UT economist Matt Murray provides economic outlook to city officials

TML Communications Director

As part of the ongoing webinar series offered by TML and Public Entity Partners, Dr Matt Murray, director of the Howard H. Baker Jr. Center for Public Policy and associate director of the Boyd Center for Business and Economic Research at UT-Knoxville, provided an economic update on how Covid-19 is affecting the economy.
“I think the worst is behind us,” Murray said. “March, April, and May looked like the beginning of a recession. But we’ve seen some fairly decent economic growth this summer.”
July taxable sales increased by a robust 6.4 percent after falling steeply the previous three months. Ninety-three of Tennessee’s counties saw sales taxes rise in July.
“The second quarter was the worst,” Murray said. “The gross domestic product (GDP) fell 32.9 % — the largest decline we’ve seen in modern day history.”
To put that in context, the sharpest quarterly contraction in the GDP during the Great Recession in 2008 was 8.2 percent.
Overall, the biggest hits on the local and state economy have been declines in the hospitality and tourism industry. However, consumer spending on household items, home improvements, building supplies and internet sales are all strong.
“From March to June, internet sales have been significant,” he said. “Office supply sales are up 58%; hardware stores saw an increase of 42%; sporting goods up 40%; electronics up 37%; housewares up 34%; and food and beverage sales are up 29%.”
Other sectors that helped boost sales tax revenues include businesses that received stimulus money from the federal CARES Act, as well as the unemployed who received federally-supplemented weekly benefits.
Murray said that the U.S. and state economy are fundamentally sound mostly due to the 80 percent of the workforce who are still working and still spending. Other bright spots include a strong housing market with a stable local property base and a booming stock market. However, he said it will be a slow climb to a full recovery with many bumps along the way. Going forward, sales tax revenues will most likely be flat and business investments will be weak.
“We could see a dip in the third quarter because of the federal stimulus money that helped prop up the economy during the second quarter is now waning,” he said. “There is also the threat of a second wave of infection with the return of schools and colder weather.”
Murray said the path to a full recovery hinges significantly on whether or not the U.S. has an effective vaccine.
“If we have a vaccine and sufficient enough people take it, then the economy will rebound.”
He is forecasting that the GDP for the entire year will contract by 4.8%, but we will see an accelerated 3.1% growth for next year. However, the economy won’t be fully restored until 2022 and any growth above pre-Covid numbers will not be realized until 2023-24.
Murray said that one area that will be slow to recover is the labor market, which was already tight in January and February with a 3.5% unemployment rate in Tennessee and a 4.7% unemployment rate nationwide.
“We have fewer job openings than we have people looking for jobs. Twenty million people – one-fifth of our labor force – don’t have a job. Some of those jobs aren’t coming back. It will be 2023-24 before we see job growth that significantly pushes us above where we were in the first quarter of 2020.”
Murray also shared some interesting survey findings collected through his work with Gov. Lee’s Economic Recovery Group and their collaboration with the Tennessee Pulse Survey. The survey has completed its 5th Wave, and provides a time series analysis that measures the attitudes and behaviors that Tennesseans have toward COVID-19, the reopening of the economy, and how concerns and attitudes evolve over time.
Survey results helped gage attitudes on a wide variety of topics such as mask-wearing, mask-wearing mandates, types of activities people are willing to engage in like dine-in visits to restaurants or attending in-person church services, as well as their general concern for their health and well-being.
Murray said that survey results revealed that a significant number of people are not going to re-engage in the economy until a vaccine is developed. Public policy is not what is keeping people at home, he said, it’s fear of Covid, and in some cases, it’s due to their financial situation.
“That’s not driven by policy – it’s driven by human behavior,” said Murray. “Businesses and households are going to be very cautious because of either the direct risk of getting Covid or giving the disease to someone else with life-threatening consequences.”
Other noteworthy findings include that 68% say they wear a mask in public and 80% said they practice social distancing. For the 65 and over crowd that number jumps to 83% are wearing masks and 93 % are practicing social distancing. And of those surveyed, 75% say they would support a local mask mandate.
To learn more about the Tennessee Pulse Survey and review more indepth findings go to: http://core19.utk.edu/tn-pulse-timeseries.
To view the entire webinar, go to https://play.champds.com/tml/event/13.