Economic Conditions Outlook

May 2022


 

 

Welcome to the May 2022 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 monthly 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.

Economic Survey Results by Industry

Based on the response to the May survey, the current level of general business activity has “worsened” from last month. Company outlooks are evenly split between “improved” and “worsened.” (The level of general business activity and company outlooks were split between “improved” and “the same” in the April survey.)

The month-over-month responses in May show “increases” in delivery time, prices paid for raw materials, wages and benefits, and capital expenditures. Finished goods inventories are “decreased. Responses are split between “increases” and “decreases” in production, capacity utilization, growth rate of orders, volume of shipments, and prices received for finished goods. The volume of new orders and average employee workweek are split between “decrease” and “no change.” The number of employees and unfilled orders are split between “increase” and “no change.” (The month-over-month responses in April showed mostly “increases” in production, capacity utilization, volume of new orders, growth rate of orders, volume of shipments, delivery time, prices paid for raw materials, wages and benefits, number of employees, average employee workweek, and capital expenditures. “No changes” were mostly reported for unfilled orders and prices received for finished goods. Finished goods inventories were mostly split between “increased” and “decreased.”)

The six-month outlook in May anticipates “increases” in production, capacity utilization, volume of shipments, and prices paid for raw materials. Projections are split between “increase” and “no change” in the volume of new orders, growth rate of orders, finished goods inventories, wages and benefits, number of employees, average employee workweek, and capital expenditures. Future delivery time and prices received for finished goods are split between “increase” and “decrease.” Unfilled orders are expected to “decrease.” (The six-month outlook in April projected mostly “no changes” in production, capacity utilization, growth rate of orders, unfilled orders, volume of shipments, delivery time, finished goods inventories, prices received for finished goods, wages and benefits, number of employees, average employee workweek, and capital expenditures. The future volume of new orders was mostly split between “increase” and “no change.” Prices paid for raw materials were mostly expected to “increase.”)

Manufacturing comments indicate that supply chain issues are worsening for some materials like paper products, silicone, and plastics.

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Knoxville area retailers indicated in the May survey that their evaluation of the level of general business activity and company outlooks are mostly “the same.” (In April’s survey, the level of general business activity and company outlooks were mostly “improved.”)

The month-over-month responses in the May survey show “no changes” in internet sales, the number of full-time and part-time employees, average employee workweek, and capital expenditures. Mostly “increases” are reported for input prices and wages and benefits. “Decreases” are mostly reported for net sales revenue, selling prices, and inventories. (Month-over-month responses in the April survey showed mostly “increases’ in net sales revenue, number of full-time employees, wages and benefits, input prices, selling prices, and inventories. “No changes” were mostly reported for internet sales, number of part-time employees, average employee workweek, and capital expenditures.)

The six-month retail outlook in May projects “decreases” in net sales revenue, selling prices, and inventories. “No changes” are expected in the number of part-time employees, average employee workweek, and capital expenditures. “Increases” are expected in the number of full-time employees and input prices. Future internet sales and wages and benefits are “mixed.” (The six-month outlook in April projected mostly “increases” in net sales revenue, number of full-time and part-time employees, average employee workweek, wages and benefits, input prices, and selling prices. “No change” was expected in future internet sales. Future capital expenditures and inventories were “mixed.”)

Retail comments indicate that costs continue to rise for products and freight.

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Knoxville area service sector businesses report in the May survey that their current level of general business activity and company outlooks are mostly “the same.” (The same assessment was reported in the April survey.)

The month-over-month responses in the May survey show mostly “increases” in the number of full-time employees, average employee workweek, wages and benefits, input prices, and selling prices. Revenue is mostly split between “increase” and “no change.” The number of part-time employees and capital expenditures are reported mostly as “no change.” (The month-over-month responses in April showed mostly “increases” in revenue, wages and benefits, and input prices. “No changes” were mostly reported for the number of full-time and part-time employees, average employee workweek, and selling prices. Capital expenditures were split between “increase” and “no change.”)

The six-month outlook in May shows mostly “increases” expected in the number of full-time employees, wages and benefits, input prices, selling prices, and capital expenditures. “No changes” are mostly expected in the number of part-time employees and average employee workweek. Future revenue is “mixed.” (The April survey’s six-month outlook forecasted mostly “increases” in revenue, number of full-time employees, input prices, and selling prices. “No changes” were mostly expected for the number of part-time employees and average employee workweek. Responses were mostly split between “increase” and “no change” for future wages and benefits and capital expenditures.)

