Economic Conditions Outlook

September 2021

Welcome to the September 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.

See Previous Issues

Jump to Analysis:

Airport Freight and Passenger Trends	Labor Market
Current Hiring Situation	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	Worker Shortage Continues

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Economic Survey Results by Industry

Based on the response to the September survey, the level of general business activity and the outlook for the next six months are split between “improved” and “the same.” (Business activity and outlook were both reported as “improved” in the August survey.)

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

The six-month outlook projects an “increase” in unfilled orders, delivery time, and prices paid for raw materials. Responses are evenly split between “increase” and “no change” for prices received for finished goods, wages and benefits, number of employees, average employee workweek, and capital expenditures. Future production, capacity utilization, volume of new orders, and finished goods inventories are split between “increase” and “decrease.” The growth rate of orders and volume of shipments are split between “decrease” and “no change.” (The six-month outlook in the August survey projected an “increase” in production, capacity utilization, volume of new orders, growth rate of orders, and volume of shipments. Future unfilled orders and finished goods inventories were split between “increase” and “no change.” Delivery time, average employee workweek, and capital expenditures had “no changes” expected.)

Manufacturing comments indicate that the universal worker shortage and supply chain disruptions are getting worse as they are now affecting the suppliers to their suppliers. Raw materials are limited and coming up short from supplier to supplier. So now many suppliers are unable to fill orders on time which is causing backlogs for making finished products at the manufacturing facilities. This aligns with recent reporting from the Associated Press that petrochemical-based items have experienced major disruptions and price spikes on such raw materials as plastic pellets (that go into things like cereal bags, medical devices, automotive interiors, and bicycle helmets.) Prices for polyvinyl chloride or PVC (used for pipes, medical devices, credit cards, and vinyl records) soared 70%. Epoxy resins (used for coatings, adhesives, and paints) saw prices skyrocket 170% and the price for ethylene (a chemical used in everything from food packaging to antifreeze to polyester) has spiked 43%. You can read more here.

Knoxville area retailers indicated in the September survey that their evaluation of the level of general business activity and their company’s outlook remains “the same” or unchanged. (Respondents said that general business activity had “improved” in last month’s survey.)

The month-over-month responses in the September survey indicated “increases” in net sales revenue, wages and benefits, input prices, selling prices, and capital expenditures. “No change” was reported for internet sales. Responses were split between “decrease” and “no change” for the number of employees (both full-time and part-time.) The average employee workweek and inventories were reported as split between “increase” and “no change.” (Month-over-month responses in August were all the same except “no change” was reported for selling prices, while the average employee workweek and inventories were reported as “increased.”)

The six-month outlook projects mostly an “increase” in input prices and selling prices. The future number of full-time and part-time employees, net sales revenue, internet sales, average employee workweek, wages and benefits, and capital expenditures are split between “no change” and “increase.” Forecasts are split evenly between “increase” and “decrease” for future inventories. (The August survey’s six-month outlook had similar forecasts to this month’s survey except respondents expected an “increase” in the number of part-time employees, “no change” for internet sales, and had “mixed” predictions for net sales revenue.)

Retail comments suggest that increased prices and limited supply may be causing customers to reevaluate how or if to spend their money.

Knoxville area service sector businesses reported in the September survey that their current level of general business activity is “mixed” while company outlooks are mostly reported as “the same.” (Last month’s survey indicated the same sentiment.)

The month-over-month responses showed mostly “increases” for input prices and capital expenditures. “No changes” were mostly reported for the number of part-time employees, average employee workweek, and selling prices. Wages and benefits were mostly split between “increase” and “no change.” The number of full-time employees and revenue were “mixed.” (Last month’s survey responses were similar except “increases” were reported for revenue, while the number of full-time employees were mostly split between “increase” and “no change.”)

The six-month outlook shows respondents estimating mostly “increases” in revenue, the number of full-time employees, wages and benefits, input prices, and selling prices. “No changes” are mostly expected in the number of part-time employees and average employee workweek. Future capital expenditures are mostly split between “increase” and “no change.” (Last month’s six-month outlook was similar for all items except “no change” was expected for the number of full-time employees, while future selling prices were mostly split between “increase” and “no change.”)

Service sector comments indicate that the worker shortage continues to make finding qualified employees difficult. There are also concerns that the current rate of rising inflation may lead to a recession. Construction costs are becoming too high to justify land purchases and commercial building for some builders.

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/

Hiring Situation Post-Extra Unemployment Payments

In addition to the regular monthly survey questions, we asked respondents if hiring has improved at their business since the state of Tennessee ended the extra $300 weekly federal pandemic-related unemployment benefits in July. Then if so, which occupations were they seeing improved hiring and if not, which occupations were they still struggling to hire.

