Local Economic Growth Expected to Continue for the Remainder of 2018

By John Gnuschke, Ph.D., Director and      
Jeff Wallace, Ph.D., Research Professor
Sparks Bureau of Business & Economic Research
The University of Memphis

The outlook for the Memphis MSA for the remainder of 2018 is for continued economic growth, income, and job creation because of the steady expansion of the national economy. Historically, the Memphis economy expands during periods of sustained national economic growth.  Therefore, the stronger the nation grows, the stronger the Memphis economic expansion will be in 2018 and into 2019.  Stronger growth will be met with stronger expansion plans by businesses in both Memphis and the nation.

The 2018 economic trends expected for Memphis include the following:

1.       The MSA population will continue to grow, while the Memphis city population will decline;

2.       Job growth will improve;

3.       FedEx, the region’s largest employer, will grow in response to federal tax changes;

4.       Job creation will be strongest in the service industries;

5.       Low taxes and low cost of living and housing will remain assets for Memphis; and

6.       Abundant cultural amenities will help offset the long-term problems of high poverty and crime rates.

Local Highlights

FedEx, Memphis’ largest employer with more than 30,000 local workers, recently announced it would commit over $3.2 billion to capital investments, employee compensation, and pension funding because of U.S. tax reform. Memphis will see an economic benefit from this as local workers spend their higher incomes in the local area. Bass Pro at The Pyramid continues to generate positive momentum for the local economy and especially for the downtown area of the city. Downtown will also benefit as ServiceMaster moves into the former Peabody Place Mall early in the year. In addition, the continued expansion of St. Jude will provide an additional boost to the downtown area of Memphis for years to come.

With no other IKEA nearer than a five-hour drive, the Memphis IKEA will continue to bring with it retail tourism and tax dollars.  Redevelopment of the Tennessee Brewery building and other downtown structures is well underway and will translate into a higher quality of life for local residents as well as make a favorable impression on visitors. Additionally, Memphis International Airport continues to add airlines and seat capacity to the Memphis market, making it easier for visitors to come to the area and making Memphis more attractive to business as well.

While the current situation looks good for the local economy, downside risks are significant. The Federal Reserve is actively trying to raise interest rates in an effort to gain back the power of its primary tool for fighting inflation. Unfortunately, the Federal Reserve has a history of killing off economic growth by raising interest rates too much. Capital investments, even those announced by FedEx, are not firm if the economy weakens and global conditions are a key for our major employers. In addition to interest rate risks for the housing industry, the industry tends to over-build, making downturns even worse. Finally, because Memphis depends upon strong national growth, anything that weakens the national economy stands to weaken Memphis as well. Even with these risks, however, the Memphis economy looks strong for the remainder of the year.

Local Conditions

The data in Chart 1 show annual establishment employment for the Memphis MSA from 2007-2017. The job losses due to the Great Recession ended in 2010. Since 2010, employment has grown steadily and by the end of 2017 had increased by more than 53,000 jobs. The outlook for 2018 is for continuation of the growth path of the last seven years—an increase of 7,000-10,000 new jobs.

 

   Chart           SEQ Chart \* ARABIC        1            . Memphis MSA Employment (000), 2007-2017

Chart 1. Memphis MSA Employment (000), 2007-2017

Table 1 provides more detailed employment data by industry for 2017 and reflects ongoing growth in the local economy.  Mining and Construction was the largest sector with 12.0 percent growth over 2016 (note that mining employment is extremely small in the Memphis MSA), while employment in Trade, Transportation, and Utilities was second with 2.9 percent growth. In comparison, national growth in Construction was only 2.8 percent. Locally four sectors declined in 2017: Information (-0.9%), Financial Activities (-0.8%), Government (-1.5%), and Professional and Business Services (-1.2%). Local manufacturing grew although at a rate slightly less than the national growth rate (0.4% vs. 0.6%, respectively).

Chart 2 data show employment growth in the construction industry and are a strong reflection of optimism in local economic conditions. Within the Memphis MSA, new construction virtually ended during the Great Recession, driving down construction employment from 26.4 thousand in 2007 to 19.3 thousand by 2010. While recovery in local construction employment has been slow, 2017 was a breakout year, with construction employment rising to 24.5 thousand.  Further, the data in Chart 2 show strong growth for the Memphis MSA in the twelve months through December 2017 (preliminary), with construction employment rising 8.3 percent, which is especially strong relative to the nation as a whole. With local average home sales prices having risen 5.0 percent in 2017 (see https://maar.org/marketreports for local home price data) and continued economic growth expected, the incentive is in place for local construction to grow even more in 2018.

Table_1.png
   Chart         SEQ Chart \* ARABIC      2        . Twelve-Month Percent Change in Construction Employment, Selected Areas, December 2017

Chart 2. Twelve-Month Percent Change in Construction Employment, Selected Areas, December 2017

Chart 3 shows the trends for the unemployment rates of the U.S., Tennessee, and Memphis.  While improving employment growth has had a positive impact on reducing unemployment nationwide and in the Memphis MSA, some of the declines are associated with reductions in the number of people looking for work. Locally and nationally unemployment rates are so low that in order for employment to grow further, pay and benefit raises will be needed. Even so, the national and local job situations are improving steadily and will continue to improve in 2018.

