerly Emsi Burning Glass)
ADP National Employment Report®
Each month, ADP, a large-scale payroll and human resources company, in collaboration with the Stanford Digital Economy Lab, releases the National Employment Report®, which provides a high-level look at month-over-month private-sector employment changes across the country.
The January report shows a net gain of 106,000 in private-sector employment (down from the 235,000 net jobs gain in December.) Industry sectors showing positive job growth in January include Leisure and Hospitality (+95,000), Financial Activities (+30,000), Manufacturing (+23,000), Education and Health Services (+12,000), Professional and Business Services (+8,000), and Information (+5,000). Industry sectors posting job losses in January include Trade/Transportation/Utilities (-41,000), Construction (-24,000), and Natural Resources and Mining (-2,000). Other Services were unchanged.
By establishment size, large businesses (with 500+ employees) gained 128,000 jobs and mid-sized businesses (with 50-249 employees) gained 99,000 jobs. “Very Small” businesses (with 1-19 employees) lost 70,000 jobs, mid-sized businesses (with 250-499 employees) lost 35,000 jobs, and “Other Small” businesses (with 20-49 employees) lost 5,000 jobs.
(Source: ADP)
Worker Shortage Update
The labor shortages are persisting longer than many economists expected. There continues to be high job demand and slower workforce growth resulting in fierce competition for talent and many open jobs going unfilled. According to the latest data from the U.S. Bureau of Labor Statistics (BLS), the nation had 11 million jobs to fill in December and only 6.2 million hires, meaning there are approximately two job openings for every unemployed person.
In December, the largest increases in U.S. job openings were in accommodation and food services (+409,000), retail trade (+175,000), construction (+82,000), wholesale trade (+73,000), finance and insurance (+35,000), education services (+26,000), and arts/entertainment/recreation (+20,000).
The largest decreases in job openings were in information (-107,000), manufacturing (-39,000), other services (-32,000), real estate/rental/leasing (-22,000), and health care and social assistance (-6,000).
It will take time for this mismatch between labor demand and supply to align. In the meantime, wages will continue to rise as businesses compete to attract talent. You can read the latest job openings summary from BLS here.
Four Fast Growing, In-demand Skills that Are Disrupting Work
The Business-Higher Education Forum (BHEF), in partnership with the Burning Glass Institute and Wiley, recently released their inaugural “State of Skills” report, which identified four emerging digital skills that are the most disruptive and transformational for the workforce and industries going forward. After analyzing data from 228 million job postings from 2015 to present, the four fastest-growing, highest-demand emerging skill sets identified were artificial intelligence/machine learning (AI/ML), cloud computing, product management, and social media. The report notes that these four skills are not the only fast-growing skills but they are the most disruptive. The five-year growth rate for these four skill sets was 122% in 2021, compared to the 10% growth rate of the average skill over the same period. One out of eight job postings require one of these four emerging skills across multiple sectors including manufacturing and public administration.
While automation and robotics decrease the demand and wages for labor in sectors like the automotive industry in which there are about 7.5 robots per thousand workers (with each robot per thousand declining wages about 0.42%), new tech tools and apps are augmenting human work, boosting productivity, and accelerating high-growth skill sets for many other occupations.
There are some tech-related skill areas that the report refers to as “submerging.” Some of the larger skill sets that are in active decline due to comparatively slow or negative growth include business consulting, specialized sales, database architecture and administration, network protocols, web design and development, and Microsoft Development Tools. With more widespread use of several popular “low-code” apps, like Canva, Wix, and Squarespace, enabling businesses to do web development in-house, the demand for professional web developers has significantly decreased. Web developers do have considerable skill overlap with network engineers/architects in the cloud computing skill area that would provide an opportunity to transition from a job in decline to one with high-growth potential.
In order to build a workforce with these four emerging skills, colleges and employers need to actively engage in new strategic partnerships that directly address closing the skills gap.
You can download the “How Skills Are Disrupting Work” report from the Burning Glass Institute, the Business-Higher Education Forum, and Wiley here.