Overall, 50% of respondents indicated they have not experienced improvement in hiring, 41% indicated they were “not sure yet,” and only 9% indicated they did see improvement in hiring for some positions.

Manufacturers were evenly split with 50% experiencing no improvement in hiring and 50% that were “not sure yet.” No manufacturers indicated improvement in hiring. Some of the occupations listed as still being hard to fill include mechanics, 3-D animators, and account managers.

Retailers were also evenly split with 50% experiencing no improvement in hiring and 50% that were “not sure yet.” Warehouse positions and skilled trades were listed as hard to fill job positions.

Service sector responses showed 50% experiencing no improvement in hiring, 39% were “not sure yet,” and 11% indicated improvement in hiring for some positions. Occupations showing some improvement in hiring include entry-level positions, clerical workers, line cooks, and prep cooks. Occupations listed as still being a struggle to fill include administrative positions, credit analysts, documentation specialists, experienced professionals, skilled labor, mechanics, service technicians, and laborers.

Labor Market

The Knoxville MSA’s unemployment rate in August was 3.5% (this was lower than July’s 3.9% rate and much lower than the COVID-related 6.7% rate from August 2020.) Knox County’s unemployment rate in August was 3.3% (down from 3.6% in July and down from 6.5% in August 2020.) Tennessee’s unemployment rate was 4.3% in August (down from 4.7% in July and way down from 7.8% in last August.) The U.S. unemployment rate was 5.3% in August (down from the 5.7% rate in July and down from the 8.5% unemployment rate recorded last August.)

The size of the total labor force declined from July to August at the local, state, and national level. The Knoxville MSA’s labor force decreased 1.8% (from 439,026 in July to 431,071 in August.) Knox County’s labor force decreased 1.7% (from 249,881 in July to 245,519 in August.) Tennessee’s labor force decreased 1.1% (from 3,354,320 in July to 3,316,531 in August.) The national labor force decreased 0.6% (from 162,817,000 in July to 161,788,000 in August.)

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 August, there were 39,244 unique active job postings in the Knoxville MSA (up 0.2% from July and up 39.9% from last August.) There were 25,213 unique active job postings in Knox County (up 3.7% from July and up 51.9% from this time last year.)

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

Below is the 13-month job postings trend for Knox County and the Knoxville MSA:

(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 August report shows a gain of 374,000 in nonfarm private-sector employment (an increase from the 330,000 jobs gain reported in July.) Midsized businesses (50-499 employees) posted the largest gain of 149,000 jobs. Large firms (500+ employees) gained 138,000 jobs and small businesses (1-49 employees) increased by 86,000 jobs.

ADP’s Small Business Report, which further synthesizes the small business landscape, shows that the 86,000 jobs gain was driven mostly by “Other Small” businesses (20-49 employees) which increased by 61,000 jobs. The “Very Small” businesses (1-19 employees) increased by 25,000 jobs.

(Source: ADP)

Worker Shortage Continues

The regional worker shortage continues as the Knoxville MSA’s labor force decreased by 1.8% from 439,026 in July to 431,071 in August while the total number of job openings slightly increased 0.2% from 39,175 in July to 39,244 in August. Meanwhile, the Knoxville MSA’s unemployment estimate (or number of available workers) has decreased 10.1% from 16,942 in July to 15,226 in August. This currently means that if every unemployed person in the Knoxville MSA got hired today, they would only be able to fill 39% of the job openings, leaving 61% of open job positions unfilled.

Black Box Intelligence, a data analytics provider for the restaurant industry, and Snagajob, a job posting site for hourly workers, conducted a recent study that looked at where potential restaurant workers were going since many of them were not returning to the restaurant industry. The study indicated that many restaurant workers “pivoted” during the pandemic toward jobs in the building materials and garden supply stores. When restaurants were experiencing various pandemic-related restrictions and temporary closures during the lockdowns, the building materials and garden supply stores experienced a boom as many workers, forced to work from home, turned to home improvement and gardening projects to pass the time. According to the study, about 87% of limited-service workers responded that they would rather have a set livable wage than depend on tips. Average hourly wages in the construction supply and wholesale industries are $17.48 versus an average of $12.29 in the restaurant industry. Other issues raised by former restaurant workers included lack of childcare options, long hours, exposure to COVID-19 with unmasked patrons, and the general mental stress. Turnover rates for limited-service jobs are at an all-time high of 144%. You can read more here. Many restaurants throughout the nation are starting to acknowledge that their industry’s workforce may be permanently changed by COVID-19 and are adapting by investing in automation, robotics and other artificial intelligence (AI)-driven technology. Examples include an Arby’s in Ontario, California, where an AI voice assistant takes drive-thru orders and sends them to the line cooks and Bartaco, a restaurant chain based in Arlington, Virginia, that uses software for an online ordering and payment system that diners can use over their phones by scanning a barcode to view a menu and order without waiting for a server. These technological adaptations still require a few human employees but these employees require technical training and are now paid annual salaries instead of hourly wages. You can read more here.