Service sector comments indicate that inflation (especially rising fuel costs) continue to affect the bottom line of businesses. Rising interest rates are causing some businesses to scale back expansion plans. Supply chain issues are still causing delays as getting some types of equipment is taking six to twelve months. Hiring quality employees is still challenging as many of the candidates left in the labor pool are lacking some basic levels of professionalism like showing up to work on time or lack customer service skills. The housing shortage also continues to be a challenge.

 

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 monthly surveys, please register at this link. www.knoxvillechamber.com/ecoregistration/

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Automation in Local Businesses

In addition to our regular monthly survey questions, we asked respondents if they have recently automated (e.g. by robots or other automated equipment) any of their business operations and if so, which operation and if no, why not.

The majority of survey participants (79%) responded that they have not recently automated any of their business operations. More than half of those respondents (53%) indicated that the reason for not utilizing automation is due to the nature of their business (e.g. regulatory restrictions). Other reasons for not automating include technological capabilities, lack of time to execute an automation process, and irrelevance of robotics to some operations.

All of the respondents who did recently automate operations said that no jobs were eliminated as they automated several processes in their factory line, contact centers, and credit processing units. Automation has increased productivity, cut some costs, and some businesses are working to automate all steps of their process except for the first and last step.


 

Automation, Digitalization, Robotics, and Other Technology Use Growing in Many Industry Sectors

We have been reading and hearing a lot lately about many industries utilizing automation, digitalization, robots, and other technologies like artificial intelligence (AI) to help streamline business operations, address worker shortage issues, and make the work of exisiting employees more efficient, productive,  safe, and less burdensome. Many businesses still think that automation is too expensive for them to afford and many workers fear being replaced by automated processes. We’re learning that these assumptions are not necessarily true.

According to the Association for Advancing Automation (A3), robot orders in the U.S. have increased 28% in 2021 from the previous year. You can view the robot market trends here. One thing that is helping to drive this increase is the emerging trend of robot subscription services. Instead of businesses trying to afford the full purchase price of robots (which can cost as much as $125,000 each), they can simply lease robots on a monthly or annual basis (just like many businesses currently do for software platforms). There are even some subscription plans that cost as little as $8 per hour. Rather than replacing workers or eliminating jobs, robots are eliminating the need for factory workers to have to move multiple times from machine to machine, freeing them up to do other tasks and troubleshoot when necessary. You can read more here.

Robots are also making their way onto construction sites. Dusty Robotics, a Mountain View, CA-based firm, manufactures “autonomous printers on wheels” that move around construction sites and print out plans on the floor saving time and money compared to the old way of mapping out plans with chalk or markers. Several of Dusty’s robots are in the field under lease arrangements. Workers who previously chalked out plans by hand are now free to oversee more projects with help from the machine. You can read more here.

Due to labor shortages, restaurants are also beginning to utilize robots. Chili’s has been testing “Rita” (a “robotic server” manufactured by Bear Robotics) in 10 of its restaurants with great success and now is planning to deploy more “Rita” robots to an additional 51 restaurants. The “robot servers” can guide guests to their tables, carry food, buss tables, and even sing “Happy Birthday.” Instead of replacing existing human employees, “Rita” is performing some of the tougher jobs like loading up to 50 pounds of plates and carrying them to six-top tables 35 to 40 times per night. Chili’s goal is to make employees’ jobs easier, freeing them up to engage more meaningfully with customers and troubleshoot when necessary. You can read more here.

Delivery driver shortages are plaguing the fast-food pizza sector. Yum! Brands (parent company of Pizza Hut) purchased Dragontail Systems, an AI-enabled platform designed to make restaurant operations more efficient and reducing disruptions due to driver shortages. You can read more here.

Kraft Heinz has created “digital twins” (automation and virtual manufacturing) in the metaverse to help solve its supply chain problems. The major food manufacturer has announced a deal with Microsoft to help secure its supply chain by “using automation to speed up operations and replicate the company’s facilities online.” This will allow Kraft Heinz to digitally map out all of their facilities to better understand any flaws in the design and increase efficiencies. They will be able to get products to grocers faster and see where specific product demand is running higher in different parts of the country. You can read more here.

