Tennessee’s economy continued to expand this year despite challenges stemming from slower job growth and federal policy changes, according to a new report by the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville, Haslam College of Business. The report predicts that growth will continue in 2026.

The 2026 Economic Report to the Governor of the State of Tennessee states that Tennessee’s inflation-adjusted gross domestic product (real GDP) will advance by 2 percent in 2026. The projected rate is slightly more than the 1.7 percent growth that was projected for 2025 but lower than the growth rate of 3.2 percent in 2023 and 2.7 percent in 2024.

“I would characterize our outlook as precariously positive,” said Larry Kessler, research associate professor at the Boyd Center and project director. “The labor market has cooled and downside risks are elevated, but consumer spending in Tennessee has remained firm — which, if sustained, could help keep economic growth positive over the near term.”

Those risks include federal policy changes, particularly changes related to international trade and tariffs. Many sectors have felt the effects of price pressures and disruption of both spending patterns and supply chains. Employment growth in the education and health sector flattened over the past 12 months, growing by just 0.2 percent versus 3.3 percent in 2024. Some sectors, such as professional and business services and leisure and hospitality, saw an increase in employment. Mining, logging and construction saw zero growth, while employment in manufacturing saw a small contraction.

Consumer sentiment across the U.S. is near an all-time low, and job growth in Tennessee, though still positive, has cooled. The state typically averages about 60,000 new jobs per year but is expected to have added only 24,000 jobs in 2025, representing a 0.7 percent increase. Projected job growth for 2026 is 31,400, a 0.9 percent increase. This outlook outpaces the national outlook of 0.5% job growth in 2026 but is still well below pre-pandemic growth trends.

Despite these slowdowns, consumer spending continues to show strength and the Federal Reserve just reduced interest rates, which could help stimulate business investment and further consumer spending. Tennessee’s unemployment rate is expected to average 3.6 percent for 2025, which is only 0.5 points above the all-time low of 3.1 percent in early 2024, but it is expected to tick up to 3.8 percent in 2026 and 3.9 percent in 2027. Although unemployment is projected to increase, the outlook is still better than the unemployment rate for the U.S. as a whole, which is forecast to sit at 4.5 percent in both 2026 and 2027.

Across Tennessee, there were 54 counties with unemployment rates below 4%, including three with unemployment rates below 3 percent: Williamson (2.9 percent), Cheatham (2.8 percent) and Sevier (2.7 percent).

“As companies continue to automate and innovate, there is a need for fewer jobs; however, the positions they do create are higher skilled and higher wage,” said Stuart C. McWhorter, deputy governor and commissioner of the Tennessee Department of Economic and Community Development. “In the coming year, as we continue to see major projects move forward — some with multi-billion-dollar investments spanning industries from advanced energy to next-generation manufacturing — we are confident that Tennessee will remain a top destination for companies seeking a talented workforce, a supportive business climate and a place where long-term investment can thrive.”

Growth in wages and salaries is expected to largely drive a 4.8 percent increase in nominal personal income in 2025, dipping slightly to 4.5 percent in 2026. After accounting for inflation, those figures represent increases of 2 percent in both 2025 and 2026. Despite the slowdown in growth, the projections put Tennessee back in line with the pre-pandemic pattern.

Tennessee population trends

Tennessee added nearly 80,000 new residents between 2023 and 2024. That 1.1 percent increase in population is slightly higher than the U.S. growth rate of 1 percent during the same period and the 13th strongest among all U.S. states. It also marks the third year in a row that the state population has increased by more than 1 percent, which hadn’t previously been seen since 2008.

The population increase was driven by net migration, or people moving to Tennessee. It represents the third-highest net migration number in the state data’s history, exceeded only by the previous two years. Among those moving to Tennessee, more than a third fall into the prime working age category of 25 to 54 years old.

Nuclear energy in Tennessee

The report’s third chapter focuses on Tennessee’s role in the nuclear energy industry, government initiatives to advance the industry and the opportunities and challenges that lie ahead. The state generates more than 40 percent of its electricity from nuclear power and is home to more than 200 nuclear-related companies. Additionally, UT consistently has one of the largest nuclear engineering Ph.D. programs in the nation, ensuring a steady pipeline of talent, and Oak Ridge National Laboratory continues to be a global leader in advanced reactor research. Those factors collectively position Tennessee as a critical hub for nuclear innovation.

A number of big nuclear energy projects are in the works in Tennessee. Hermes 1, a salt-cooled 35-megawatt reactor, began construction in July 2024. The U.S. Department of Energy is investing up to $300 million in its construction, which is slated for completion in 2027. Hermes 2, a 50-megawatt reactor, is a future project announced in August 2025 as a collaboration between Kairos Power, Google and TVA to provide power through the TVA grid. Finally, Tennessee recently received a $400 million federal grant to accelerate development of the nation’s first small modular reactor.

Despite the many advantages of nuclear energy, several critical issues remain unresolved and pose significant challenges to its broader adoption. They include high initial costs, lengthy construction timelines, an uncertain fuel supply chain, the absence of a permanent waste disposal solution and a shortage of trained construction workers for nuclear projects.

About the Boyd Center for Business and Economic Research

The Boyd Center for Business and Economic Research is a nonpartisan research hub within the Haslam College of Business at the University of Tennessee, Knoxville. Its faculty engages in academic research across a wide range of public policy projects, including education, health, e-commerce, taxation, welfare and labor.

The Boyd Center in 2025 marks 50 years of providing Tennessee’s governor with an annual economic report that includes an in-depth analysis of state and national trends and forecasts.  

MEDIA CONTACT:

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Stacy Estep, 865-974-8304, sestep3@utk.edu)

Erin Hatfield, 865-974-6086, ehatfie1@utk.edu)