Despite a pandemic that has hit Tennessee particularly hard, crippling many businesses, taxing healthcare resources and devastating the loved ones of more than 3,800 Tennesseans who have died, the state’s measures of economic growth are showing some unexpected bright spots.
Sales tax collections for October are almost $47 million above the same month last year, far outpacing grim predictions from earlier this year. Some sectors — construction and finance among them — have experienced robust job growth. And Tennesseans spent their stimulus checks and federal boosts in unemployment insurance on bigger-ticket items like refrigerators and kayaks, boosting the economy beyond expectations from just a few months ago.
Even with steep declines in revenue, and jobs, particularly in hard-hit sectors like travel and dining out, Tennessee now has a $1 billion surplus in state tax collections on hand.
But economists and state finance leaders cautioned last week that the the state’s surprisingly robust economic indicators may prove to be a temporary calm before a potentially devastating economic catastrophe.
The pandemic has played out differently from any other recession longtime state economist Bill Fox has ever seen.
People didn’t just reduce their consumption, he said. They changed their consumption almost entirely. While some sectors experienced huge job loss, others increased their employment by significant margins.
Sales of durable goods — items like cars, appliances and building supplies — have held steady or even increased. Taxable revenues for sporting good and bicycle shops increased by 24%, as did building material sales. Grocery store sales are up by 14%. And as people stayed closer to home, they turned to online shopping for a variety of needs. Tennessee’s tax collection from online sales jumped 70%.
“People got their $1,200 from the federal government or they got their unemployment benefits and for the first time they had enough money to buy a refrigerator or a stove or a washer and dryer,” Fox said.
At the same time, other sectors have taken huge hits. Hotel revenues across Tennessee tanked 47%. Amusement services, including concerts and movies, entertainment, plunged 38%. And dining and drink revenues dropped by 17%.
Unemployment insurance payments that bolstered consumer spending in the first six months of the pandemic have dramatically been reduced as the federal $600 supplement ended and people neared the end of their six-month eligibility.
In May, Tennessee residents were collecting $340 million per week in unemployment checks. By early November the number had dropped to $30 million.
And for many Tennesseans, the one-time federal $1,200 stimulus payment was long ago spent.
While many lost jobs were reinstated as businesses returned to full operation, other workers, predominantly lower income employees in leisure, hospitality and restaurant industries, have lagged behind the rest of the workforce in resuming work as some businesses have closed permanently.
There are 158,000 fewer people with jobs in Tennessee today than there were in February, about a 4% overall loss in state jobs.
“We are making progress, but we are well below where we were,” Fox said. “We are going to end out on the other end of this pandemic with a lot of people who had a job coming in who don’t have one.”
Only a few sectors have seen job gains. Banking and finance have seen job gains in Tennessee, partly as a result of the manpower needed to administer federal PPP loans. The housing industry continues to grow jobs as well.
“Every other sector in Tennessee has seen fewer jobs,” Fox said.
Between February and April, half of all unemployment claims in Tennessee were in the leisure and hospitality industry. By November, workers in those industries represented just one-sixth of all claims, a sign that the recession has spread to other parts of the economy, Fox said. Even among sectors that have weathered the COVID-19 pandemic better, job losses are growing. Among them is automotive manufacturing, where employment stands at just two-thirds of what it was last September.
The state’s economic growth rate has also dropped by more than half. In March, the rate for the fiscal year ending in June stood at 7.5%. By the end of By July 1, it stood at 2.4%.
“It’s certainly encouraging we have a positive growth rate through the first quarter of this year, but it’s not yet to the level we were pre-COVID,” Butch Eley, commissioner of Finance and Administration told Gov. Bill Lee at a public meeting last week to review the state’s budget plans for the next fiscal year. “I think there’s uncertainty and reasons to be cautious about where (tax) collections are going.”
Sales tax figure, while encouraging, “can be seen as concerning at the same time,” Eley said. “It’s likely this number is supported by the large amount of federal dollars that have been coming into this state.”
With no sign of a renewed stimulus plan from the federal government, “the concern is what happens to the extent some of these programs are reduced or ended and what’s the impact on sales tax collections over the next few months.” Even if there is a stimulus passed by Congress in January, it will almost certainly be smaller than the initial stimulus, Fox said.
“There are a lot of reasons to feel good about the recovery so far and where we are going but there are also a lot of reasons to plan cautiously because it’s really difficult right now to predict what (sales and business tax) collections are going to do in the next few months.”