inflation

UT survey: Businesses most likely to pass inflation costs on to consumers

Forty-four percent of companies plan to pass increased inflation costs on to consumers, according to a new University of Tennessee survey.

Here are the details from UT’s Boyd Center for Business and Economic Research:

Inflation and labor force issues top the list of concerns for Tennessee business leaders, according to the most recent survey by the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville.

Conducted in January, the Tennessee Business Leaders Survey shows that respondents are relatively pessimistic on inflation, with about half (53.8 percent) saying the recent high inflation is “here to stay.” The other half said either that the current inflation is transitory (25.8 percent) or that they were unsure about inflation’s trajectory moving forward (21.1 percent).

About half said their companies plan to increase employee wages in response to inflation. As the cost of running a business goes up, 43.5 percent of employers said they will likely increase prices for consumers. Many also are looking into reorganizing their business or will rely more on artificial intelligence and automation. Very few are considering employee layoffs or the closure of stores or offices.

Figure-1
Figure 1: What companies plan to do about the rising costs associated with inflation.

In early February, about 50 survey respondents took part in a forum moderated by Don Bruce, associate director of the Boyd Center. Attendees discussed the survey results and elaborated more on how inflation affects Tennessee employers through the housing market, the supply chain, and a growing skills gap in the workforce.

“Parents are worried about the cost of buying a home in Tennessee and how unaffordable it is for a new college graduate. They say, ‘Where is the $100,000 starter home? It doesn’t exist anymore,’” Bruce said. “These business leaders also say their cost of operating has gone up and it takes longer to get something built—whether it’s due to supply chain issues or not having enough people trained to do the job.”

The concern about trained workers echoes the survey, where more than 70 percent of respondents reported an insufficient supply. About half said that increasing training opportunities and education is key in bridging the gap, and about a fourth said it would be good to reduce the government safety net in order to encourage more people to work.

Figure-2
Figure 2: What should Tennessee do to expand the supply of workers?

When looking at Tennessee as a whole, roughly 70 percent of survey respondents said they think the state’s economy will outpace the nation’s in 2022. Those from East and West Tennessee were much more optimistic about the state’s economy than those from Middle Tennessee. There was optimism among individual industries as well, with more than half of respondents expecting their businesses to perform better over the next 12 months and only 9 percent expecting their businesses to perform worse.

“A significant number of people are upbeat about their expectations for revenue, profitability, and employment growth in 2022,” said Bill Fox, director of the Boyd Center. “Despite worries about inflation, this shows me that business leaders in Tennessee have an entrepreneurial spirit and are finding ways to make their companies succeed.”

Figure-3
Figure 3: How would you describe your expectations for the Tennessee economy compared with the national economy over the next 12 months?

The full set of survey responses is available on the Boyd Center website. A few other highlights:

  • When asked about the local workforce, respondents were able to identify up to three skills or attributes lacking in job candidates. Work ethic was the top concern, listed by nearly two thirds of respondents.
  • Almost 58 percent said their company struggles to retain workers. Cost and availability of housing was the primary reason listed, followed by cost and availability of child care services.
  • Only 10.2 percent said they believe that reducing fiscal and monetary stimulus would result in a recession, while almost 60 percent said it would not.
  • 35.2 percent of respondents believe the Federal Reserve will begin raising interest rates during the first half of 2022. A quarter think it will be later in 2022.

The Boyd Center, located in UT’s Haslam College of Business, conducted the survey between January 10 and 31, gathering responses from business leaders across Tennessee. Respondents represented a broad sample of businesses across all industries and ranging in size from fewer than 50 employees to more than 5,000.

UT report finds spending surge among Tennesseans

Tennesseans are spending more and the state’s gross domestic product is growing — even when adjusted for inflation. That’s according to a new report by the Boyd Center for Business and Economic Research at the University of Tennessee in Knoxville.

