UT economists offer bleak forecast for state economy

The Associated Press

KNOXVILLE -- A University of Tennessee report says economic conditions are continuing to deteriorate for the nation and for the state, and won't improve until 2009.

Worn down by high energy prices and a weak housing sector, the economy "will teeter on the brink of recession," according to a report Thursday from the UT Center for Business and Economic Research.

The report is an update to an annual economic report card prepared for Gov. Phil Bredesen in February. It includes an analysis of national and state economic factors.

National economic conditions "continue to deteriorate, raising concerns about a potentially deeper and more prolonged downturn," the report said, noting, "As the nation goes, so goes Tennessee."

The report repeatedly uses the word "bleak" to describe current and future conditions, though it does offer hope that conditions in Tennessee will "slowly improve as 2009 unfolds."

The immediate news isn't good for a state wrestling with a projected $468 million shortfall and plans to trim more than 2,000 state jobs.

"Taxable sales growth will contract further as 2008 progresses. Most broad categories of taxable sales have shown weaker growth if not contraction in the months following the first of the year," the UT report said.

On an annual basis, taxable sales are expected to decline 2.6 percent in 2008, the report said, then rebound with 5.2 percent growth in 2009.

State job growth has been essentially flat since 2006, while unemployment has been inching up since last summer to 5.6 percent in March.

"The number of employed people contracted in the first quarter on a seasonally adjusted basis, which is the first quarterly decline in recent history," the report said.

Sharp job losses in manufacturing are expected to continue this year, while leisure services, education and health services should grow.

The housing market in Tennessee "fared only slightly better than the nation as a whole," the economists write. Single-family housing starts are down almost 45 percent in the 12 months ending in February and 4.6 percent of new mortgages were delinquent, slightly higher than the national rate.

Still, home prices in Tennessee rose by 4.1 percent in 2007, the report said.

"You might call it piling on, but the bad economic news just won't go away," the report said.

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