The Backyard Economy: Tennessee

— -- Tennessee is struggling in the economic downturn.

"Tennessee's economy will face a recession over the next few quarters," Alexander Miron wrote for the economic forecasting firm Moody's Economy.com.

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For years, Tennessee has experienced the disappearance of jobs to factories overseas, a longtime national trend. In this largely rural state, those low-skilled, low-wage jobs were found mostly in textile mills and apparel factories.

The legacy of those shuttered plants continues to impact the state's economy.

"There is nothing going there to replace those jobs," said Matt Murray, a professor at the University of Tennessee in Knoxville. As a result, the state's median income is among the nation's lowest.

That highlights a larger problem for many parts of the state: "The national economy can turn around, but we will continue to lose manufacturing jobs," Murray said. "We are going to have to work hard to promote education in Tennessee to capture those highly skilled manufacturing jobs."

One positive for the state is that Tennessee has been spared from the impact of the housing meltdown that has occurred in states like Florida and California. "We did not have a sharp upward spike in housing prices, so we are not seeing the tumble in housing prices, as in the rest of the nation," Murray said.

Tennessee's future growth can be found in its cities like Memphis, Nashville and Knoxville. There, expansion into industries other than manufacturing will provide the necessary growth for the state to rebound. That includes jobs in service sector industries like health care, the state's universities and in the public sector.

Job growth, overall, has traditionally been slow in this southern state. "The job expansion that took place at the national level since 2000 really did not take place in many southern states, in particular Tennessee," said John Gnuschke, an economics professor at the University of Memphis and the director of the Sparks Bureau of Business and Economic Research. "We went years without job growth."

In the meantime, however, the state will have to wait for better economic times once the national economy recovers.

"We don't grow and prosper unless really the nation expands," Gnuschke said.

One company that directly connects the state and the national economy is FedEx, headquartered in Memphis. "Anything that happens to FedEx is extremely important to us in Memphis and to the entire state of Tennessee," Gnushcke said. "They are of an enormous significance to us."

The company has said high fuel costs and less demand by customers for its services has reduced earnings, which could have an impact on Tennessee's economy.