Boyd Center Projects 2% GDP Growth for 2026, While Korea Zinc Announces $6.6 Billion Investment, Largest Foreign Direct Investment in Tennessee History
NASHVILLE — Tennessee’s economy stands at an inflection point, navigating slower employment growth and elevated downside risks while simultaneously attracting historic manufacturing investments that could reshape the state’s industrial landscape for decades to come, according to the 2026 Economic Report to the Governor released by the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville.
The report projects Tennessee’s inflation-adjusted gross domestic product will advance by 2 percent in 2026, slightly more than the 1.7 percent growth projected for 2025 but substantially below the 3.2 percent achieved in 2023 and 2.7 percent in 2024. This moderation reflects what Larry Kessler, research associate professor at the Boyd Center and project director, characterized as a precariously positive outlook.
The characterization captures the delicate balance Tennessee faces between persistent economic strengths and mounting challenges. Consumer spending in Tennessee has remained firm, which, if sustained, could help keep economic growth positive, Kessler noted, while acknowledging that the labor market has cooled and downside risks are elevated, with consumer sentiment across the U.S. near an all-time low.
Tennessee’s unemployment rate is expected to average 3.6 percent for 2025, representing only a half-point above the all-time low of 3.1 percent recorded in early 2024. However, the rate is projected to tick up to 3.8 percent in 2026 and 3.9 percent in 2027. Despite this modest increase, Tennessee’s unemployment outlook remains significantly better than the U.S. as a whole, which is forecast to sit at 4.5 percent in both 2026 and 2027.
Across Tennessee’s 95 counties, 54 maintained unemployment rates below 4 percent, with three counties achieving rates below 3 percent: Williamson at 2.9 percent, Cheatham at 2.8 percent, and Sevier at 2.7 percent. This geographic distribution demonstrates that Tennessee’s economic performance varies considerably across regions, with some communities maintaining near-full employment while others face greater challenges.
The cooling labor market manifests most clearly in slowing job growth. Tennessee 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 stands at 31,400 jobs, a 0.9 percent increase—still well below historical averages and reflecting broader economic uncertainty.
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 employment increases. Mining, logging, and construction saw zero growth, while employment in manufacturing experienced a small contraction—a concerning development given Tennessee’s historical strength in manufacturing.
Deputy Governor and Commissioner of Economic and Community Development Stuart C. McWhorter acknowledged the shifting employment landscape, noting that 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. This observation highlights the transformation underway in Tennessee’s economy as traditional manufacturing gives way to advanced manufacturing requiring different skill sets.
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—modest gains that keep pace with inflation but don’t dramatically improve purchasing power for most Tennessee households.
The Tennessee Chamber of Commerce & Industry launched its first-ever 2026 Tennessee Business Redbook in February, providing data-driven insights into Tennessee’s economy and highlighting strengths, challenges, and opportunities. Josh Brown, president and CEO of the Tennessee Chamber, emphasized that the Redbook reflects the organization’s commitment to ensuring sound policy decisions are grounded in accurate data and thoughtful analysis.
The Redbook arrives as Tennessee continues attracting major corporate investments despite economic headwinds. In December 2025, Korea Zinc announced the selection of Tennessee for its first U.S. operations, committing $6.6 billion to the investment—the largest foreign direct investment in Tennessee history. The project will create 740 jobs in a facility producing advanced materials for electric vehicle batteries and other applications, positioning Tennessee as a critical player in the emerging green energy supply chain.
Additional recent investments demonstrate Tennessee’s continued appeal to manufacturers. ALUKO Group announced the establishment of its second U.S. manufacturing facility in Lauderdale County with a $110 million investment, creating 285 jobs. T.RAD North America selected Clarksville for its first Tennessee location. CDF Distributors announced the expansion and relocation of its manufacturing headquarters to Sumner County. Hyosung HICO, Ltd. expanded its U.S. manufacturing headquarters for the second time in six months.
These investments span industries from advanced energy to next-generation manufacturing, reflecting Tennessee’s diversified industrial base and its ability to attract capital even during periods of economic uncertainty. McWhorter expressed confidence 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.