Consumer Price Index (CPI – Inflation Rates)
The national inflation rate from December 2021 to December 2022 is 6.5%. This is down from the 7.1% rate from November 2021 to November 2022. Last year, the national inflation rate was 7.0% from December 2020 to December 2021.
The December CPI report marks the sixth straight month that year-over-year inflation is below the June CPI high of 9.1%. While this could be an encouraging sign that runaway inflation may be winding down, high prices will likely linger longer.
From a year ago, airline fares are up 28.5%, natural gas prices are up 19.3%, electricity costs are up 14.3%, groceries are up 11.8%, eating out prices are up 8.3%, housing prices are up 7.5%, and new vehicle prices are up 5.9%. Used car prices are down 8.8% and gasoline prices are down 1.5% from last year. You can read more here.
To bring down inflation, the Federal Reserve has increased its benchmark interest rate several times this year. Higher interest rates mean higher borrowing costs throughout the economy. The Fed needs to be careful to not slow the economy down to the point that it triggers a recession.
Knoxville falls into the South Size Class B/C (population of 2.5 million or less) grouping. The current inflation rate for this region is 6.9% for the December 2021 to December 2022 period. This is down from 7.4% in the November 2021 to November 2022 period. Last year, the rate was 7.4% for December 2020 to December 2021.
(Source: U.S. Bureau of Labor Statistics; Consumer Price Index, not seasonally adjusted)
Housing Market
Home sales in the Knoxville area increased 3.9% from November to December to a seasonally adjusted annual rate (SAAR) of 18,446. Similarly, home sales in Knox County increased 2.2% from the previous month to a seasonally adjusted annual rate (SAAR) of 7,434. Compared to the previous year, home sales were down 26.9% in the Knoxville area and 22.7% in Knox County.
Nationally, existing-home sales decreased in December for the eleventh consecutive month to a seasonally adjusted annual rate of 4.02 million — down 1.5% from the previous month and 34.0% from a year ago. Home sales in the South decreased 2.2% from the previous month and 33.1% from a year prior.
The median home sales price in the Knoxville area was $318,000 in December, an increase of 9.7% from one year ago. Knox County’s median home sale price was $329,750 – up 6.41% from one year ago.
Twenty-three percent of homes sold for over-asking price in December, unchanged from the previous month. 11% of homes sold for at least $10,000 over asking and 4.7% sold for at least $25,000 over asking. New construction (i.e., “Never Occupied,” “To Be Built,” “Under Construction,” or “Under Roof”) represented 13.7% of total home sales.
Active inventory in the Knoxville area peaked in November 2022 and continued to fall through January. Overall, active listings are up 98% year-over-year but remain around 40% pre-pandemic levels. Inventory in Knox County was up 86% year-over-year in December. Half of homes sold in the Knoxville area were on the market for 16 days or less. Months of inventory, or the number of months it would take to exhaust active listings at the current sales rate, was 2.05 months.
Knoxville’s rental market continued to outpace the U.S. average in terms of both rent growth and occupancy in the fourth quarter of 2022 – a result of elevated migration since the pandemic and under-building over the past decade. Knoxville ranked among the top 10 metros with the fastest rent growth in Q4-2022, according to a report from the National Association of Realtors®.
According to Hancen Sale, Governmental Affairs and Policy Director at the Knoxville Area Association of Realtors®, “The housing market was essentially frozen during the second half of 2022 due to higher mortgage rates and deteriorating affordability. However, Knoxville’s housing market gained some momentum in December, enough momentum to land at No. 14 on WSJ/Realtor.com’s Winter Emerging Housing Markets Index. More inventory and a modest decline in mortgage rates over the past few weeks could provide a boost to the market, but home sales are still likely to remain well below 2022 levels during the first quarter of the year. Ultimately, the outlook for 2023 is highly dependent on the trajectory of inflation and mortgage rates.”
Also, the Knoxville Area Association of Realtors® recently released the 2023 Housing Market Forecast. East Tennessee’s housing market experienced extraordinary growth over the past two years, culminating in booming home sales and home prices growing at the fastest pace on record. Much of that growth can be attributed to a substantial supply-demand imbalance and fundamental market forces, such as favorable demographic trends, migration and, changing household composition. Other trends, such as pandemic-induced migration, fiscal stimulus, and ultra-low borrowing costs, were unique to the pandemic era, and their impact already is waning.
