Tennessee Economy: Music, Cars, and Healthcare

Tennessee is one of the larger state economies in the United States, usually ranked in the middle of the pack by GDP — the dollar value of everything a place makes and sells in a year. The Tennessee economy used to be defined mostly by agriculture and textiles. Today it runs on healthcare, automotive manufacturing, music and entertainment, and a fast-growing logistics sector anchored by FedEx in Memphis.

This is a plain-English tour of how the Tennessee economy works. For the national picture, see The State of the U.S. Economy and the Economy hub.

How big is the Tennessee economy?

For example, recent state GDP for Tennessee has run around $475 billion, according to the Bureau of Economic Analysis. Population is roughly 7.1 million, per the U.S. Census Bureau. Nashville, Memphis, Knoxville, and Chattanooga anchor four very different regional economies.

The biggest industries

Tennessee has a surprisingly diverse industry mix. The main pillars are:

• Healthcare — Nashville is one of the country's largest hospital management hubs, home to HCA Healthcare and dozens of related companies.
• Automotive manufacturing — Tennessee builds Nissan, Volkswagen, and General Motors vehicles, with major plants in Smyrna, Chattanooga, and Spring Hill.
• Music and entertainment — Nashville's music industry employs tens of thousands, and Memphis still has a meaningful recording and tourism cluster.
• Logistics — Memphis is the FedEx world hub and one of the largest cargo airports on the planet.
• Tourism — the Great Smoky Mountains are the most-visited national park in the United States, supporting Gatlinburg, Pigeon Forge, and the Knoxville region.
• Agriculture — soybeans, cotton, cattle, and tobacco remain important in west and middle Tennessee.

Jobs and wages

Tennessee labor data is published by the Tennessee Department of Labor and Workforce Development, with national-level numbers from the Bureau of Labor Statistics. For example, the Tennessee unemployment rate has typically run close to or just below the national average, with Nashville often the tightest labor market in the state.

The Tennessee minimum wage is tied to the federal floor of $7.25 per hour. Many large employers in Nashville and Memphis pay well above that on their own.

Taxes in Tennessee

Tennessee has no state income tax on wages. That makes take-home pay relatively high compared with most states, and it is one reason population growth has been strong.

The state sales tax rate is 7%, with local add-ons that push the combined rate to about 9.5% in most counties — among the highest in the country. Groceries are taxed at a reduced rate. State tax forms and rules live at the Tennessee Department of Revenue. You can read more about how sales tax works in our glossary.

Cost of living

Cost of living in Tennessee is typically below the national average, but Nashville has been catching up fast. Memphis and Knoxville remain affordable. The federal government tracks region-specific Consumer Price Index data through the BLS Southeast region, and HUD publishes Fair Market Rents for every county at HUD User.

The Nashville boom

Nashville's economy has grown faster than almost any other large U.S. metro for over a decade. Healthcare headquarters, music, tourism, and corporate relocations from higher-tax states have all contributed. That growth has lifted wages but also pushed up housing costs.

The Memphis logistics machine

Memphis is built around movement. The FedEx world hub at Memphis International Airport sorts millions of packages every night, and the city sits where one of the country's busiest interstate corridors crosses the Mississippi River. That combination supports a vast warehousing, trucking, and air cargo workforce, and makes Memphis a place where freight, not finance, drives the local business cycle.

The eastern industrial belt

Eastern Tennessee tends to be quieter in the headlines but matters a lot to the state's industrial output. Chattanooga has Volkswagen and a growing tech and tourism scene. The Tri-Cities area in the northeast has long produced chemicals and specialty manufacturing. The Tennessee Valley Authority, a federal power utility headquartered in Knoxville, supplies electricity across the region and is itself a major employer.

How does the Tennessee economy fit into the national picture?

Tennessee is unusually balanced for a Southern state. It has industrial muscle from autos, services depth from Nashville healthcare, logistics dominance from Memphis, and a real tourism economy from the Smokies. The combination of no income tax and a central location keeps the state attractive to both employers and movers.

A note on the numbers

Numbers in this article change every quarter — always check the latest from BEA, BLS, and the Tennessee Department of Revenue for the most current data.