Economic Conditions Outlook

July 2024

Welcome to the July 2024 issue of ECO, financed by First Horizon Bank, the Knoxville Chamber’s monthly economic outlook analysis.

Each month, we provide a varied list of economic indicators with subsequent insight into how the data and information may impact the region. A major component of this work is our quarterly survey of businesses in the manufacturing, retail, and service sectors, which we leverage to gauge current economic conditions and gain insights into the economic outlook for the next six months. We also include traditional labor market, housing, sales tax, and airport information as well as impromptu information as it becomes available.

We hope that ECO – financed by First Horizon Bank will help our regional business community make more informed decisions as they run their businesses.

Survey Note: Beginning January 2024 and going forward, the Economic Conditions Outlook (ECO) Survey is being conducted on a quarterly basis instead of monthly.

See Previous Issues

Jump to Analysis:

New Overtime Rule	Labor Market
Airport Freight and Passenger Trends	National Employment Report
Consumer Price Index/Inflation Rates	National Retail Sales
Housing Market	Recent Expansion Announcements
Job Market	State and Local Sales Tax
Knox County Business Licenses	UTK Research Foundation Ranking
Knoxville's Brain Drain is Worse than it Appears	Worker Shortage Update

Economic Survey Results by Industry

Based on the response to the Quarter 3 (July 2024) survey, the evaluation of the level of general business activity is split evenly between “improved” and “the same” while company outlooks are reported as “improved.” (In the last quarter, the evaluation of the level of general business activity and company outlooks were reported as being “the same.”)

The Quarter 3 current indicator responses show “no changes” for unfilled orders, delivery time, prices received for finished goods, and average employee workweek. Production, capacity utilization, volume of new orders, and growth rate of orders have “increased.” The volume of shipments, finished goods inventories, prices paid for raw materials, wages and benefits, number of employees, and capital expenditures are all split evenly between “increase” and “no change.” (In the last quarter, responses showed “increases” in production, capacity utilization, volume of new orders, volume of shipments, average employee workweek, and capital expenditures. “No changes” were reported for the growth rate of orders, unfilled orders, delivery time, finished goods inventories, wages and benefits, and number of employees. The prices paid for raw materials and the prices received for finished goods were evenly split between “increase” and “no change.”)

The six-month outlook in Quarter 3 anticipates “increases” in production, capacity utilization, volume of new orders, growth rate of orders, volume of shipments, finished goods inventories, wages and benefits, and number of employees. “No changes” are expected for delivery time, prices received for finished goods, and average employee workweek. Unfilled orders, prices paid for raw materials, and capital expenditures are split evenly between “increase” and “no change.” (The six-month outlook in the last quarter expected “increases” in production, capacity utilization, volume of new orders, volume of shipments, and number of employees. “No changes” were forecasted for unfilled orders, delivery time, wages and benefits, average employee workweek, and capital expenditures. Prices paid for raw materials were evenly split between “increase” and “decrease.” The growth rate of orders, finished goods inventories, and prices received for finished goods were all split between “increase” and “no change.”)

Knoxville area retailers indicated in the Quarter 3 (July 2024) survey that their evaluation of the level of general business activity and company outlooks have mostly “worsened.” (In the last quarter, retailers expressed the same sentiment.)

The Quarter 3 current indicator responses show “no changes” in the number of part-time employees and average employee workweek. Input prices have mostly “increased.” The number of full-time employees, wages and benefits, capital expenditures, and inventories are mostly split between “increase” and “no change.” Net sales revenue, internet sales, and selling prices are mostly split between “decrease” and “no change.” (In the last quarter, responses showed mostly “no changes” in internet sales, the number of both full-time and part-time employees, the average employee workweek, and capital expenditures. There were mostly “increases” in wages and benefits and input prices. Inventories were split between “increase” and “no change.” Net sales revenue was “mixed.”)

The six-month retail outlook in Quarter 3 projects mostly “no changes” in the number of full-time and part-time employees as well as the average employee workweek. Input prices as well as wages and benefits are expected to “increase.” Net sales revenue and selling prices are mostly split between “increase” and “decrease.” Internet sales and capital expenditures are mostly split between “decrease” and “no change.” (The six-month outlook in the last quarter anticipated mostly “increases” in wages and benefits and input prices. Mostly “no changes” were expected in internet sales and the number of both full-time and part-time employees. Net sales revenue was forecasted to mostly “decrease.” The average employee workweek and inventories were mostly split between “increase” and “no change.” Capital expenditures were mostly split between “decrease” and “no change.” Selling prices were “mixed.”)