With mortgage rates at the highest level in more than a decade and widespread concerns about inflation, the pandemic-induced housing frenzy has come to its inevitable end. As a result, East Tennessee’s housing market is expected to recede in 2023, while retaining most of the gains accrued over the past two years.
You can also subscribe to KAAR’s monthly Market Pulse Newsletter here.
Knoxville Area Association of REALTORS® (KAAR) reports monthly home sales patterns using a seasonally adjusted annualized rate (SAAR), an adjusted rate that takes into account typical seasonal fluctuations in data and is expressed as an annual total. Comparing month-over-month housing market data using this method provides a more accurate depiction of home sales.
(Sources: National Association of Realtors®; Knoxville Area Association of Realtors)
(Sources: U.S. Housing & Urban Development – SOCDS – State of the Cities Data Systems; U.S. Census Bureau – Building Permits Survey)
National Retail Sales
The total advance monthly retail sales estimate for December 2022 was $749.395 billion (up 7.6% from November and up 4.8% from last December.)
The retail sectors that showed the greatest growth from last December were Food Services and Drinking Places (+21.9%), Non-store Retailers (+17.4%), Food and Beverage Stores (+5.2%), Gasoline Stations (+5.1%), and Health and Personal Care Stores (+3.9%).
Retail sectors that showed the greatest decline in sales from last December were Electronics and Appliance Stores (-10.5%), Miscellaneous Stores (-8.5%), Furniture and Home Furnishings Stores (-6.7%), Motor Vehicle and Parts Sales (-3.8%), and Clothing Stores (-2.2%).
(Sources: U.S. Census Bureau; Advance Monthly Retail Trade Reports, not adjusted)
Tennessee State and Local Sales Tax Collections
The Knoxville MSA region collected $114.597 million in state sales taxes in December (down 4.6% from November and up 4.1% from last December) and Knox County collected $74.908 million in December (down 4.8% from November and up 3.7% from last December.) The state of Tennessee collected $1.123 billion in state sales taxes in December (down 0.9% from November and up 5.6% from last December.)
The Knoxville MSA collected $43.223 million in local sales taxes in December (down 1.6% from November and up 5.1% from last December) and Knox County collected $26.522 million (down 3.3% from November and up 4.1% from last December.)
(Source: Tennessee Department of Revenue)
Recent Business Expansions and New Business Announcements in the Knoxville Region
In this section of ECO, we share announcements of businesses that are expanding their existing operations or locating a new facility in the Knoxville region. If you would like to share your business expansion announcement with us, please send your info to [email protected].
New and existing industries continue to invest in the Knoxville region.
January 24, 2023 – Safire Technology Group, a Tysons, Virginia-based startup that is developing lithium-ion battery safety technology licensed from Oak Ridge National Laboratory (ORNL), announced it will open a research and development (R&D) laboratory at the University of Tennessee Spark Innovation Center. The laboratory will support the growth of the company’s R&D division and continued innovation of its patented SAFe Impact Resistant Electrolyte (SAFIRE™) drop-in additive for lithium-ion batteries that prevents fires and explosions in electric vehicle (EV) and eBike crashes. The additive was invented at ORNL. The new laboratory will initially create 15 new jobs – mostly high-paying executive, scientific, and engineering positions. You can read more here.
January 31, 2023 – AT&T and the University of Tennessee (UT) announced the opening of the AT&T 5G Lab at the UT Research Park at Cherokee Farm. The new lab will foster collaboration on high-speed internet research in such areas as precision agriculture, telemedicine, sports, and transportation. 5G wireless technology uses high-speed mobile broadband networks with ultra-low latency and better data capacity for consumers. UT is one of only six universities in the nation to collaborate with AT&T on advanced research initiatives. You can read the UT press release here.
Knox County Business Licenses
New business licenses issued in December 2022 by Knox County are down 49.4% from December 2021 during the pandemic and are down 18.6% from the pre-pandemic December 2019 count.
