Tri-Cities sees first real economic growth since 2012; smaller NE Tenn. economies outperforming big metro areas

Last year was the best economy the Tri-Cities has seen in five years. It was the first year since 2012 when the seven-county area posted real economic growth from the previous year. With that said, 2017’s real total economic output – gross domestic product (GDP) – has declined 5.7% ($979 million) from its 2011 peak, according to recently released data from the Bureau of Economic Analysis (BEA). And productivity in both the region’s metro areas still lags previous highs. In other words, the economy grew but has not recovered to its pre-recession levels, and the growth that has happened is not evenly distributed.

As welcome as last year’s 1.2% growth was it was a little less than half of the 2.5% U.S. real GDP growth rate. And when you move past the big regional picture distinct – sometimes stark – changes are evident as the economies of the area’s two Metropolitan Statistical Areas (MSA) continue restructuring from the Great Recession. But before we get into the weeds of the MSA economies there’s another big picture look that adds context to what follows.

Northeast Tennessee’s two smallest economies – the Morristown and Johnson City MSAs – outperformed the larger Knoxville and Kingsport-Bristol MSAs. Here’s how that year-over-year growth looked.

Morristown – 2.8%

Johnson City – 1.8%

Knoxville – 1.7%

Kingsport-Bristol 0.8%

Shifting back to the Tri-Cities two MSAs, Kingsport-Bristol’s all-industries real GDP was positive for the first time since 2012.  Although the four-county MSA’s economy is larger ($10.1 billion vs $6.1 billion) its real GDP has trailed the three-county Johnson City MSA every year since 2013. Real GDP measures the value of finished goods and services at constant base-year prices that are adjusted for inflation or deflation.

The BEA reports MSA level GDP in current-year dollars and the real GDP as chained 2009 dollars for 91 separate industry codes but dollar values for many are not reported to avoid disclosure of confidential information. That’s why the percentage change from the preceding year is used to track growth. All dollar references in this report are the BEA’s real GDP amounts.

The industry codes where the dollar values are printed offers some examples of the dynamic shifts as local economies move toward their previous high. In Kingsport-Bristol’s case, that high in the all-industry category was in 2012. Since then the economy of the region’s largest MSA has declined by $1.29 billion. The Johnson City peak was in 2009. Since then its economy has declined by $20 million.

Peak years for the economy of private sector firms align with all-industry previous highs. Since its previous high the Kingsport-Bristol private sector economy has declined by $1.35 billion. The Johnson City MSA private sector economy has declined by $51 million since its 2009 high.

Among the industry levels where year-over-year data is provided for both MSAs:

• Kingsport-Bristol’s retail trade economy has outperformed the Johnson City metro area for the past two years.
• Johnson City’s wholesale trade economy was up 9.4% last year compared to a 2.3% decline in Kingsport-Bristol.
• Although Johnson City’s manufacturing economy is smaller than Kingsport-Bristol its growth rate dwarfed Kingsport-Bristol last year. It grew by 6.2%, while Kingsport-Bristol’s manufacturing economy had 0.5% growth.
• Kingsport-Bristol’s finance, insurance, real estate, rental, and leasing economy had a 1% gain last year while it declined by 4.7% in the Johnson City MSA.
• The professional and business services economy in the Johnson City MSA grew 7% in 2017 while it declined by 0.8% in Kingsport-Bristol.
• Johnson City’s education services, health care, and social assistance economy grew by 0.2% last year but declined by 0.7% in Kingsport-Bristol.
• The arts, entertainment, recreation, accommodation and food service economy in the Johnson City metro area was up 2.3% last year and unchanged in from the 2016 level in Kingsport-Bristol.
• Johnson City’s overall trade economy was up 5.4% last year and 1.6% in Kingsport-Bristol.
• Johnson City’s transportation and utilities economy real GDP grew by 10.3% and 8.2% in Kingsport-Bristol.

Another critical metric for getting some context on what the local economies are doing is productivity. This is especially true in the Kingsport-Bristol MSA which has an older population than the Johnson City MSA and its economy of yesteryear was more manufacturing centric. That rapidly aging population and the decline of old manufacturing was a one-two punch to the economy that continues today.

Manufacturing began declining in Kingsport-Bristol in the early 90s. It was and continues to be driven by technology.  Back of the envelope calculations show there are 15 people a day turning 65 in the region every day this year and next year. After that, the rate will increase until the demographic peak of Baby Boomers musters out of the full-time labor force. Simply put an aging population means productivity declines unless it is replaced by a technology that balances the worker decline.

Productivity in the Kingsport-Bristol MSA – as measured by year-over-year change in the per capita real GDP – began improving in 2014 after a steep decline that began in 2011. It went flat in 2016 but began increasing again in 2017 to fuel that MSA’s 0.8% growth.

Productivity in both of the region’s MSAs remains below their previous highs. In the Johnson City MSA that came in 2008 when it was $31,392 compared to $30,149 last year. In Kingsport-Bristol it was $36,948 in 2012 compared to $32,940.