Symbotic LLC, an AI-powered supply chain technology company, and Walmart recently announced an expanded commercial agreement to implement Symbotic’s robotics and software automation platform in all 42 of Walmart’s regional distribution centers over the coming years. According to Symbotic’s press release, “the end-to-end software-enabled high-density robotics platform plays a strategic role in supporting the retailer’s goal of modernizing its vast supply chain network and allows Walmart to transform its regional distribution centers to provide faster responsiveness to store orders, increased inventory accuracy and higher capacity for receiving and shipping freight to stores. The technology’s ability to build palletized loads of department-sorted inventory ultimately enables Walmart to get products onto shelves at its more than 4,700 stores more quickly, while also making one of the toughest aspects of supply chain work – material handling – safer and simpler. It also creates new, tech-enabled jobs, such as cell operator and maintenance technician, that offer widely applicable skills in robotics and technology.” You can read the full Symbotic press release here and the original Walmart partnership article here.

In the near future, some of your office co-workers could be robots. Naver Labs, a Korean tech company, will be opening their new headquarters building in June. The new building structure will be “the world’s first robot-friendly building” that will “test the boundaries of the future of automation, where 100 wheeled robots will soon work alongside 5,000 people, ferrying packages, lunches, and Starbucks coffee to their human counterparts.” The robots (all named “Rookie”) were purpose-built by Naver to become part of the building’s infrastructure. Inspired by existing standards around people with disabilities, the building space is designed so that the wheeled robots can traverse the whole building without having to climb stairs (they get their own elevator), roam wide halls, and there are no hard slopes or single steps. You can read more here.

As more companies plan to move manufacturing operations back to the U.S. to address some of the current supply chain issues (think semiconductors, microchips, etc.) and more retail and service sector businesses struggle to find employees with the persistent labor shortage, the need for automation is going to become more widespread.


 

Labor Market Information

The Knoxville MSA’s unemployment rate in April was 2.6% (this was unchanged from March but lower than the 3.7% rate from April 2021.) Knox County’s unemployment rate in April was 2.5% (up from 2.4% in March and down from 3.5% in April 2021.) Tennessee’s unemployment rate was 3.1% in April (up from 3.0% in March and down from 4.7% in last April.) The U.S. unemployment rate was 3.3% in April (down from the 3.8% rate in March and down from the 5.7% unemployment rate recorded last April.)

The size of the total labor force increased only slightly from March to April at the local and state levels. The Knoxville MSA’s labor force only increased 0.4% (from 446,627 in March to 448,249 in April.) Knox County’s labor force only increased 0.3% (from 254,838 in March to 255,578 in April.) Tennessee’s labor force only increased 0.5% (from 3,393,916 in March to 3,410,648 in April.) Meanwhile, the national labor force decreased 0.5% (from 164,274,000 in March to 163,449,000 in April.)

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

Data Note: Emsi, our source for job postings data in ECO – financed by First Horizon Bank, has merged with Burning Glass and is now using a new integrated feed for job postings data that allows for further deduplication of job postings, better employer tagging, and improved industry classification. Analysis for the current estimates, top 10 job posting industries, top 10 occupations, and the 13-month job posting trends for Knox County and Knoxville MSA reflect Emsi Burning Glass’ new methodology.

For the month of April, there were 11,103 unique active job postings in the Knoxville MSA (up 1.6% from March and up 13.4% from last April.) There were 7,327 unique active job postings in Knox County (down 1.9% from March and up 15.5% from this time last year.)

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

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

You can view the 13-month job postings trend for Knox County and the Knoxville MSA below.

(Source: EMSI Job Postings Analytics)


 

ADP National Employment Report®

Each month, ADP, a large-scale payroll and human resources company releases their National Employment Report®, which provides a high-level look at month-over-month private-sector employment changes across the country.

The April report shows a gain of 247,000 in nonfarm private-sector employment (a decrease from the 455,000 jobs gain reported in March.) Large firms (500+ employees) posted the largest gain with an increase of 321,000 jobs and midsized businesses (50-499 employees) gained 46,000 jobs. The overall job gains were offset by the loss of 120,000 jobs in the small businesses grouping (1-49 employees).

ADP’s Small Business Report, which further synthesizes the small business landscape, shows that the 120,000 jobs loss was driven mostly by the “Very Small” businesses (1-19 employees), which decreased by 96,000 jobs. “Other Small” businesses (20-49 employees) decreased by 25,000 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 11.4 million jobs to fill in April and only 6.6 million hires, meaning there are approximately two job openings for every unemployed person. 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.