A total of 79 new business licenses were issued in December 2022 compared to 156 in December 2021 and 97 in December 2019. The top industry sectors for which business licenses were issued in December 2022 were services, retail, construction, and non-classified establishments.
Below is a chart showing the 13-month trend of business licenses issued by Knox County.
(Sources: Knox County Clerk)
New $6 Million Fund to Increase Local Small Busisness Lending
Pathway Lending, a certified Community Development Financial Institution, is collaborating with First Horizon, Pinnacle Financial Partners, and Regions Bank to recapitalize its existing loan fund in the Knoxville region and rebrand it as the 865 Opportunity Fund.
The $6 million in new capital will provide loans between $5,000 and $50,000 to eligible small businesses, helping address a funding gap in the business capital continuum identified in the Knoxville Chamber’s Capital Access Redefined report. The fund is part of a collaborative effort aimed at expanding Knoxville’s small business ecosystem, with funding focused on minority- and woman-owned businesses in Anderson, Blount, Grainger, Jefferson, Knox, Loudon, Roane, Sevier, and Union counties.
To support the new loan fund and collaboration, Pathway Lending welcomes Aaron Owen as its new vice president of lending for the Knoxville region. Owen brings with him over a decade of banking experience. Small business owners interested in learning more about application requirements and funding opportunities may contact him at (865) 321-3050 or [email protected], or visit PathwayLending.org/865fund. You can read more here.
Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Funding
The Small Business Innovation Research (SBIR) program is a federal funding program that awards grants or contracts to small businesses to conduct research and development (R&D). Recipient projects must meet specific R&D needs of the federal government and must have commercialization potential. The program is coordinated by the Small Business Administration (SBA).
The Small Business Technology Transfer (STTR) program is very similar to the SBIR program except that the STTR requires the small business to partner with a research institution which must be awarded a minimum of 30% of the total grant funds.
SBIR/STTR grants are awarded annually to nearly 5,000 startups and small businesses throughout the nation. In 2022, there were 12 SBIR awards in the state of Tennessee (of which five or 42% of the awards were in the Knoxville area). There were also nine STTR grant recipients in Tennessee (four of which were in the Knoxville area).
Below is a table showing the five-year history of SBIR/STTR awards in Tennessee and the Knoxville area –
The SBIR grant recipients for 2022 in the Knoxville area are Analysis and Measurement Services Corp., Cryomagnetics, Millennitek (1), Millennitek (2), and Ultrasonic Technology Solutions.
The Knoxville area STTR grant recipient for 2022 are American Nanotechnologies, Analysis and Measurement Services Corp., and ReMaxCo Technologies.
In addition to the federal SBIR/STTR grants, Launch Tennessee (LaunchTN) has a grant-matching program for SBIR/STTR recipient businesses to further help entrepreneurs advance the commercialization of technology across the state. Requirements for receiving state matching funds are that the business be based in Tennessee for at least the next 24 months and commit to semi-annual reporting to LaunchTN. You can read more here.
McGhee Tyson Airport (TYS) Passenger and Freight Trends
The Metropolitan Knoxville Airport Authority recorded 202,243 passengers in December (down 5.2% from November’s passenger traffic of 213,345 and up 9% from December 2021 during COVID.) This month’s passenger estimate is down 5.5% from pre-COVID December 2019.
The total freight recorded in December at TYS was 6,974,764 pounds (up 0.3% from November and down 11% from last December.)
According to the Transportation Security Administration, the average daily number of passengers passing through the nation’s TSA checkpoints in December was 2,117,678 (up 11.6% from the December 2021 daily passenger average of 1,897,429 but still down 6.7% from the pre-COVID December 2019 average of 2,270,160.) You can view the daily TSA checkpoint travel numbers here.
According to the International Air Transport Association (IATA), “The US domestic market demand remained strong in December and throughout the year. Revenue-passenger-kilometers (RPKs) reached 94.1% of 2019 traffic in 2022 and the month of December fell 8.7% short of December 2019 traffic levels.” You can read more here.
(Sources: Metropolitan Knoxville Airport Authority; U.S. Transportation Security Administration; International Air Transport Association)
