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Mountain State Business Index: West Virginia’s economic recovery continues

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The Mountain State Business Index increased 0.2 percent for the March report, marking a gain in the economic in seven of the last eight months.

Over the course of the last six months, the MSBI has increased 2.8 percent on an annualized basis. The gains collectively point to West Virginia’s economy showing solid signs of improvement after emerging from a sharp, but relatively short-lived, recession in mid-2016.

At the same time, despite this improving picture for the state’s economy as a whole, regional growth disparities remain significant, as several regions are only now beginning to stabilize while others appear to be growing at a healthy rate.

“We are confident that growth is under way in West Virginia overall based on consistent readings from the Mountain State Business Index for some time now,” said John Deskins, director of the West Virginia University Bureau of Business and Economic Research, which operates within the College of Business and Economics and produces the MSBI. “Our focus now is on the extreme diversity across West Virginia where some regions are healthy, some are stable and some remain in very difficult economic circumstances.”

The MSBI serves as an up-to-date gauge of West Virginia’s expected economic performance over the very near term by combining several leading economic indicators into a single index number 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 consistent majority of the individual components also record statistically significant negative contributions during that same time period.

Seven economic indicators that were determined to lead expansions or contractions in the West Virginia economy were selected as inputs to the MSBI. 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 output. The March 2017 MSBI reflects data that correspond to the month of February 2017.

For March, five components made positive contributions to the overall index, with building permits for new single-family homes, unemployment insurance claims and natural gas production contributing the largest amounts. The state’s trade-weighted dollar represented the only negative contributor to the index while the yield curve had an insignificant effect on the MSBI.

“After making some positive steps forward in the latter half of 2016, West Virginia’s economy appears to be poised for modest growth over the next couple of quarters,” said Brian Lego, BBER research assistant professor. “Calendar year 2017 is largely expected to be a transition year for the state’s economy as a whole, with several regions that have lost significant numbers of jobs over the past few years finally beginning to stabilize or eke out modest gains, while other regions register continued, and perhaps even accelerating, economic growth.

“Even prospects for the state’s coal industry have improved, though such a comparison is easy given that coal tonnage (and employment) cratered to their lowest levels in decades. Stronger seasonal demand, inventory rebuilding and rising natural gas prices have boosted demand for thermal coal output, largely from several highly-productive Northern West Virginia operations. Nonetheless, conditions have even improved measurably for the state’s beleaguered southern coalfields, as mined tonnage has increased nearly 7 percent through late-March compared to the same period in 2016.”

Professor Lego said he does not foresee marked improvement in West Virginia’s coal output beyond what has already occurred. “For the next several years, the state’s coal industry will tend to be in a better position versus what prevailed in late-2015 and the first half of 2016. However, the underlying trend of domestic utilities shifting toward other fuel sources (e.g. natural gas) will continue and, barring any dramatic changes in technology for coal-fired power plants or major shifts in the cost of natural gas, this will effectively keep a lid on domestic use of the state’s coal,” Lego said. “For Southern West Virginia coal production in particular, many utilities shifted the sourcing of their coal purchases to other basins due to cost considerations, technological improvements and the MATS rule. Thus, Southern West Virginia coal output will trend lower over the long term as reserves dwindle and production costs rise further, though the region’s output could be stronger-than-expected if global coal demand surpasses expectations.

“Conditions have not been anywhere near as bad for the state’s natural gas industry, but the skyrocketing production growth of recent years has not re-emerged as extremely low prices prompted layoffs, idled rigs, slashed capital investment plans and several bankruptcies. Re-fracking of existing wells and some limited new well development kept output from falling much, but the industry’s performance has been fairly volatile overall. The industry’s up-and-down movement should begin to fade as 2017 progresses, with several firms already announcing an increase in new wells. Longer term, however, prospects for natural gas are overwhelmingly positive with several major pipeline projects under construction or in various phases of planning. Moreover, these pipelines, along with LNG export capabilities from the east coast, will enable regional gas production to satisfy rising global use of natural gas. Finally, the eventual development of downstream processing facilities in the Marcellus and Utica plays offers further upside beyond natural gas production and jobs, including enhanced opportunities for several manufacturing industries,” Lego said.

Technical documentation related to the Mountain State Business Index and other BBER publications are available for free download in PDF format at business.wvu.edu/bber. For further information about the WVU College of Business and Economics, follow B&E on Twitter at @wvucobe or visit business.wvu.edu.

-WVU-

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

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