Knoxville area service sector businesses report in the Quarter 3 (July 2024) survey that their evaluation of the level of general business activity and company outlooks are mostly “the same.” (The evaluation of the level of general business activity was mostly “the same” and company outlooks were almost split evenly between “improved” and “the same” in the last quarter.)

The Quarter 3 current indicator responses show mostly “no changes” in the number of part-time employees, average employee workweek, wages and benefits, and selling prices. The number of full-time employees, input prices, and capital expenditures have mostly “increased.” Revenue is mostly split between “decrease” and “no change.” (In the last quarter, responses showed mostly “increases” in revenue and input prices. The number of full-time employees, wages and benefits, and capital expenditures were almost split evenly between “increase” and “no change.” The number of part-time employees and selling prices showed mostly “no changes.”)

The six-month outlook in Quarter 3 projects mostly “increases” in revenue, the number of full-time employees, input prices, and capital expenditures. Mostly “no changes” are expected in the number of part-time employees, average employee workweek, and wages and benefits. Selling prices are split between “increase” and “no change.” (The six-month outlook in the last quarter anticipated mostly “increases” in revenue, input prices, and capital expenditures. “No changes” were mostly expected in the number of both full-time and part-time employees and the average employee workweek. Selling prices were almost evenly split between “increase” and “no change.”)

Note: We are still growing the number of participating companies, so response totals in some areas may be fairly small. If you are interested in being a participant in our quarterly surveys, please register HERE.

How the U.S. Department of Labor’s New Overtime Rule Affects Businesses

In April 2024, the U.S. Department of Labor (DOL) published a final rule that will raise the salary thresholds for certain overtime exemptions under the federal Fair Labor Standards Act (FLSA). The new rule is expected to result in about 4 million employees losing their exempt status under the FLSA. Employers must therefore either raise the salaries paid to such employees to maintain the exemption or reclassify their positions to non-exempt, paying them an hourly wage and overtime, where applicable. The first salary threshold increase, from $35,568 per year to $43,888 per year, takes effect July 1, 2024, and includes an automatic updating mechanism on January 1, 2025, on July 1, 2027, and again every three years thereafter.

We asked survey respondents if they had a chance to look at the U.S. DOL’s new overtime rules and if they did, would it have a significant impact on their business. The majority of respondents (65%) said they did read the new overtime rules. The impacts include having to change some salaried employees to hourly, changing the way some salaried employees are managed, and raising the salaries of some full-time employees and some managers. Raising wages will be much more of a challenge for small businesses versus larger ones.

Labor Market Information

The Knoxville MSA’s unemployment rate in June was 3.4% (up from 2.6% in May and down from 3.6% in June 2023.) Knox County’s unemployment rate in June was 3.2% (up from 2.4% in May and down from 3.3% in June 2023.) Tennessee’s unemployment rate was 3.7% in June (up from 2.8% in May and down from 3.8% in last June.) The U.S. unemployment rate was 4.3% in June (up from 3.7% in May and up from 3.8% in last June.)

The size of the total labor force slightly increased from May to June at the local, state, and national levels. The Knoxville MSA’s labor force increased 0.5% from 448,327 in May to 450,605 in June. Knox County’s labor force increased 0.4% from 256,067 in May to 256,987 in June. Tennessee’s labor force increased 0.7% from 3,404,227 in May to 3,426,425 in June. The national labor force increased 0.9% from 167,576,000 in May to 169,007,000 in June.

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 June, there were 9,257 unique active job postings in the Knoxville MSA (down 9.3% from May and down 6.2% from last June.) There were 6,181 unique active job postings in Knox County (down 6.7% from May and down 6.2% from this time last year.)

The Top 10 industries (by number of job postings) in the Knoxville MSA in June were –

The Top 10 occupations (by number of job postings) in the Knoxville MSA in June 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 July report shows a net gain of 122,000 in private-sector employment (down from the 150,000 net jobs gain in June.) Industry sectors showing positive job growth in July include Trade/Transportation/Utilities (+61,000), Construction (+39,000), Leisure and Hospitality (+24,000), Education and Health Services (+22,000), Other Services (+19,000), Financial Activities (+14,000), and Natural Resources and Mining (+2,000). The industry sectors showing negative job growth in July are Professional and Business Services (-37,000), Information (-18,000), and Manufacturing (-4,000).

By establishment size, large businesses (with 500+ employees) gained 62,000 jobs, mid-sized businesses (with 50-249 employees) gained 55,000 jobs, mid-sized businesses (with 250-499 employees) gained 15,000 jobs, and “Very Small” businesses (with 1-19 employees) gained 15,000 jobs. The job gains were offset by “Other Small” businesses (with 20-49 employees), which lost 22,000 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 8.2 million jobs to fill and only 5.3 million hires in June, meaning there are 1.5 job openings for every unemployed person.

