The economy is on the upward slope, but the climb is going to be a steep one.

That’s the good news — and the bad news — described in "The Tennessee Business and Economic Outlook: Fall 2009," a report just issued by the Center for Business and Economic Research at the University of Tennessee, Knoxville.

The report was financed in part by the state Department of Finance and Administration, the state Department of Economic and Community Development, the state Department of Revenue, the state Department of Labor and Workforce Development, and the Appalachian Regional Commission.

"This will go down as the longest and deepest economic contraction since the Great Depression," wrote Matt Murray, author of the report. "Fittingly, the downturn is now being referred to by many as the Great Recession."

The report looks at both the U.S. and the Tennessee economy, and notes that the nation is recovering more quickly than the state.

"The state and national economies have dug enormous holes, and it will be years before the levels of economic activity return to their pre-recession levels," the report says.

"The national economy shows signs that the pains of the recession are easing," it says, but "economic conditions in Tennessee are showing only piecemeal signs of easing." 

The best news for the state's economy is the most recent news: Newly released numbers show the state's unemployment rate fell from 10.7 percent in August to 10.5 percent in September.

'Piecemeal Signs'

By the end of the second quarter of 2009, the state had lost 144,000 jobs since the recession began in fourth quarter of 2007.

The state's manufacturing jobs fell 18.6 percent in the first quarter of 2009 and 12.8 percent in the second quarter; natural resources, mining and construction sector jobs fell 33.2 percent in the first quarter and 23.4 percent in the second quarter.

"Even education and health services — which had been able to stay in the positive range — experienced job losses by the second quarter of the year," the report says.

The number of unemployed Tennesseans skyrocketed 143.8 percent in the first quarter and 76.6 percent in the second quarter. Meanwhile, the number of employed people declined in the first and second quarters of the year. The end result: In the first quarter of the year about nine of every 100 people in Tennessee’s labor force were unemployed; by the second quarter, nearly 11 of every 100 people in the labor force were unemployed.

The state's taxable sales were down 8.8 percent in the first quarter of 2009 compared to the previous year. They were down 10.1 percent in the second quarter.

"The only component of taxable sales to post gains in both the first and second quarters was liquor stores, which account for an inconsequential share of retail activity," the report says.

"The state's revenue situation shows little sign of improvement as sales tax collections continue to contract."

One positive note in the gloomy picture of taxable sales is that automobile sales in Tennessee — which had been down 11.1 percent in the first quarter — registered a 9.4 percent gain in the second quarter.

"Cash for Clunkers led to a sharp jump in sales (nationally), but there was payback in September when annualized sales fell from the previous month. Nonetheless, the incentive program did help reduce dealer inventory and has contributed to some revitalization in automobile production," the report says.

As for the future, the report notes that "the rich and timely array of data available for the national economy are not available for the state and localities, so it is harder to identify the extent to which Tennessee and its sub-state regional economies have turned the corner from the depths of the recession."

However, available economic data makes the state's situation seem a bit bleaker than the nation's.

"While Tennessee's employment situation has shown marginal improvement, the state unemployment rate continued to drift upward through August. Stronger national growth will ultimately lift the state economy from its current depths and this should be confirmed before year's end," the report says. "Like the nation, the unemployment rate in Tennessee will be stuck at relatively high levels into 2012."

Some of the report's specific economic predictions for Tennessee:

• State job growth will slowly and steadily improve from the second quarter of 2010 through 2011 and into 2012.

• Manufacturing will not see its first seasonally adjusted quarterly gain until early 2011, though the sector may never replace all the jobs lost in the recession.

• Job losses in natural resources, mining and construction will continue in 2010, but be less than half of what they were in 2009.

• Education, health services and the government sector will see positive employment growth in 2009 and 2010.

• Leisure and hospitality and other services will see their growth turn from red in 2009 to black in 2010.

• Taxable sales are expected to grow on a seasonally adjusted basis in the current quarter, benefitting from the one-time spike in automobile sales, but fourth quarter sales will fall slightly. Improvement will be seen next year, but sales in the fourth quarter of 2011 are still expected to be below the level of sales in the third quarter of 2008. In short, the report says, "Additional time will be needed to restore the finances of the state government in Tennessee."

To see the report in its entirety, visit http://cber.bus.utk.edu.