Skip to main content

Mountain State Business Index: West Virginia economy to see solid growth through end of 2017

No thumbnail image for this story
Download full-size

The Mountain State Business Index jumped 0.3 percent in August, marking the index’s 11th month-to-month gain over the last 13 months. Economists at West Virginia University said the MSBI has risen 1.3 percent on an annualized basis over the last six months and posted a 2.0 percent gain over its August 2016 reading, returning to its highest level since the second quarter of 2015. 

“Given continued improvement to the MSBI, we remain confident that West Virginia’s economy remains firmly in recovery territory and should post moderate growth over the next several months,” said John Deskins, director of the WVU Bureau of Business and Economic Research, which operates within the College of Business and Economics and produces the MSBI. 

“Despite the recent improvement in the state’s economy, it is important to keep in mind that the state is very diverse in terms of economic outcomes across regions. It is expected that it will take years to recover all of the jobs that have been lost since early 2012,” Deskins said. 

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 readings 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 August 2017 MSBI reflects data that correspond to the month of July 2017. 

For August, the index was evenly split between positive and negative contributors at three apiece, while the remaining component of the index, the yield curve, had no measurable impact. Coal production accounted for the majority of this month’s 0.3 percent increase in the MSBI, thanks to a 3.9 percent jump in output from the previous month. Increased natural gas withdrawals and stock prices for the state’s largest publicly-traded employers also contributed in a positive manner, but their gains were canceled out by negative readings on the trade-weighted dollar, building permits for new homes and initial unemployment insurance claims. 

“West Virginia’s economy continues to make positive steps forward after emerging from recession roughly a year ago and, based upon the performance of the MSBI, is expected to enjoy solid growth through the end of 2017,” said Brian Lego, BBER research assistant professor. “While it will take a sustained period of growth for the state’s economy to fully recover from such a steep economic downturn, the bulk of evidence points to jobs and output rising within the majority of the state’s economic regions into the beginning of 2018. 

“Growth in coal production has slowed from its springtime surge, but mine output is well above its level of a year ago thanks to increased production activity in the state’s southern and northern coalfields. Northern West Virginia production has benefited from higher utilization rates for coal-fired power plants, while the mines in the state’s southern counties have seen mine output surge in response to healthier export demand for metallurgical and thermal coal.” 

Unfortunately, barring any supply shocks or unexpectedly strong growth in global economic growth, Lego said he does not foresee West Virginia’s coal output changing much beyond its current pace. “For the next several years, the state’s coal industry will likely be relatively stable and should see production fall more closely in line with what prevailed during early 2015. Thermal coal will see its share of generation portfolios continue to trend lower going forward as utilities retire more coal-fired generators and build new generators powered by natural gas and renewables,” Lego said. “An improved climate for export demand is expected to buoy coal production over the next few years, particularly for many southern West Virginia mines, but high production costs and competition from Australia and other major coal-producing countries will effectively put a ceiling on this contribution. 

“The state’s natural gas industry has emerged from a sustained period of weakness, and though its performance is not anywhere close to what was observed in 2014, several firms have increased drilling activity and six active rigs have entered into service since the beginning of the year. Recent increases in midstream capacity, such as the Rover pipeline, new compression stations and other facilities have (or will shortly) eased regional bottlenecks and enabled local hub prices to rise more in line with broader spot prices, incentivizing more drilling and exploration activity. Longer term, the prospects for natural gas are exceedingly positive as domestic use continues to rise, infrastructure constraints continue to be alleviated with new pipeline capacity and LNG exports from the East Coast commence within the next couple of years,” 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 

pg/9/6/17 

Follow @WVUToday on Twitter.