   Chart         SEQ Chart \* ARABIC      3        . Unemployment Rates, U.S., Tennessee, and Memphis MSA, December 2007-December 2017

Chart 3. Unemployment Rates, U.S., Tennessee, and Memphis MSA, December 2007-December 2017

Regional Economic Growth

In a simplified manner of speaking, local and regional economies grow in three ways:  (1) population growth, (2) productivity growth, and (3) export growth (by selling more local goods and services to outsiders, including other regions of the U.S. and internationally).  While other factors certainly play a role (e.g., government policies and tax changes), most factors contribute through these three categories.  Economic growth through population growth depends upon having more people move to the local area. Productivity growth depends heavily upon the introduction of newer technologies, in addition to improving education and training levels. Finally, export growth can have both a domestic and an international focus so long as the buyers are not located within a local area. In this section, these three broad categories will be examined briefly with regard to economic growth in the Memphis area.

Population Growth.  So what can the Memphis area expect in terms of population-driven GDP growth? The data in Chart 4 provide an insight into the answer to this question. Chart 4 focuses on population growth for the Memphis MSA, Memphis city, Shelby County, Tennessee, and the U.S., in addition to Nashville[1] city and the Nashville MSA. As shown, the city of Memphis had only 0.1 percent population growth over the past five years, while Shelby County had a population decline of -0.1 percent. However, the Memphis MSA grew 1.7 percent during this same time period, reflecting faster growth rates in suburban areas.  The good news for the city of Memphis is that it held steady while many urban areas declined.  In contrast, Metropolitan Nashville-Davidson County and the broader Nashville MSA are the hot areas in the state with 8.2 and 15.1 percent growth, respectively.

   Chart 4. Percent Change in Population, U.S., Memphis MSA, and Selected Areas, 2011-2016

Chart 4. Percent Change in Population, U.S., Memphis MSA, and Selected Areas, 2011-2016

Productivity Growth: Educational Attainment. As indicated previously, productivity growth depends heavily upon the introduction of new technologies, in addition to improving education and training levels. The introduction and adaptation of new technology is largely beyond the control of any city or region. Accordingly, this section looks at educational attainment, as most regions and municipalities have a vested stake through the funding of public and higher education. The effects of rising education and training levels show up in increased worker productivity and rising income levels. Therefore, educational attainment is used as a proxy for worker productivity.

Charts 5 and 6 show educational attainment for the Memphis MSA, Memphis city, U.S., and Tennessee, in addition to Nashville city and the Nashville MSA. Historically, Memphis has been challenged with having lower educational attainment levels than have other parts of the country and even other parts of the state. This is true whether for high school diplomas (Chart 5) or Bachelor’s degrees (Chart 6). However, Memphis’ educational attainment levels are improving.

The percentage of Memphis residents over the age of 25 with a high school diploma (or equivalent) or higher (Chart 5) rose from 81.2 percent in the 2006-2010 American Community Survey (ACS) to 84.0 percent in the 2012-2016 ACS. Similarly, the percentage of Memphis residents over the age of 25 with a Bachelor’s degree or higher (Chart 6) rose from 22.5 percent to 25.1 percent during the same time period. While Memphis still lags the U.S. and Tennessee averages, progress is being made. Over time these improvements will make it easier to recruit prospective employers, in addition to contributing to rising incomes and higher standards of living.

   Chart 5. Percent of Population with a High School Diploma/Equivalent or Higher, Ages 25 and Over

Chart 5. Percent of Population with a High School Diploma/Equivalent or Higher, Ages 25 and Over

   Chart 6. Percent of Population with a Bachelor’s Degree or Higher, Ages 25 and Over

Chart 6. Percent of Population with a Bachelor’s Degree or Higher, Ages 25 and Over

Export GrowthExports also play a big role in the local economy. As mentioned previously, exports are defined to include goods and services supplied to customers outside the Memphis area/MSA. For example, the Memphis Zoo and Elvis Presley’s Graceland both attract thousands of visitors from outside the Memphis MSA. And, when these visitors come to town, they stay in local hotels, eat in local restaurants, and shop in local retail stores. Both operations strive to keep attractions fresh and new in order to keep existing visitors and to attract new ones to the area.

Other local corporations export their goods and services to customers from outside the Memphis MSA and, in many cases, from outside the U.S.  Examples include FedEx, Service Master, Thomas & Betts, Baptist Hospital, and Methodist Hospital.  As these companies grow in size and sales, so too does regional GDP.

Foreign exports are big business in the Memphis area. According to the U.S. International Trade Administration,[1] Memphis was the 25th largest exporter in the U.S. in 2016 with $11.6 billion worth of Memphis goods exported. And, since 2006, Memphis’ foreign exports have grown 64.2 percent. On average, exports from the Memphis area have increased by 5.1 percent annually over the past ten years. In addition, within the 381 Zip Code prefix there were 1,088 exporters.

Finally, Chart 7 shows one-, five-, and ten-year percentage changes in exports by Memphis and selected peer MSAs as of 2016.  During the past ten years, Memphis’ exports have grown 64.2 percent. However, the region’s export growth declined modestly during the last five years, including a -1.6 percent drop in 2016 over 2015. Compared to the other MSAs shown in the chart, the Memphis MSA fared well, but it certainly did not reach the level of MSAs like New Orleans and Charlotte.  New Orleans’ ten-year growth of 339.5 percent, however, is attributable almost entirely to recovery from Hurricane Catrina. In the end, export growth is a path to GDP growth for the Memphis area.

   Chart 7. Percent Change in Exports, Memphis and Selected Peer MSAs, as of 2016

Chart 7. Percent Change in Exports, Memphis and Selected Peer MSAs, as of 2016

[1] Nashville city merged with Davidson County in 1962 and is known as Metropolitan Nashville-Davidson County.

[2] See https://www.trade.gov/mas/ian/metroreports/Memphis.pdf for more information.