In June, the largest increases in U.S. job openings were in accommodation and food services (+120,000), transportation/warehousing/utilities (+62,000), wholesale trade (+47,000), retail trade (+43,000), and other services (+4,000).

The largest decreases in job openings were in manufacturing (-100,000), construction (-71,000), health care and social assistance (-62,000), financial activities (-48,000), professional and business services (-27,000), information (-25,000), private educational services (-24,000), and arts/entertainment/recreation (-14,000).

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.

The Knoxville MSA Trails Most of Its Peers on WalletHub’s “Most & Least Educated Cities in America”

WalletHub, the personal financial website, recently ranked the 150 largest metropolitan statistical areas (MSAs) based on 11 key metrics ranging from the share of adults aged 25+ with a bachelor’s degree or higher to the quality of the public school system to the gender education gap. Based on a 100-point total score scale, the Knoxville MSA ranked #91 with a score of 51.24. The rankings of Knoxville’s peer MSAs by total score were #4 Durham-Chapel Hill, NC (81.32); #7 Raleigh-Cary, NC (79.56); #13 Huntsville, AL (71.82); #24 Lexington, KY (66.77); #31 Asheville, NC (63.31); #43 Nashville, TN (60.69); #85 Greenville, SC (52.79); #108 Memphis, TN (47.20); and #109 Chattanooga, TN (46.91). The top five MSAs in the nation were #1 Ann Arbor, MI; #2 San Jose, CA; #3 Washington, DC; #4 Durham-Chapel Hill, NC; and #5 Madison, WI. You can read more here.

Consumer Price Index (CPI – Inflation Rates)

The national inflation rate from June 2023 to June 2024 is 3.0%. This is down from 3.3% in the May 2023 to May 2024 period. Last year, the national inflation rate was 3.0% from June 2022 to June 2023.

The June CPI report marks the twenty-fourth straight month that year-over-year inflation is below the June 2022 CPI peak high of 9.1%. High prices for some items will likely linger longer.

From a year ago, auto insurance is up 19.5%, auto repair services are up 6.0%, housing prices are up 5.2%, electricity costs are up 4.4%, eating out prices are up 4.1%, natural gas prices are up 3.7%, groceries are up 1.1%, and apparel is up 0.8%.

From a year ago, used car prices are down 10.1%, airline fares are down 5.1%, gasoline prices are down 2.5%, and new vehicle prices are down 0.9%.

On July 31, the Federal Reserve indicated that economic activity has been expanding at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. There has been some further progress toward the Fed’s 2 percent inflation objective. The Fed is committed to achieving maximum employment and inflation at the rate of 2 percent over the longer run. The Fed will keep the federal funds rate at the current 5 ¼ to 5 ½ percent for now, but Fed Chair Jerome Powell said “the economy is moving closer to the point where it will be appropriate to reduce our policy rate. That time is drawing near. That time could be in September if the data support that.” You can read more here and view the 7/31/24 FOMC press conference here.

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 2.7% for the June 2023 to June 2024 period. This is down from 3.0% in the May 2023 to May 2024 period. Last year, the rate was 3.0% from June 2022 to June 2023.

(Source: U.S. Bureau of Labor Statistics; Consumer Price Index, not seasonally adjusted)

Housing Market

Home sales in East Tennessee declined 18.9% from May to June, a seasonally adjusted annual rate (SAAR) of 17,255. By comparison, home sales in Knox County declined 19.7% from the previous month to a seasonally adjusted annual rate (SAAR) of 6,656. Compared to the previous year, home sales were down 9% in the East Tennessee region.

The median home sales price across the East Tennessee region was $375,000 in June, up 7.58% from a year ago. Knox County’s median home sale price was $399,450, an increase of 2.29% from a year ago

Half of the homes sold across the East Tennessee region went under contract in 13 days or less, which remained the same as the previous month.

Active inventory in the East Tennessee region increased in June, with the total number of active listings up 41% from a year ago.

Months of inventory, or the number of months it would take to exhaust active listings at the current sales rate, was 3.33 months.

The annual effective rent change in Knoxville has continued to decrease each quarter since Q1 2023. The average rent slightly increased in Q2 to $1,482. This is only a $34 increase over Q1 2024 and continues to show a decrease in rent growth in the Knoxville area.

You can subscribe to the East Tennessee REALTORS® monthly Market Pulse Newsletter here.