Just as summer travel is expected to ramp up this year after two years of the pandemic-related hesitancy to travel, a national shortage of seasonal summer workers looms large as the number of job postings increases for hotels, restaurants, ice cream parlors, public pools, summer camps, RV parks, fitness centers, golf courses, amusement parks, and many other visitor-dependent small businesses. The “summer economy” typically runs from June to August with approximately 30 million workers meeting the increased demand of vacationers. Similar to the year-round labor force, summer seasonal employees (mostly teenagers) have more job options to choose from and there are just not enough of them to fill all of the job openings. You can read more here.

As we continue to see more tightening in the labor market and a major realignment in the job market, we can expect increasing pressure on wages, sign-up bonuses, job flexibility, and childcare options. As a region, we must figure out how we can significantly increase the size of our local labor force through talent attraction (recruiting more people aged 25-54 to our region), talent retention (keeping recent college graduates and people aged 25-54 here), and immigration reform (increasing work visas and the ability to recruit specialized talent from abroad) in order to meet our region’s ever-increasing job demand.

A proven strategy for employers to address labor shortages is the implementation of an internship program.  While internships are usually considered to be mostly advantageous for the intern, they have proven to be significantly positive for the company as well.  Between 2019 and 2021, the National Association of Colleges and Employers (NACE) reports that over the last three years the rate of converting an intern to a full-time employee has been calculated at between 52 and 66 percent.  NACE’s data also indicates that full-time staffers, who were previously interns with their current firm, are retained after a year by almost 68 percent.  With the current workforce challenges across the community, it is a considerable advantage to have an internal talent pipeline full of people with in-house experience.

For many small- and mid-sized businesses, creating an internship program is not an easy task.  To assist with this hurdle, we have developed a toolkit of sorts to guide business leaders through the process.  You can find the individual steps here.


 

Consumer Price Index (CPI – Inflation Rates)

The national inflation rate from April 2021 to April 2022 is 8.3%. This is down from the 8.5% rate from March 2021 to March 2022. Last year, the national inflation rate was 4.2% from April 2020 to April 2021.

April’s drop in inflation does not mean that prices are not still running high but instead suggest that price increases may have plateaued for the moment. There would need to be more than one month of moderating CPI data to show that inflation has finally peaked. Higher inflation is primarily being driven by the supply chain disruptions and higher gasoline prices and has persisted longer than the Feds expected with price increases still at 40-year highs. You can read more here.

The Federal Reserve is continuing to hike rates to get prices under control but 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 8.7% for the April 2021 to April 2022 period. This is down from 9.1% in the March 2021 to March 2022 period. Last year, the rate was 4.6% for April 2020 to April 2021.

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


 

Housing Market

Home sales in the Knoxville area increased 1.2% in April to a seasonally adjusted annual rate (SAAR) of 23,031. Similarly, home sales in Knox County increased 7.7% from the previous month to a seasonally adjusted annual rate (SAAR) of 8,379. Compared to the previous year, home sales in the Knoxville area were down 2.4% and 11.1% in Knox County.

Nationally, existing-home sales decreased to a seasonally adjusted annual rate of 5.61 million in April — down 2.4% from the previous month and 5.9% from a year ago. Home sales in the South similarly declined 4.6% from the previous month and 5.7% from one year prior.

The median home sales price in the Knoxville area was $325,000 in April — up 25% from one year ago. Knox County’s median home sale price was $340,000 – up 26.2% from one year ago. Fifty-three percent of homes sold for over asking price in April, compared to 43% the previous month. 38% of homes sold for at least $10,000 over asking price and 19% sold for at least $25,000 over asking price. New construction (i.e., “Never Occupied,” “To Be Built,” “Under Construction,” or “Under Roof”) represented 9.76% of total home sales, though move-in ready new homes accounted for only 2% of all sales.

For the first time in 12 months, total inventory in the Knoxville area increased from the previous year – up 20% from a year ago but still considerably lower than pre-pandemic levels. Conversely, inventory in Knox County was down 7.9% year-over-year. Half of homes sold in the Knoxville area were on the market for 4 days or less.

Months of inventory, or the number of months it would take to exhaust active listings at the current sales rate, was 1.3 months.

Knoxville’s rental market occupancy rate hovered around 98.8% in Q1 2022, more than a full percentage point above the 97.5% occupancy rate nationally. Effective rents in the Knoxville MSA were up 19.21% year-over-year as of April 2022, significantly higher than the 15.23% rate nationally.

