Economic Outlook

2015 and Beyond

By Laura Childers & George Christian

The Great Recession that began in 2007 and ended in 2009 was the greatest worldwide recession since World War II. It began with the bursting of an $8 trillion dollar housing bubble. The resulting loss of wealth led to sharp cutbacks in consumer spending. This decline in consumption, combined with declines in financial markets, led to a collapse in business investment. From 2008 to 2009, the U.S. labor market lost 8.4 million jobs, or 6.1% of all payroll employment. It was the greatest employment contraction since the Great Depression.


From 2006 to 2009, U.S. GDP grew only 2%, with major declines in certain business sectors being offset by modest gains in others.  During this time, construction declined by 17%, manufacturing of durable goods by 13%, and retail trade by 4%, yet health care and social services grew 19% over the three-year period and professional, scientific, and technical services grew by 11%.

Since 2009, the recovery for the U.S. and the global economy has been slow. Through 2013, growth for U.S. GDP has averaged between 2 to 3% per year and progress among different business sectors has varied. From 2009 to 2013, manufacturing led the greatest absolute gains. Corresponding with the gains in manufacturing, transportation and warehousing grew 23%. Health care and social services continued to see gains (14%), along with professional, scientific and technical services (21%). Improved consumer confidence led to a rebound in retail trade (13%).


Looking Forward – 2015

For  2014, most economists forecast that GDP will finish the year around 2.1%, little changed from last year’s 2.2%. Next year GDP
is expected to finish around 3%, continuing the slow rebound that
began in 2010. Looking forward into 2015 and the next decade, many economists are projecting continued modest growth that will vary significantly across business sectors. What follows are the projections by the Bureau of Economic Analysis and other experts for
key economic sectors.






2013 GDP: $2.1 trillion

% change 2009-2006: -5%
durable goods –13%; non-durable goods 6%
% change 2013-2009: 21%
durable goods 26%; non-durable goods 16%
% change 2013-2012: 2%
durable goods 3%;  non-durable goods 1%
Forecasted annual rate of change through 2022: 2.4%

Manufacturing jobs peaked at 19.6 million in 1979 and have continued to fall with advancements in machinery and automation and the rise of offshoring.  Yet the change that this  sector is undergoing – namely, increasing dependence on innovation, productivity, and international trade – will have significant implications for the strength of the U.S. economy as it moves forward in a competitive global marketplace.  To support innovation and the manufacturing of rapidly changing products, growth will continue  in information technology that utilize advanced tools for product design and creation, like software solutions, service integration, 3D printing, and the utilization of big data.


Computer and electronic manufacturing is projected to have one of the highest annual growth rates through 2022, propelled by increased demand for smartphones, tablets, and new wireless technology. Motor vehicle part manufacturing is also projected to be one of the fastest growing subsectors in terms of real output with an average annual increase of 3.6%.

Also building U.S. manufacturing is an increase in foreign direct investment, particularly in sectors benefitting from supply of cheap natural gas and access to global markets. As of 2012, total direct investment in U.S. manufacturing from abroad totaled $899 billion led by pharmaceuticals; petroleum and coal products; electrical equipment, appliances, and components; basic chemicals, and transportation equipment, mostly in the motor vehicle industry.

So while  manufacturing  will continue to shed jobs, it will remain a dominant sector in the U.S. economy. Economists project that it will grow 2.4% per year through 2022; ten times the level seen between 2002 and 2012.


“I believe that nationally we will continue to struggle with job creation and relatively flat average wage rates for a year or two, but I am very optimistic about the future of the Chattanooga region. There are significant economic development opportunities in our pipeline from which we should see meaningful job creation in 2015. While we will continue to grow in the automotive industry as Volkswagen and its supplier base expands, Chattanooga is also seeing increased strength across its existing industries, including food processing, advanced manufacturing, and distribution. Significant too is Chattanooga’s business start-up sector, which will continue to play an important role in our growth.” 
Bill Kilbride, President and CEO, Chattanooga Chamber of Commerce

REAL ESTATE Rental and Leasing 

2012 GDP: $2.2 trillion

% change 2009-2006: 11%
% change 2013-2009: 14%

The real estate rental and leasing sector is comprised of establishments primarily engaged in the renting and leasing of tangible and intangible assets. The sector also includes services provided by businesses primarily engaged in managing, renting, buying and selling real estate for others. It does not include the value of residential homes or commercial buildings that have been bought or sold.

