This article originally appeared in the November edition of the Workforce Report, a collaboration between the Tennessee Business Roundtable and the American Public Education Foundation (APEF).
The Federal Reserve’s most recent report on the Personal Consumption Expenditures (PCE) price index reveals an uptick in inflation, with the index increasing to 2.3% in October from 2.1% in September and core inflation rising to 2.8% from 2.7% (Federal Reserve, 2024). The PCE index, a key indicator of consumer spending and price trends, provides insights into the current state of the U.S. economy. For Tennessee businesses, this period of inflation stability offers both opportunities and challenges, depending on how national and global economic trends develop in the coming months.
Consumer-facing industries in Tennessee, such as retail, hospitality, and services, are particularly sensitive to inflation trends. While stable inflation may sustain consumer confidence in the short term, rising prices could lead to cautious spending, particularly on discretionary goods and services. As the holiday season approaches—a critical time for revenue in these sectors—businesses may need to adjust pricing strategies, offer promotions, or emphasize value-driven marketing to attract consumers. For smaller businesses, the ability to remain competitive without sacrificing margins will be key to navigating this uncertain environment.
Tennessee’s manufacturing and logistics sectors, which are essential drivers of the state’s economy, also face potential challenges. Rising inflation contributes to higher production and transportation costs, which could squeeze profit margins. While inflationary stability might create predictability in the short term, external factors such as global supply chain disruptions and fluctuating energy prices could offset these gains. Additionally, access to affordable financing remains a critical factor. While the Federal Reserve has paused rate hikes and signaled caution in implementing cuts, any future adjustments could influence borrowing costs for businesses looking to expand or invest in new infrastructure (Federal Reserve, 2024; Yahoo Finance, 2024).
Beyond inflationary trends, policy uncertainty presents a significant source of concern for Tennessee businesses. Proposed tariff increases on imports from North American and Chinese partners could dramatically raise costs for goods. Tennessee, with its robust automotive and manufacturing industries, heavily relies on international supply chains, and tariffs would likely disrupt operations and drive up prices. Businesses may need to accelerate imports to stockpile inventory before potential tariff implementation, which could create short-term bottlenecks and cash flow challenges.
Additionally, potential immigration policy changes could disrupt the state’s labor market. Tennessee industries such as construction, agriculture, and hospitality rely heavily on a steady supply of unskilled labor, much of which comes from immigrant workers. Broad deportation policies could shrink the labor pool, forcing employers to raise wages to attract workers. These increased labor costs would likely be passed on to consumers, creating a secondary inflationary effect. The interplay of these factors could destabilize the currently steady inflation environment.
For Tennessee businesses, the current moment offers an opportunity to prepare for potential challenges by focusing on supply chain diversification, workforce resilience, and strategic cost management. While stable inflation provides a brief period of predictability, broader economic and policy trends suggest that vigilance and adaptability will be critical to maintaining growth and competitiveness in 2024 and beyond.
References
Federal Reserve. (2024). Economic data: Personal consumption expenditures inflation index. Retrieved November 27, 2024, from https://www.federalreserve.gov/economy-at-a-glance-inflation-pce.htm
Yahoo Finance. (2024, November 27). Key Fed inflation gauge shows PCE going sideways. Yahoo. Retrieved from https://finance.yahoo.com/news/key-fed-inflation-gauge-shows-pce-going-sideways-154948194.html