Tennessee economists see slower job growth, warn tariff shifts and concentrated spending risk state sales-tax receipts

Dr. Larry Kessler, director at the Boyd Center for Business and Economic Research at the University of Tennessee, told the Senate Finance, Ways and Means Committee on Feb. 17 that Tennesseecontinues to see positive GDP growth even as its labor market shows signs of weakness.

Kessler said the statehas seen a marked slowdown in job growth compared with pre-pandemic years. "Prior to the pandemic, the state was averaging about 60,000 new jobs created each year," he said; the most recent data show closer to 24,000to 25,000 new jobs in 2025 and a forecast of roughly 31,000 for 2026. Over the long run (20272035), the Boyd Center projects about 40,000 new jobs per year, still below pre-pandemic averages.

Why it matters: Tennessee relies heavily on sales taxes. Kessler highlighted a growing divergence in household spending by income: "Low-income household spending is only about 7.9% higher than it was six years ago," while high-income households are up "16.7%" from the same baseline. Because higher-income households spend a larger share on services (less often sales-taxable) and lower-income households spend a larger share on goods, a fall in lower-income spending could dampen sales-tax receipts.

Kessler walked committee members through several other labor-market measures. He said job openings (JOLTS) reached roughly 310,000 in 2023 and later fell toward 160,000; hires and separations have been near pre-pandemic averages. He estimated the state's labor "shortage" (the gap between labor demand and available workers) at about 20,000 openings, down substantially from peaks above 200,000.

Trade and prices: Kessler told senators that recent federal tariff changes have raised effective tariff-rate estimates sharply. Using published estimates, the effective tariff rate rose from about 2% historically to estimates of roughly 11.2% (Tax Foundation) or 14% (Yale Budget Lab) since April of last year. He said higher tariffs have shown up in producer prices and that some firms have started to pass those costs on to customers. On trade flows, Kessler cited a roughly $4.1 billion drop in Tennessee imports from China year-over-year and more than $1.2 billion fall in Canadian purchases of Tennessee goods, with transportation equipment and agricultural exports notably affected.

Regional impacts and demographics: Committee members pressed Kessler about persistent county-level job declines in parts of rural Tennessee. He attributed much of that pattern to out-migration, consolidation in farming and mining sectors, and infrastructure and services gaps that make it harder for rural areas to retain or attract workers. Kessler also highlighted rapid population gains statewide since 2022 (nearly 97,000 new residents in 2022 and about 80,000 in each of 2023 and 2024), driven primarily by domestic migration from states such as California, Texas, Florida and Georgia; roughly 40% of new residents fall in prime working ages (25to 54).

Whatcomes next: The Boyd Center forecast, presented during the committee session, projects modestly slower GDP growth in the near term (Kessler cited a 2025 estimate of about 1.7% in the report, with upward revision possible given recent strong Q3 data) and continued but slower job growth than pre-pandemic norms. Kessler urged members to watch potential headwinds from trade-policy shifts, concentrated spending changes among income groups, and a relatively aging workforce that may restrain long-term labor supply.