Here’s the full release from UT:

KNOXVILLE — Tennesseans are going out and spending money again—a trend signaled by a surge in the state’s inflation-adjusted gross domestic product, which grew 5.6 percent in 2021. Real GDP is projected to continue growing in 2022 at 4.2 percent, according to a report released today by the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville.

Consumers are spending more confidently due to a third round of federal stimulus checks and the distribution of effective COVID-19 vaccines, which led to the return of in-person services for many consumers.

“The economic recovery has been incredibly strong so far, and the Tennessee economy seems to be on solid footing,” said Larry Kessler, research associate professor in the Boyd Center and project director for the 2022 Economic Report to the Governor of the State of Tennessee. “Real GDP has already recovered to prepandemic levels due to a strong surge in consumer spending. Employment in the state has been a little slower to recover, but we expect job levels to recover by the first half of 2022.”

The report includes a deep dive into the employment recovery in Tennessee and examines how the recovery differs by age, race, gender, marital status, and education, as well as by industrial sectors and geographic area. The state’s labor force participation rate, which sat at 61.8 percent before the pandemic, is projected to reach only 60.9 percent in 2022 and inch up to 61.4 percent in 2023. There is no single explanation for the slower labor market recovery, but many Tennesseans have reflected on their work–life balance since the pandemic began, and some have decided to switch jobs while others may not be as quick to re-enter the labor force for various reasons.

As of October 2021, the labor force among people aged 55 or older has decreased by nearly 55 percent nationwide since the beginning of the pandemic. Only the 35–44 age group has returned to prepandemic levels. There are still about one million fewer people aged 20–34 in the labor force, and another 800,000 fewer people aged 45–54. These changes could be due to workplace safety concerns as new COVID-19 variants emerge, families opting to live on one income instead of two, childcare issues, or an acceleration in retirements.

Despite the slower labor market recovery, employment in Tennessee is projected to reach prepandemic levels by the second quarter of 2022—a quarter ahead of the nation’s projected labor market recovery. The unemployment rate is projected to settle around 4.7 percent for 2021 and fall to 3.9 percent in 2022.

“Following a record-breaking year in terms of both job commitments and capital investment, the state economy continues its strong recovery,” said Bob Rolfe, commissioner of the Tennessee Department of Economic and Community Development. “Tennesseans are resilient and the state is open for business, as evidenced by the unemployment rate falling closer to prepandemic levels. This is good news for our businesses, our recruitment efforts, and the Tennessee economy as a whole.”

Nonfarm employment is projected to increase by 2.8 percent for 2021 and 3.1 percent in 2022, recovering to prepandemic levels by the second quarter of 2022. State payrolls will get a boost from the manufacturing sector, which is expected to see an employment increase of 3.8 percent for 2021. The hard-hit leisure and hospitality sector is projected see employment expand by 5.9 percent in 2021 and sharply increase by 10.2 percent in 2022 as consumers continue to get more comfortable with in-person services and rising wages attract more workers. Worker burnout is likely driving a labor force contraction in the education and health services sector, with employment falling by 0.6 percent in 2021, but it should see an uptick of 2.2 percent growth in 2022.

“There are still a number of downside risks to economic growth, including supply chain issues, higher prices, and new COVID-19 cases and variants,” Kessler said. “But the state economy has proven to be very resilient, and we project strong economic growth in the near term.”

The report examines the long-term economic outlook for Tennessee as well as the results of the 2020 census. The state grew faster than the US overall, with the population increasing by 8.9 percent versus the national rate of 7.4 percent. Rising death rates and declining birth rates have led to slower growth over the past three decades, but a strong rate of migration into the state has helped keep population growth from slowing even further. Tennessee added 565,000 people between 2010 and 2020, largely in Middle Tennessee’s Davidson County and the counties surrounding it. Rural areas are experiencing slower or even negative growth across the state.

Since 1975, the Boyd Center for Business and Economic Research, housed within UT’s Haslam College of Business, has provided Tennessee’s governor with an annual economic report that includes an in-depth analysis of state and national trends and forecasts.