The Mountain State Business Index was flat for the second consecutive month in December, according to economists at West Virginia University.

Even with this pause in growth, said officials with the College of Business and Economics, the index points to a likelihood of steady gains for West Virginia’s economy as we advance into the second quarter of 2015. The index is produced by the Bureau of Business and Economic Research, which operates within the College and serves as an up-to-date gauge of the state’s business performance.

“Although the Mountain State Business Index remains unchanged for the second month, the outlook for the West Virginia economy remains positive,” said BBER Director John Deskins. “The overall trend over the past six months to one year remains healthy, and several months of weakness in the index are needed to justify a significant revision of our near-term outlook. Chances of a recession in the coming months appear remote.”

While the MSBI was flat on a month-to-month basis in December, it remains 2.2 percent above its year-ago level and has increased 2.6 percent on an annualized basis during the last six months. These rates of growth suggest the state’s economy should remain on a path of solid economic footing over the course of the next quarter or two.

Three components made positive contributions to the MSBI this month. Stock prices for the state’s largest employers provided the largest positive contribution to the index, while natural gas production and building permits for new single-family homes also boosted the MSBI in November. By contrast, coal production, initial claims for unemployment insurance and the state’s trade-weighted dollar weighed on the index by varying degrees. The yield curve was unchanged for the month.

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.

The index is comprised of seven economic indicators that were determined to lead expansions or contractions in the West Virginia economy. 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 December index reflects data that correspond to the month of November.

“Although the MSBI remained flat for the second consecutive month and was generally split between positive and negative components, the index managed to notch substantial gains over the course of 2014 thanks to a few key indicators,” said Brian Lego, BBER research assistant professor. “As can be seen from broader measures of equity markets, the composite of stock prices for the state’s largest publicly-traded employers surged nearly 8 percent in November and is more than 18 percent ahead of its year-ago reading. This reflects continued optimism for the broader U.S. economic outlook as well as healthy expectations for many of the state’s largest businesses. Natural gas output has also contributed significantly to the index for the past 2+ years, with production increasing at rates well into the double digits. Highly productive Marcellus Shale wells in the Northern Panhandle and North Central regions of West Virginia have been driving this growth, but newer exploration in the Utica Shale has also begun to boost production.

“Initial unemployment insurance claims increased on a seasonally-adjusted basis for the second consecutive month, but the increases have been small and remain nearly 20 percent lower compared to the same time last year. Moreover, claims are still close to levels observed during the mid-2000s economic expansion. The increase bears watching, but the current level of initial unemployment insurance claimants do not suggest any appreciable deterioration in statewide labor market conditions over the near term,” Lego said.

“On the down side, even though overall coal production for the state has picked up this year compared to 2013, growth has been driven entirely by increased output from mines in West Virginia’s northern coalfields. Moving forward, we anticipate this surge in northern coal production to slow and the long-term decline in the state’s southern coalfields to continue, thereby weighing on the overall index. Coal demand is expected to weaken over the next several years due to a combination of shifting fuel uses for electricity generation and environmental regulatory changes.”

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

-WVU-

pg/01/06/15

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

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