According to Hancen Sale, Governmental Affairs and Policy Director at the Knoxville Area Association of Realtors®, “As expected, Knoxville’s housing market is showing signs of moderation. Still, however, home prices continue to rise which is weighing heavily on housing affordability due to the higher interest rates. I expect we will continue to see signs of a moderating market over the coming year, though the market should remain relatively stable.” 

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 April 2022 was $684.195 billion (up 1.0% from March and up 10.9% from last April.)

The retail sectors that showed the greatest growth from last April were Gasoline Stations (+35.4%), Food Services and Drinking Places (+31.0%), Non-store Retailers (+26.0%), Miscellaneous Stores (+15.5%), and Clothing Stores (+15.4%).

Retail sectors that showed a decline in sales from last April were Sporting Goods/Books/Hobby/Music Stores (-4.1%), Electronics and Appliance Stores (-4.0%), Building Materials (-3.7%), and Motor Vehicles and Parts Sales (-3.3%).

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


 

Tennessee State and Local Sales Tax Collections

The Knoxville MSA region collected $122.442 million in state sales taxes in April (up 20.1% from March and up 5.2% from last April) and Knox County collected $80.024 million in April (up 17.2% from March and up 8.1% from last April.) The state of Tennessee collected $1.172 billion in state sales taxes in April (up 21.9% from March and up 9.2% from last April.)

The Knoxville MSA collected $43.021 million in local sales taxes in April (up 19.6% from March and up 9.4% from last April) and Knox County collected $26.379 million (up 15.5% from March and up 9.4% from last April.)

(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 jriley@knoxvillechamber.com.

New and existing industries continue to invest in the Knoxville region.

May 4, 2022 – Red Stag Fulfillment, a Knoxville-based e-commerce fulfillment company, held a groundbreaking ceremony for the construction of the first of six buildings on a 420-acre campus in Sweetwater (Monroe County) that will each be around 700,000 square feet and create about 3,500 new jobs. The $300 million expansion will help Red Stag to increase capacity and expand operations. The company has outgrown its space at the 600,000 square feet Knoxville facility and headquarters in the Forks-of-the-River business park. You can read more here.

May 9, 2022 – Puy du Fou (pronounced PWEE-DEW-FOO), a European entertainment company, announced a new “storytelling” attraction will be coming to Sevier County in 2024 as part of the new entertainment and retail complex called “The 407: Gateway to Adventure” that is being built by the Eastern Band of the Cherokee Indians. Puy du Fou will be partnering with the Eastern Band of the Cherokee Indians to produce a “spectacular immersive show” inspired by the history of the Cherokee who served in World War I. You can read more here.


 

Knox County Business Licenses

New business licenses issued in April 2022 by Knox County are down 12.5% from April 2021 during the pandemic and are also down 16.5% from the pre-pandemic April 2019 count.

A total of 237 new business licenses were issued in April 2022 compared to 271 in April 2021 and 284 in April 2019. The top industry sectors for which business licenses were issued in April 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)


 

McGhee Tyson Airport (TYS) Passenger and Freight Trends

The Metropolitan Knoxville Airport Authority recorded 202,382 passengers in April (up 0.3% from March’s passenger traffic of 201,833 and up 48.6% from COVID-ravaged April 2021.) This month’s passenger estimate is up 6.8% from pre-COVID April 2019 – an encouraging sign that local air travel may be getting back to normal.

The total freight recorded in April at TYS was 6,973,611 pounds (down 7.8% from March and down 11.3% from last April.)

According to the Transportation Security Administration, the average daily number of passengers passing through the nation’s TSA checkpoints in April was 2,114,544 (up 53% from the April 2021 daily passenger average of 1,386,649 but still down 9.5% from the pre-COVID April 2019 average of 2,335,859.) You can view the daily TSA checkpoint travel numbers here.

According to the International Air Transport Association (IATA), “The US domestic market has made good progress towards reaching 2019 revenue passenger kilometers (RPK) levels. The rebound continued in April with RPKs down only 1.6% compared to the same month in 2019 (versus -3.9% YoY in March 2022). Capacity decreased in April, however, and consequently load factors rose to 88.4% country wide. Pressure on traffic might increase in this market with high fuel prices and ongoing labor-related issues. In April, US domestic RPK growth decreased to 48.2% YoY from 68% YoY in March.” 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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