(The Center Square) – Tennessee’s economy will continue to grow at a slower pace, but affordability is becoming a major issue for everyday Tennesseans, according to the economic outlook prepared by the University of Tennessee’s Boyd Center for Business and Economic Research.
The report released Monday shows the state’s gross domestic product increased by 0.3% in the first quarter and accelerated to 3.1% in the second quarter.
“This was largely driven by tariff-induced changes in spending patterns as businesses and households, they front-loaded purchases of imports, buying more foreign goods in the first quarter to get ahead of tariff-driving price increases.” said Lawrence M. Kessler, research associate professor and project director at the Boyd Center. “And then this pattern reversed itself in the second quarter as import spending plummeted and domestic purchased rose, leading to a rebound in GDP growth.”
The gross domestic product growth for all of 2025 is projected at 1.7% and at 2% in 2026.
“However, both of these would represent slowdowns compared to the 2.7% rate we saw in 2024 and in 2023, it was above 3%,” Kessler said.
One of the reasons behind slower growth is federal uncertainty, which could reduce economic growth if businesses delay large purchases or hirings or if consumers reconsider major purchases, he said.
“Despite all of these headwinds, consumer spending in both the state and the nation remains surprisingly strong, though one caveat is that much of the growth has been driving by higher income households in recent years,” Kessler said.
Unemployment in Tennessee is steady at 3.6%. The report projects an increase to 3.8% in 2026 and 3.9% in 2027. The rate will remain lower than the national average of 4.5%, Kessler said.
The report is prepared annually for Gov. Bill Lee. TCS asked Kessler what it means for everyday Tennesseans.
“Looking at consumption spending across different income groups, as I briefly mentioned in my remarks, a lot of the spending growth has been driven by higher income households, whereas consumption spending by middle income households and lower income households, it like just keeping pace with where it was prior to the pandemic,” Kessler said. “And I think everyday Tennesseans are kind of seeing that or feeling that when they, whether they go to the grocery store, pay their electric bills, that affordability is becoming a major issue. I think that’s kind of the main headline for the everyday person who would read this.”