From 2006 to 2009, as foreclosure and residential home sales declined, home leasing and rentals gained. Businesses, unwilling to invest capital in buildings and equipment turned to leasing.


Moving forward, as the economy improves, so will real estate rental and leasing but at a lower rate than sectors that experienced marked setbacks during the recession. Families unable to afford homes will continue to rent. Businesses uncertain of the economic climate will continue to lease property and equipment. The Bureau of Economic Analysis does not provide longer-term forecasts for this sector.


“In the year ahead, interest rates should increase slightly but not enough to deter home sales. With new qualified mortgage rules on the horizon, we should see more buyers entering the market. Nationally, existing home sales should see a 3 to 5% growth in median prices. This is in line with the 5.7% growth in median price locally. Most industry experts forecast moderate growth longer-term.”
Carol Seal, RCE, CEO and Executive Vice President, Greater Chattanooga Association of REALTORS®


2013 GDP: $2 trillion

% change 2009-2006: 8%
% change 2013-2009: 21%
% change 2013-2012: 4%
Forecasted annual rate of change through 2022: 3.2%

In the wake of the recession, job growth has been strong in the high-paying industry of professional, scientific and technical services – a category that includes accountants, lawyers, software developers, and engineers.

Businesses’ growing need of consulting services to keep pace with the latest technology, government regulations, and management and production techniques is expected to also drive demand for workers in this industry. Among these jobs, some of the fastest growing include software developers, computer systems analysts, and translation and interpretation services.  Overall, employment in the professional and business services sector is projected to grow at a rate of 1.8% annually and increase by $899.5 billion to reach a new level of more than $3.3 trillion in 2022.


“VW is the big differentiator in Chattanooga’s marketplace right now. Over the next 10 years or so, there is tremendous capacity to create thousands of jobs in the automotive sector. Other big German OEMs Mercedes (Tuscaloosa, AL) and BMW (Greer, SC) are also growing nearby and we’re located close to both. Because of that, we tend to show up on the radar screen for their suppliers. That will drive long-term growth over the next five to 10 years in the automotive sector. The other thing that is harder to gauge but I believe will lead to economic growth is the significant amount of entrepreneurial activity in our market and the potential for new companies to evolve into robust employers.”
Charles Wood, Vice President of Economic Development, Chattanooga Chamber of Commerce



2013 GDP: $1.2 trillion

% change 2009-2006: 19%
% change 2013-2009: 14%
% change 2013-2012: 4%
Forecasted annual rate of change through 2022: 3.1%

The health care industry was one of the only industries in the U.S. to continue adding jobs even through the economic downtown. The recession-proof industry is expected to continue its trend of upward growth, spurred further by technological advances in patient care and changing demographics – namely, the number of people 65+ increasing from 41.9 mm in 2012 to 58.6 mm in 2022.

Overall, the health care and social assistance sector will account for almost a third of the projected U.S. job growth from 2012 to 2022, adding an estimated 5.6 million new jobs.  The occupations with the largest projected employment increases are registered nurses; personal and home care aides; home health aides; nursing aides, orderlies, and attendants; medical assistants; and licensed practical and licensed vocational nurses. Cost pressures, along with an aging population and technological advances are expected to shift services from inpatient facilities to the offices of health practitioners. The Bureau of Labor Statistics projects that the sector will grow at an annual rate of 3.1% through 2022.


