After only modest increases at best during the past year, the Mountain State Business Index, a monthly gauge of the state’s business performance, has grown at an accelerated rate over the last three months. The MSBI increased 0.4 percent on a month-to-month basis in July, establishing a three-month streak of strong performance.

Overall, the index has increased 1.9 percent from its year-ago level and points to a continued expansion in economic activity through the third and fourth quarters of this year. The index is produced by West Virginia University’s Bureau of Business and Economic Research, a part of the College of Business and Economics.

“The steady improvement in the index that we have seen over the past three months points to continued growth through the summer,” said BBER Director John Deskins. “Further, this provides us with even stronger hope for not only steady, but faster growth through the latter parts of the year.”

“Chances of a recession in the coming months appear remote,” Deskins said.

The MSBI combines several leading economic indicators into a single index that provides a convenient way to gauge the likelihood of swings in economic activity over the next four to six months. Signals of a coming contraction in the state’s economy can be identified if the index declines by at least two percent on an annualized basis over a six-month period and a majority of the individual components also decline over that same time period.

For the first time in more than a year, every component made a positive contribution to the overall index this month.

Falling initial claims for unemployment insurance provided the largest boost to the index. Modest increases in coal and natural gas added to the index in July, while permits for new single-family home construction increased by 2%, marking the first gain in five months.

The index contains seven economic indicators that were determined to lead expansions or contractions in the West Virginia economy by approximately four to six months. Each indicator will make positive, negative or no contribution on a monthly basis to the overall index. The seven indicators are related to the following factors: building permits; unemployment insurance claims; the value of the U.S. dollar; stock prices related to West Virginia employers; interest rates; coal production; and natural gas production. The July index reflects data that correspond to the month of June.

“While every component of the index improved this month, several indicators that make up the index have seen the most consistent and solid growth during the past year,” said Brian Lego, BBER research assistant professor. “The composite of stock prices for the state’s largest publicly-traded employers more than recovered its slight downtick observed in the index for June and has increased 20% in the past year. This reflects a mostly positive U.S. economic outlook and healthy expectations for growth for many of the state’s largest publicly-traded employers. Strong productivity from wells in the Marcellus Shale play continues to boost natural gas output, particularly in portions of the Northern Panhandle and North Central regions of West Virginia.

“In addition, initial unemployment insurance claims continue to fall and are now only slightly higher than the levels recorded prior to the onset of the Great Recession, suggesting improvements in the state’s labor market,” Lego said.

“Provisional estimates show a continued uptick in coal production over the last several months, and we anticipate a similar level of improvement to remain in place over the very near term. A colder-than-normal winter heating season in several parts of the country left many coal-fired power plants with depleted stockpiles of coal, which utilities need to replenish during the summer months. Even with these improvements, however, coal production has generally weighed on the overall index for much of the past few years, as evidenced by a 28 percent cumulative drop in output since 2008.”

Technical documentation related to the Mountain State Business Index is available from the WVU Bureau of Business and Economic Research for free download in PDF format at be.wvu.edu/bber. Visit be.wvu.edu/bber/publications.aspx to view the report and other publications by the BBER. For further information about the WVU College of Business and Economics, please visit be.wvu.edu.

-WVU-

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CONTACT: John Deskins, WVU College of Business and Economics
304.293.7876; john.deskins@mail.wvu.edu

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