In this month’s ECO survey, we asked respondents if there has been any improvement in hiring as two months have now passed since the state of Tennessee ended the extra $300 pandemic-related unemployment payments and if so, which occupations have they experienced an increase in hiring and if not, which occupations are they still struggling to fill. Overall, 50% of respondents indicated they have not experienced improvement in hiring, 41% indicated they were “not sure yet,” and only 9% indicated they did see improvement in hiring for some positions. No manufacturers or retailers indicated improvement in hiring. Some of the occupations listed by manufacturers as still being hard to fill include mechanics, 3-D animators, and account managers. Retailers listed warehouse positions and skilled trades as continuing to be hard to fill job positions. Only 11% of service sector respondents indicated improvement in hiring for some positions. Service sector occupations showing some improvement in hiring include entry-level positions, clerical workers, line cooks, and prep cooks. Occupations listed by the service sector as still being a struggle to fill include administrative positions, credit analysts, documentation specialists, experienced professionals, skilled labor, mechanics, service technicians, and laborers.

Based on this month’s survey results, it appears that most businesses are continuing to face hiring challenges despite the discontinuation of the extra $300 weekly federal pandemic-related unemployment payments that ended in Tennessee on July 3rd. Many businesses were hoping to see an uptick in hiring now that the benefit has expired. The comments we received from this month’s survey also indicate that the worker shortage is also deepening the global supply chain backlog as raw materials (either in short supply or extremely delayed in shipping) are preventing manufacturing plants from producing enough products to meet increased customer demand. While it’s still too early to know what effect expiring unemployment benefits had on employment (and 41% of our survey respondents indicated they were “not sure yet”), many economists do not think that the unemployment insurance is the only thing that is holding back the labor market recovery. Several other factors are more likely at play such as more available jobs than available labor, increasing retirements, lack of childcare options, career changes, and continued fear of contracting COVID-19 or one of its variants. As more monthly data gets released, we should hopefully get a better idea as to whether hiring improves or not over the next few months and if businesses are able to staff back up to full capacity.

There will continue to be more increasing pressure on wages, 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.

Consumer Price Index (CPI – Inflation Rates)

The national inflation rate from August 2020 to August 2021 is 5.3%. This is down from the 5.4% rate from July 2020 to July 2021. Last year, the national inflation rate was 1.3% from August 2019 to August 2020. The Federal Reserve says that we should continue to expect higher inflation rates over the next few months as the economy corrects itself from last year’s pandemic-related economic shutdown and restrictions. The general consensus among economists continues to be that the near-term inflation increases are temporary and will give way to more normal price growth over the long-term. The Fed’s key interest rate continues to be near zero and is not expected to be raised until after 2023. You can read more 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 5.9% for the August 2020 to August 2021 period. This is down from 6.1% in the July 2020 to July 2021 period. Last year, the rate was 1.2% for August 2019 to August 2020.

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

Housing Market

Home sales in the Knoxville area declined 0.3% in August to a seasonally-adjusted annual rate of 22,131. Conversely, home sales in Knox County increased 4.3% from the previous month to a seasonally-adjusted annual rate of 9,176. Both the Knoxville area and Knox County experienced year-over-year gains.

Nationally, existing-home sales declined to a seasonally-adjusted annual rate of 5.88 million in August—down 2% from the previous month—while home sales in the South declined 3.0% in August.

The median home sales price in the Knoxville area was $289,000 in August — an increase of 22.2% from one year ago. Knox County’s median home sales price was $305,870 in August – up 24.8% from one year ago.

In August, 44% of homes sold for over asking price, with 23% selling for at least $10,000 over asking price and 8% selling for at least $25,000 over asking price. New construction (i.e. “Never Occupied,” “To Be Built,” “Under Construction,” or “Under Roof”) represented 8.2% of total home sales.

Housing inventories remain tight nationally, regionally, and locally — though the number of active listings have increased modestly across the past few months. In the Knoxville area, active listings remain down more than 16% compared to this time a year ago. Half of homes sold in the Knoxville area were on the market for 3 days or less.

Months of inventory, the number of months it would take to exhaust active listings at the current sales rate, declined to 1.2 months in August.

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 August 2021 was $629.15 billion (down 1.2% from July and up 15.3% from last August.)

