Expect positive economic growth in Tennessee in 2021 but it may be rocky and somewhat sporadic as the state digs out of the recession brought on by the COVID-19 pandemic.

The Boyd Center for Business and Economic Research at the University of Tennessee has released a recent report that takes a deep dive into the state’s economic forecast.

Since 1975, the Boyd Center has provided Tennessee’s governor with an annual economic report that includes an in-depth analysis of state and national trends and forecasts.

Its 2021 report is cautiously optimistic with a caveat.

“There is still a lot of uncertainty surrounding the economy and economic recovery, especially with regards to the trajectory of the virus and whether the current surge will lead consumers to grow more cautious again,” says Larry Kessler, research associate professor in the Boyd Center and project director for the 2021 Economic Report to the Governor of the State of Tennessee. “There’s also a lot of uncertainty regarding new fiscal stimulus measures from Washington, as well as the timetable for widespread vaccine distribution, all of which could affect economic growth in the near term.”

Tennessee experienced a decade of strong non-farm job growth leading up to the COVID-19 pandemic. Following an expected fall of 3.6% in 2020, non-farm jobs will likely experience moderate growth in the first half of 2021, followed by stronger employment growth in the second half of the year as vaccines are made more widely available. As a result, non-farm employment will increase by 2.2% in 2021 and 2% in 2022.

However, employment in the state likely will not return to pre-pandemic levels until early 2023, and some sectors of the economy will take even longer to recover. Leisure and hospitality likely won’t recover fully until 2024, while manufacturing employment will remain below pre-pandemic levels through 2030.

“The pandemic has led to a huge reduction in consumer spending, especially on services that require in-person contact,” Kessler says. “So until we get the pandemic under control, many businesses and workers — especially those in the service sector — will continue to face harsh economic conditions.”

The state’s inflation-adjusted gross domestic product is expected to mirror that of the nation and fall by 3.5% in 2020. In Tennessee, gross domestic product is expected to increase by 2.9% in 2021 and 3.6% in 2022, returning to pre-pandemic levels by the end of 2022.

The unemployment rate in Tennessee swung from a record low of 3.3% in March 2020 to a record high of 15.5% in April 2020, but the state has rebounded relatively quickly and is projected to end the year with a 7.5% average. The unemployment rate will continue to decrease in the years to come, falling to 5.2% in 2021 and 4.4% in 2022.

“Tennessee has been fortunate to see continuous growth and job creation in the midst of an unprecedented year,” says Bob Rolfe, commissioner of the Tennessee Department of Economic and Community Development. “Adjusting to the new normal has enabled a wave of business formation and bolstered the entrepreneurial spirit that is strong in Tennessee. We remain hopeful and confident in Tennessee’s economic growth as we continue to recruit and support companies across the state.”

The report takes a look into the pandemic’s effects on the state economy. A shift in consumer spending patterns and legislative changes surrounding the collection of sales tax on online purchases buoyed state sales tax revenues in 2020 in comparison to earlier recessions. Instead of spending money on in-person services, many consumers diverted to goods — particularly those bought online.

The federal government’s stimulus actions, such as the Coronavirus Aid, Relief and Economic Security (CARES) Act and Federal Reserve monetary policy, likely played a role in continued spending even as unemployment insurance claims skyrocketed in the spring. Since March, there have been more than 900,000 UI claims filed; during the Great Recession, 790,000 claims were filed over a much longer 81-week span.

Long-term unemployment is a concern, with more than 10 million people unemployed across the U.S. Many people experiencing long-term unemployment might have emptied their savings to stay afloat or may be facing the end of UI benefits soon.