Nuclear energy emerged as a particular focus area in the economic outlook. Tennessee’s substantial electricity infrastructure, established nuclear expertise, business-friendly regulatory environment, and strategic location collectively position the state as a critical hub for nuclear innovation. The Boyd Center report highlighted several major nuclear projects underway or planned.
Hermes 1, a salt-cooled 35-megawatt reactor, began construction in July 2024 at Oak Ridge with up to $300 million in Department of Energy investment, with completion slated for 2027. Hermes 2, a 50-megawatt reactor announced in August 2025, represents a collaboration between Kairos Power, Google, and TVA to provide power through the TVA grid. 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, the report identified several critical issues that remain unresolved and pose significant challenges to broader adoption: 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. These challenges will require sustained policy attention and investment to overcome.
Federal policy changes represent one of the most significant risks facing Tennessee’s economic outlook. Kessler told News 2 that policy uncertainty, affordability issues, and tariffs have contributed to near-record-low consumer confidence. Tariff-induced changes in spending patterns created volatility in quarterly GDP growth, with businesses and households front-loading purchases of imports in early 2025 to get ahead of tariff-driven price increases, then reversing course in subsequent quarters.
Many sectors have felt the effects of price pressures and disruption of both spending patterns and supply chains. The uncertainty surrounding federal trade policy, tax policy, and regulatory approaches makes long-term business planning difficult, potentially causing companies to delay major capital investments or hiring decisions until clarity emerges. This caution, if widespread, could become self-fulfilling as delayed investment slows economic growth.
Tennessee added nearly 80,000 new residents between 2023 and 2024, representing 1.1 percent population growth—slightly higher than the U.S. growth rate of 1 percent during the same period and the 13th strongest among all U.S. states. This marks the third consecutive year that the state has experienced robust population growth, driven by in-migration from other states attracted by Tennessee’s combination of economic opportunity, quality of life, and favorable tax climate.
The persistent influx of new residents creates housing demand that has contributed to affordability challenges across the state, particularly in urban and suburban areas experiencing the most rapid growth. While population growth supports economic expansion by increasing the workforce and consumer base, it also strains infrastructure, public services, and housing markets unprepared for rapid expansion.
Looking beyond 2026, Tennessee’s economic trajectory will depend partly on the resolution of current policy uncertainties, partly on whether major manufacturing investments deliver promised job creation and economic multiplier effects, and partly on whether the state can address workforce development challenges to ensure residents possess skills required for higher-wage positions replacing lower-skill manufacturing jobs.
The Federal Reserve’s recent interest rate reductions could help stimulate business investment and further consumer spending, providing tailwinds for economic growth. However, the magnitude of interest rate effects remains uncertain given elevated rates relative to the ultra-low rate environment that prevailed before 2022.
The divergence between strong corporate investment announcements and slowing job growth creates a paradox requiring explanation. Companies may be investing in highly automated facilities requiring fewer workers than traditional manufacturing plants, consistent with McWhorter’s observation about automation and innovation reducing headcount while increasing skill requirements. Alternatively, there may be lag times between investment announcements and actual job creation as facilities move from planning through construction to operation.
For Tennessee policymakers, the challenge involves maintaining business-friendly policies that continue attracting investment while addressing workforce development, infrastructure needs, and quality of life concerns that determine whether growth benefits accrue broadly across communities or concentrate in select regions. The state’s ability to navigate this balance will shape whether Tennessee’s economic expansion proves sustainable and inclusive or whether growth creates winners and losers across geographic and demographic lines.
The precarious positivity that characterizes Tennessee’s 2026 economic outlook reflects genuine uncertainty about whether strengths will outweigh risks. Consumer spending remains firm but could weaken if households exhaust savings or reduce discretionary purchases amid inflation concerns. Major investments promise long-term economic benefits but require years to fully materialize. Population growth creates opportunity but strains systems. Nuclear energy offers clean power but faces multiple implementation challenges.
As Tennessee moves through 2026, economic data releases will provide ongoing signals about whether the state’s economy is trending toward stronger growth or sliding toward stagnation. For now, the outlook remains positive—just precariously so, requiring sustained attention to the multiple risks and opportunities that will determine whether Tennessee fulfills its economic potential or falls short of expectations amid a changing national and global economic landscape.