East Tennessee REALTORS® 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®; East Tennessee 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 June 2024 was $703.632 billion (down 5.3% from May and down 0.2% from last June.)

The retail sectors that showed sales growth from last June were Food Services and Drinking Places (+5.9%), General Merchandise Stores (+5.1%), Non-store Retailers (+2.2%), Food and Beverage Stores (+1.1%), and Clothing Stores (+1.0%).

Retail sectors that showed a decline in sales from last June were Miscellaneous Stores (-7.9%), Building Materials (-6.5%), Motor Vehicles and Parts Sales (-5.0%), Sporting Goods/Books/Hobby/Music Stores (-4.9%), Gasoline Stations (-3.9%), Furniture and Home Furnishings Stores (-3.0%), and Health and Personal Care Stores (-0.3%). Electronics and Appliance Stores were unchanged.

(Sources: U.S. Census Bureau; Advance Monthly Retail Trade Reports, not adjusted)

Tennessee State and Local Sales Tax Collections

The Knoxville MSA region collected $133.078 million in state sales taxes in June (up 1.8% from May and up 3.2% from last June) and Knox County collected $85.727 million in June (up 1.9% from May and up 1.9% from last June.) The state of Tennessee collected $1.228 billion in state sales taxes in June (up 2.7% from May and up 3.2% from last June.)

The Knoxville MSA collected $46.922 million in local sales taxes in June (up 1.7% from May and up 3.1% from last June) and Knox County collected $28.569 million (up 1.3% from May and up 2.0% from last June.)

(Source: Tennessee Department of Revenue)

Tennessee Falls Five Spots on CNBC’s Annual Rankings of “America’s Top States for Business in 2024”

Tennessee placed a respectable #8 on CNBC’s annual rankings of “America’s Top States for Business,” but it also shows a drop from the #3 spot on last year’s list. CNBC ranks all 50 states using 128 metrics in ten broad categories of competitiveness with each category weighted based on how frequently states use them as a selling point in economic development marketing materials. The top five states were Virginia, North Carolina, Texas, Georgia, and Florida.

In two of the most important categories related to the innovation economy, “Technology and Innovation” and “Access to Capital,” Tennessee continued to decline. Tennessee dropped one place to #28 in “Technology and Innovation” with a letter grade of C-. In “Access to Capital,” Tennessee dropped five spots to #20 with a letter grade of C+. You can read more here and here.

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.

July 10, 2024 – Steel Warehouse, a leading steel service center, announced plans to purchase the former Footwear Industries of Tennessee building in Jefferson City. The company distributes over two million tons of coil, sheet, and plate annually in hot- and cold-rolled materials. The $20 million expansion will create 70 new jobs and will be the company’s third location in the state with the other existing locations in Chattanooga and Memphis. You can read more here.

Knox County Business Licenses

New business licenses issued in June 2024 by Knox County are down 1.2% from May and are up 1.6% from June 2023.

A total of 252 new business licenses were issued in June 2024 compared to 255 in May and 248 in June 2023. The top industry sectors for which business licenses were issued in June 2024 were services, construction, retail, and non-classified establishments.

Below is a chart showing the 13-month trend of business licenses issued by Knox County.

(Sources: Knox County Clerk)

McGhee Tyson Airport (TYS) Passenger and Freight Trends

The Metropolitan Knoxville Airport Authority recorded 326,027 passengers in June (up 13.6% from May’s passenger traffic of 286,934 and up 22.2% from June 2023.) The June 2024 passenger count marks the busiest month in TYS history.

The total freight recorded in June at TYS was 5,912,049 pounds (down 11.8% from May and down 9.7% from last June.)

According to the Transportation Security Administration, the average daily number of passengers passing through the nation’s TSA checkpoints in June was 2,733,474 (up 6.1% from the June 2023 daily passenger average of 2,575,388 and up 7.4% from the pre-COVID June 2019 average of 2,544,141.) You can view the daily TSA checkpoint travel numbers here.

According to the International Air Transport Association (IATA) , “commercial air passenger traffic for the industry, measured in Revenue Passenger-Kilometers (RPK), remained on its steady growth trend in June 2024, decelerating only mildly from the previous month.” You can read more here.

(Sources: Metropolitan Knoxville Airport Authority; U.S. Transportation Security Administration; International Air Transport Association)

Notice: This survey is copyrighted by its owner, and permission to use such copyrighted materials must be obtained from the owner and cannot be obtained from the Knoxville Chamber. Reproduction or distribution of this survey, in whole or in part, is expressly prohibited without the written permission of the content owner.

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