City of Memphis Economic Outlook 2016-2017

By Jeff Wallace

The 2016-17 City of Memphis fiscal year will see the outlook for positive economic growth, income and job creation continue as a result of the steady expansion of the national economy.  The Memphis economy historically expands during periods of sustained national economic growth.  The stronger the nation grows, the stronger the Memphis economic expansion will be in 2016-17.  While the economic malaise in Europe, Asia and most of the developing world limits global opportunities, the 2016-17 U.S. economic outlook is for continued expansion at a modest 2-2.5% pace.  This national growth rate will have a positive impact on the Memphis economy. The threat of the national economy slipping into a recession will most likely postpone any additional interest rate increases during this year. The growth plans of businesses over the next year will reflect the economic forecast for the year.  Stronger growth will be met with stronger expansion plans while weaker growth will be associated with weaker expansion plans for businesses in Memphis and the nation.

While corporate profits continue to be strong, profit expectations for the coming year remain constrained by the threats to economic growth.  Multiple rounds of quantitative easing will sow the seeds for both economic expansion and inflation in many areas of the world. The U.S. economy seems well positioned to take advantage of the economic opportunities that will be generated domestically and internationally over the next few years. Investments in new plants and capital equipment will be generated in nearly every sector with the possible exception of the petroleum industry. Low oil prices are a strong positive for most people and businesses in Memphis.  Low natural gas prices will help keep the winter energy bills for families low.   Low fuel prices will keep gas expenditures low for households that depend on cars for transportation. Low fuel prices will help FedEx and other transportation companies to be more profitable this year. 

Inflation, traditionally seen as a sign of an overheated economy, will remain low over the next year.  The ability of companies to increase prices and still sell goods and services will be limited by domestic and global competition.  Competition will remain high in 2016-17 and put downward pressure on wages, prices and profits. Like businesses, communities will be challenged to do more with less as job creation, income and tax revenue grow slowly

In general, the economic trends expected for the U.S. in 2016-17 include the following:

1.      Sustained economic and job growth;

2.      Little inflation;

3.      Low interest rates;

4.      Unemployment rates near full employment levels;

5.      The housing recovery will continue;

6.       And income growth will be slow but positive. 

The economic trends expected for Memphis include the following:

 

1.      Tax revenues will grow more rapidly this year;

2.      The MSA population will continue to grow while the Memphis population declines;

3.      Job growth will improve;

4.      The out-migration of people and jobs will continue;

5.      Job creation in be particularly strong in the service industries;

6.      Low cost of living and housing remain assets for Memphis;

7.      Low taxes continue to make Memphis attractive,

8.      Abundant cultural amenities help offset the long term problems of high poverty and crime.

Memphis enjoyed the ride up the economic elevator during 90’s and the early part of the first decade of the 21st century. And, as in most major U.S. cities, the Memphis economy and its employment experienced a tremendous slow down with the housing bust and the Great Recession.  While the post-Great Recession recovery has been painfully slow, 2016-17 should see some positive gains in employment and income for Memphis.

Chart 1 shows that the Memphis MSA has enjoyed year over year growth since January of 2012. The data in Chart 1 show the seasonal employment ups and downs for the Memphis MSA over time.  Peak to peak employment occurs repeatedly in November and December as seasonal employment spikes occur following by employment declines in January. Looking past seasonal variations at the trend line reveals a slow but steady growth path. 

Chart 1. Memphis MSA Employment (000), January 2010-December 2015

Chart 1. Memphis MSA Employment (000), January 2010-December 2015

Chart 2 reveals the major reason why current economic conditions may not feel very good in comparison to other economic recovers.  Employment in the Memphis MSA peaked at nearly 641,000 jobs in 2007, while bottoming out in 2010 at just over 590,000. After losing 51,000 jobs, the MSA has gained back 31.6 thousand since the recession ended but the hardest hit industries have not completely recovered since the recession.

Chart 2. Annual Memphis MSA Employment (000), 2000-2015

Chart 2. Annual Memphis MSA Employment (000), 2000-2015

Chart 3 shows the trends for unemployment rates for Memphis, Tennessee and the nation.  It is clear that employment growth has had a positive impact in reducing unemployment nationwide and in the Memphis MSA. Ironically unemployment rates for the Memphis MSA and Tennessee peaked in the summer of 2009 – about the same time the Great Recession officially ended. While some of the declines are associated with reductions in the number of people looking for work, the national job situation is improving steadily and will continue to improve in Memphis as well in 2016-2017.

Chart 3. Unemployment Rate, U.S., Tennessee, Memphis MSA, December 2005-December 2015

Chart 3. Unemployment Rate, U.S., Tennessee, Memphis MSA, December 2005-December 2015

Table 1 provides more detailed employment data by industry in December 2015 and reflects an improvement in the local economy.  In percentage terms, financial activities was the biggest winner with 6.8% growth over 2014 while employment in leisure and hospitality was second with 2.4% growth. In comparison, national growth in financial activities was only 1.9%.  Locally four sectors shrank in 2015:  manufacturing (-3.1%), information (-1.6%), government (-1.0%), and professional and business services (-0.1%).  While there are some local bright spots in manufacturing, manufacturing overall is likely to continue on a downward trend as is the case nationally. 

Bass Pro’s successful first few months in The Pyramid in 2015 generated positive momentum for the local economy and especially for the downtown area of the city. Redevelopment of the Tennessee Brewery building and other downtown structures will translate into a higher quality of life for local residents as well as a favorable impression on visitors. The expected opening of IKEA in the fall of 2016 will also bring with it retail tourism and tax dollars.  Additionally, Memphis International Airport continues to add airlines and seat capacity to the Memphis market, making it easier for visitors to come to town and making Memphis more attractive to business as well.  Memphis is well on its way to a full recovery in the coming year.