“Over the past 10 years, the economic impact of tourism has grown significantly. Based on the increased attendance at our attractions and more hotel rooms being filled during peak tourism season this year, we’re anticipating that visitor spending in Hamilton County will exceed $1 billion for the first time. Visitors are coming to Chattanooga and returning because of our attractions, hotels, restaurants, entertainment venues, outdoor amenities, and events like IRONMAN, Head of the Hooch, Nightfall, and the Chattanooga Market. We are confident that if we continue to dream big, think big, and build big, that the leisure, convention, and sporting markets will continue to see growth. Chattanooga’s best years are yet to come.”
Bob Doak, President and CEO, Chattanooga Convention & Visitors Bureau



2013 GDP: $1.1 trillion

% change 2009-2006: -8%
% change 2013-2009: 15%
% change 2013-2012: 3%
Forecasted annual rate of change through 2022: 3.2%

Over the past 60 years, financial services’ share of the economy – which includes the businesses of borrowing, lending, investing and everything in between – has grown from 2.5% to 8.5% of GDP.  The sector boasts a wealth of high-paying jobs and drives employment in all sectors. However, it was one of the hardest hit by the recession, losing a total of 628,000 jobs. The downturn has forced businesses within the industry to look for ways to lower costs and boost efficiency. Advances in technology have and will continue to allowing financial firms to do more with less people.

Moving forward, financial services jobs expected to grow include insurance underwriters (as natural disasters increase every year and the aging population continues to grow), financial managers (primarily of the self-employment type) and budget analysts. Real output in the insurance carrier industry is expected to increase a total of $99.7 billion from 2012 to 2022, driven in part by the number of people who now require health insurance with the implementation of the Affordable Care Act.


“In the coming year, we anticipate continued growth in the individual insurance market as more Tennesseans seek coverage in the new healthcare insurance marketplace created by the health care law. To meet these demands, we will need employees in highly skilled fields such as nursing, technology and medical analytics to help positively impact our members’ health.”
Bill Gracey, CEO, BlueCross BlueShield of Tennessee 


2013 GDP:  $956 billion

% change 2009-2006: -4%
% change 2013-2009: 13%
% change 2013-2012: 3%
Forecasted annual rate of change through 2022: 3.2%

The retail trade sector is the nation’s largest employer, supporting 42 million jobs (that’s one in four). Fueled by declining consumer confidence and spending, it took one of the hardest hits during the great recession. Since 2010, however, it has continued to rebound, and while sales haven’t completely returned to levels seen before 2008 and 2009, there is no question the industry is in much better shape as optimism continues to rise. Looking forward to 2022, the sector, which includes everything from motor vehicle and parts dealers to home furnishing stores to gas stations and grocery stores, is projected to see some of the largest and fastest increases in both employment and output in the entire economy. The projected growth is attributed to an expected rise in personal consumption expenditures and better economic performance overall.


“Chattanooga is emerging from the recession with many things in its favor. We had several large businesses begin operations at the beginning of the economic downturn, so we didn’t experience the same job, customer, and electric load declines suffered by other areas. Now that we are emerging from the recession, these same businesses, as well as other existing businesses, should continue to yield significant growth for our area.”
Greg Eaves, Executive Vice President of Finance and CFO, EPB



2013 GDP: $802 Billion

% change 2009-2006: 8%
% change 2013-2009: 14%
% change 2013-2012:  3%
Forecasted annual rate of change through 2022: 3.5%

The information industry continues to experience growth in relation to the number of people using computers, the Internet, mobile phones and other electronic devices. Among the service-providing sectors, it  is projected to see the second fastest increase in real output from 2012-2022, increasing at an average of 3.5% per year. Within the industry, the subsectors projected to experience the most growth include the software publishing industry; data processing and hosting, and telecommunications.


“Over the last decade, the health care sector nationally and in our region has grown dramatically. According to the Bureau of Labor Statistics, employment in health care and social assistance increased by 53% between 2001 and 2009, and continued growth is expected. Hospitals, physician offices, and laboratories will continue to be major employers in the years to come.”
Rae Young Bond, Executive Director, Chattanooga-Hamilton County Medical Society and Medical Foundation of Chattanooga



2013 GDP: $611 billion

% change 2009-2006: -17%
% change 2013-2009: 6%
% change 2013-2012: 5%
Forecasted annual rate of change through 2022: 4.1%

Construction had a bumpy year in 2014, but it continues to slowly improve in line with the recovering housing market and overall economy. U.S. housing starts are expected to total between 1.0 and 1.1 million this year, representing a 10 to 15% increase over 2013 levels.  However this is still well below the 2 million seen in 2005.