All retail sectors showed growth from this time last year. The retail sectors that showed the greatest growth from last August were Clothing Stores (+42.7%), Gasoline Stations (+39.8%), Food Services and Drinking Places (+32.1%), Furniture and Home Furnishings Stores (+23.2%), Miscellaneous Stores (+22.7%), Sporting Goods/Books/Hobby/Music Stores (+21.9%), and General Merchandise Stores (+15.3%).

Retail sectors seem to continue to benefit from pent up customer demand and increasing leisure travel.

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

Tennessee State and Local Sales Tax Collections

The Knoxville MSA region collected $112.4 million in state sales taxes in August (unchanged from July but up 14.1% from last August) and Knox County collected $72.09 million in August (down 0.1% from July and up 18.5% from last August.) The state of Tennessee collected $1.044 billion in state sales taxes in August (down 1.4% from July and up 21.7% from last August.)

The Knoxville MSA collected $38.86 million in local sales taxes in August (down 0.7% from July and up 19.8% from last August) and Knox County collected $23.55 million (down 0.9% from July and up 22.3% from last August.)

These significant increases in state and local sales tax collections from last year indicate that consumer spending continues to be strong.

(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.

September 15, 2021 – Kelvion, a manufacturer of configurable or customized heat exchangers for all industries, announced plans to expand their operations in Forks of the River Industrial Park in East Knox County. The company will invest $3.8 million and create 74 new jobs. You can read more here.

September 27, 2021 – Ford Motor Company and SK Innovation announced a $5.6 billion plan to build a 3,600-acre mega campus called “Blue Oval City” on the long vacant Memphis Regional Megasite in Haywood County (halfway between Memphis and Jackson.) The site will include an assembly plant for next generation all-electric F-Series trucks, a supplier park, and a battery manufacturing plant operated by BlueOvalSK, a joint venture of Ford and SK Innovation. Manufacturing operations are slated to begin in 2025 and will create a total of 5,800 new jobs in West Tennessee. While this project is not located in the Knoxville region, it will have a massive economic impact throughout the entire state and southeast region for recruitment and expansion of more automotive parts and battery-related suppliers. You can read more here.

September 30, 2021 – Smith & Wesson Brands, Inc., one of the world’s leading designers and manufacturers of firearms, announced they will be relocating their corporate headquarters, distribution, assembly, and plastic injection molding operations to Blount County’s Partnership Park North in Maryville. The company manufactures handguns, long guns, handcuffs, suppressors, and other firearm-related products. Smith & Wesson will be relocating from Springfield, Massachusetts. Plants in Missouri and Connecticut will be closed as part of the move. The company will invest $125 million and create 750 new jobs. With 20 other small arms and ammunition manufacturers in the state, Tennessee is now No. 1 in the nation for employment in the industry, according to the Tennessee Department of Economic and Community Development. You can read more here.

Knox County Business Licenses

New business licenses issued in August 2021 by Knox County are down 26.6% from August 2020 during the pandemic and are also down 16.8% from the pre-pandemic August 2019 count. This marks the second consecutive month that business licenses have been lower than the same month last year. Since many businesses continue to struggle to hire employees amid a nationwide worker shortage, perhaps we are seeing prospective business owners pushing the “pause button” on launching new business ventures until the labor market resets itself.

A total of 232 new business licenses were issued in August 2021 compared to 316 in August 2020 and 279 in August 2019. The top industry sectors for which business licenses were issued in August 2021 were services, retail, and construction.

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 222,258 passengers in July (up 8% from June’s passenger traffic and up a whopping 140.5% from COVID-ravaged July 2020 but down 14.2% from pre-COVID July 2019.)

According to the Transportation Security Administration, the average daily number of passengers passing through the nation’s TSA checkpoints in August was 1,854,327 (up 167.2% from the August 2020 daily passenger average of 694,036 but still down 22.8% from the pre-COVID August 2019 average of 2,401,477.) You can view the daily TSA checkpoint travel numbers here.

According to the International Air Transport Association (IATA), “domestic U.S. air passenger traffic continued to recover in July, and was down just 7.7% compared to July 2019, improved from a 14.0% decline in June versus June 2019.” However, stalls in COVID-19 vaccination rates and accompanying surges of the delta variant will remain the main risks to full recovery of air travel. International air travel will continue to see a slower recovery due to tighter COVID restrictions and slower vaccine rollouts in other countries. You can read IATA’s full Air Passenger Market Analysis for July 2021 here.

The total freight recorded in July at TYS was 8,386,662 tons (up 11% from June and up 13.1% from last July.)

(Sources: Metropolitan Knoxville Airport Authority; U.S. Transportation Security Administration)

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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