"Lacking true impetus, Nashville economy holding steady at best"
By Brian Forrester / Nashville Business Journal
11-8 02

The Nashville area's economy flashed both positive and negative signals in third quarter. Without clear leaders or laggards, the region's economic outlook remains uncertain. The Middle Tennessee State University Business and Economic Research Center (BERC) index of leading economic activity fell by 0.4 percent in the third quarter, indicating that the soft area economy may not improve soon, says BERC Director David Penn.

That decrease "shows that the current situation is more uncertain in the third quarter than in the second quarter," Penn says. "What we're looking for is some part of the economy to step up to the plate besides consumers."

Where that boost will come from is up in the air. Some areas of Nashville's economy have the potential. The printing industry is showing signs of reviving after months of decline due to cuts in advertising budgets. Local trucking companies, meanwhile, should get a lift from the upcoming holiday season.

With stable bases in hospitality, retail, finance and health care, Nashville's diverse economy has held its ground in the economic downturn, says Vic Alexander, chief manager at Kraft CPAs, which works with closely held small and middle-market businesses.

"I would say that the majority of those businesses have done well during the past 12 months," Alexander says.

To a lot of companies these days, doing well means not laying people off. To that end, the Nashville MSA is doing reasonably well. Total employment is flat and the area labor market even appears to have tightened slightly. Third-quarter initial claims for unemployment insurance are down 14.1 percent compared to the second quarter. That is offset by total manufacturing employment dipping slightly after increasing a little during the second quarter.

While the area's auto industry, including Saturn and Nissan plants in Spring Hill and Smyrna, has helped hedge the local economy from the national downturn, the industry's performance isn't sustainable alone.

"We need to see businesses replenish their inventory," says Penn. "But they're not going to do that unless they can make money."

Bill Paris, materials manager in the Franklin office of Auburn Hills, Mich.-based auto parts maker LDM Technologies, says he is still cautious about the economic outlook even though his company is doing well.

LDM manufactures and distributes injection molded, assembled and painted automotive interior plastics. Paris says his company keeps inventories based on customer need. He's not yet had to cut those holdings.

"That doesn't mean it won't happen in the future," he says. "I don't think the economy is driving anything right now."

Business investment in the Nashville MSA rose slightly during the third quarter. But, without a jump in demand for Tennessee products from domestic and international markets, it will remain a blip.

Still, the Nashville MSA fares better than comparable areas nationwide. More than a quarter of metropolitan areas saw slight third-quarter employment gains.

"Compared to a lot of places, we're doing well," Penn says.

But the fact that employment gains came from the government rather than the private sector again throws the direction of the economy into uncertain terms.

"You really like to see the employment gains in the private sector," Penn says. Government employment increases are "not going to solve the problem."