Forecasters expect a modest rebound in construction to continue through 2015 and beyond, spurred by an improving job market, rising consumer confidence, pent up demand among millennials for residential structures in particular, a growing population, and the need to replace older housing.  Within the goods-producing sectors of the economy, construction is expected to have one of the largest and fastest increases in real output growth from 2010-2022, growing at a rate at 4.1% per year. It’s also projected to have one of the largest increases in employment of any sector of the economy, adding a total of 1.6 million jobs in the same time frame.  This is certainly positive news for a sector that lost 28% of its labor pool from 2007 to 2011.


“One of the things that has stood out about Chattanooga over the longer term is its strong and vibrant manufacturing sector. The community has a long tradition of manufacturing activity and a very strong organization of manufacturing businesses. VW is an important driver for the region’s economy, offering new jobs and the opportunity to develop new world-class technologies. Chattanooga has all the components for strong economic growth.”
Dr. Matthew N. Murray, Professor of Economics and Associate Director, Center for Business & Economic Research, University of Tennessee



2013 GDP: $490 billion

% change 2009-2006: -8%
% change 2013-2009: 23%
% change 2013-2012: 4%
Forecasted annual rate of change through 2022: 2.9%

Transportation is in the business of getting goods to where they need to go, so naturally its success is closely tied to manufacturing and consumer demand. As the national economy grows and shipment orders increase, so will demand for an entity that moves  goods to where they can be sold, or even move them directly to the consumer’s front door.

It’s no surprise, then, that the transportation and warehousing industry took a hard hit during the recession.  Moving forward, transportation, logistics, and warehousing will  benefit from the rebound in goods-producing sectors and agriculture along, with increased consumer spending and ecommerce. Also adding to this sector’s growth will be continued reshoring and the corresponding need for warehousing and logistical services.


“We are seeing continued growth in the telecom industry, especially in wireless communication, with projections of approximately 347 million wireless subscribers in the United States by 2017. Ever-growing amounts of data are shared across our networks, as consumers enjoy seamless connectivity from smartphones to tablets and desktops, to their Connected Cars, their homes with Digital Life, and the office. These are examples of the consumer’s demand to be connected everywhere and mobilize everything, and the industry is investing billions to meet that expectation.”
Joelle Phillips, President, AT&T Tennessee



Similar to the U.S., Chattanooga’s economy experienced sharp declines from 2006 to 2009. The area’s GDP declined by 0.7% to $20.2 billion dollars. Unemployment grew from 4.4% at the end of 2006 to 9.5% at the end of 2009. Business sectors hit the hardest included manufacturing, transportation and warehousing, construction, real estate, and retail trade. Declines in the economy were somewhat softened by the new Volkswagen facility which began construction in 2009 and continued gains in health care, education, and tourism.

Since 2009, our local economy has also rebounded. GDP grew from $20.2 billion in 2009 to $22.2 billion in 2013. Driven by Volkswagen’s new facility and its suppliers, the manufacturing sector has led the area’s turnaround. Supported by Amazon’s new facility, improvement among manufacturers across the U.S., and higher consumer confidence, the transportation and warehousing sector has increased steadily. Historically low interest rates along with greater consumer confidence has fueled the turnaround for residential real estate and new construction. Subsequent employment gains locally and around the region have fueled brisk gains in retail sales and continued growth for tourism.

But what does the future hold? Most experts agree that the Chattanooga area will experience similar gains as forecasted for the U.S. However, an improving U.S. economy and pro-business state and local governments are expected to support higher rates of growth for manufacturing, transportation and warehousing, and business services. Residential construction and real estate are expected to experience continued gains as personal finances for millennials improve with new employment opportunities shed by retiring baby boomers. With moderate inflation, lower interest rates and improving levels of disposable income, retail sales are expected to experience modest growth.

With that said, all forecasts assume that the financial struggles of countries around the world will be successfully dealt with and that worldwide affairs will remain in check. Those are two big assumptions, so we will be back in touch next year at the same time.


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