West Virginia Economic Outlook 2021-2025
West Virginia Economic Outlook 2021-2025 is published by the Bureau of Business & Economic Research, John Chambers College of Business & Economics, West Virginia University, Javier Reyes, PhD, Milan Puskar Dean
BBER Contact Information:
P.O. Box 6527, Morgantown, WV 26506-6527 | (304) 293-7831
Written by the Bureau of Business & Economic Research:
Brian Lego Lead Author and Research Assistant Professor
John Deskins, PhD Director and Associate Professor of Economics
Eric Bowen, PhD Research Assistant Professor
Christiadi, PhD Research Associate, Demographer
Dallas Mullett Program Coordinator
Cody Adams Graduate Research Assistant
Joshua Lynn Witt Scholar
Dana Mace Witt Scholar
Expert Opinion Provided by:
Mark Muchow Deputy Cabinet Secretary, West Virginia Department of Revenue
Greetings! I am happy to present the 2021-2025 West Virginia Economic Outlook to you. My intent is for this document to serve as a thorough and rigorous reference for where our state’s economy is today and where it is likely heading in coming years. And my sincere hope is that you will find this document useful as you lead your business, government agency, or community organization through the economic opportunities and challenges we face in West Virginia.
Since 1948, our mission here at the Bureau of Business & Economic Research, a unit within WVU’s College of Business & Economics, has been to serve the people of West Virginia by providing you, the state’s business, policymaking, and advocacy communities, with reliable and timely data as well as rigorous applied economic analysis. We hope that the data and analysis we provide ultimately enables you to design and implement better business practices and public policies.
Our research is sponsored by public- and private-sector clients throughout West Virginia and nationally. For instance, our recent public-sector clients include the West Virginia Legislature, the West Virginia Department of Revenue, the West Virginia Higher Education Policy Commission, the American Cancer Society, and the Appalachian Regional Commission. We have also been engaged by several private-sector companies in the state.
Please feel free to call on me personally anytime concerning your economic research needs. We are always interested in pursuing new opportunities to provide research and data in areas such as public policy analysis, health economics, energy economics, economic development, economic impact analysis, economic forecasting, tourism and leisure economics, and education policy, among others.
To learn more about our research, to find contact information for myself or any of our staff, or to find an electronic version of this document, please visit our website at http://business.wvu.edu/bber.
Bureau of Business & Economic Research
West Virginia’s economy continues to recover from the initial response to the COVID-19 pandemic, when shelter-in-place orders and broad shutdowns caused state employers to shed jobs at a dramatic pace between mid-February and mid-April 2020. As shelter-in-place orders ended and businesses could re-open at various levels of maximum capacity (depending upon their sectors), employers managed to bring back more than half of the jobs they had previously eliminated by mid-August. Although the state has shown some economic resiliency since March and April, West Virginia’s economy was on somewhat shaky ground before the pandemic started. Payrolls fell during much of 2019 as pipeline construction projects were completed or delayed by legal challenges and few sectors or regions registered enough growth to pick up the slack caused by abrupt loss in economic activity. Overall, this report provides a foundation to understand the long-run economic challenges and opportunities facing West Virginia.
Highlights related to West Virginia’s recent economic performance are as follows:
- After losing nearly 94,000 jobs (13 percent) between mid-February and mid-April, employment in the state rebounded by 57,000 over the mid-April to mid-August time period.
- Sectors most affected by social distancing requirements, namely retail and leisure and hospitality, have experienced the most volatility since the pandemic began. Healthcare services also saw some disruption as providers delayed non-emergent care and routine appointments to limit spread of the virus and allow hospitals to surge bed and ICU capacity.
- The state’s unemployment rate surged to nearly 16 percent in mid-April (rising from just under 5 percent), but has quickly reversed course in the months since, falling to just below 9 percent in mid-August.
- Only 55 percent of West Virginia’s adult population is either working or looking for work. Though an improvement from recent years, this remains the lowest rate of labor force participation among all 50 states and represents a major obstacle to future economic prosperity.
- Per capita personal income in West Virginia increased 3.5 percent in 2019, marking an appreciable slowdown from the 5.9 rate of growth observed in 2018. Per capita personal income in West Virginia stands at 76 percent or so of the national average.
- West Virginia’s real GDP rose 1 percent in 2019, a more than one percentage point drop in the rate of real output growth observed in 2018. The state’s economic volatility in recent years has been driven largely by natural gas pipeline construction and energy extraction.
- Exports from West Virginia declined in 2019 as global demand for coal, the state’s chief export commodity, weakened significantly as the year progressed. Given the global impact of the COVID-19 pandemic on economic activity, exports fell even more sharply in the first half of 2020. Expanding and diversifying the state’s export portfolio is of vital importance to economic development in West Virginia over the long run.
Figure ES.1: West Virginia and US Forecast Summary
Real Per Capita Personal Income*
Sources: US Census Bureau; US Bureau of Labor Statistics; US Bureau of Economic Analysis; WVU BBER Econometric Model; IHS Markit
*Note: Per capita income growth covers 2021-2025
The energy sector is an important driver of economic activity in the state:
- Coal output dipped slightly in 2019, falling to 93 million short tons. However, market conditions differed dramatically between the first and second halves of 2019 as exports slumped and domestic power plants continued to retire coal capacity. Output during 2020 will likely fall to a low not seen in many decades due to the pandemic but will show moderate gains in 2021 and 2022 thanks to a rebound in global coal demand and new met coal mine capacity.
- Given the massive decline in domestic coal use over the past decade, and the fact that it is expected to continue going forward, coal production in West Virginia will likely display even greater volatility from year-to-year as it becomes increasingly attached to the changing global energy and climate policy landscape as well as the global business cycle.
- Natural gas output has expanded at a double-digit rate since late-2016, though withdrawals increased very rapidly in late-2019 to mid-2020. After another anticipated double-digit gain in 2020, production is expected to dip in 2021 due to recent pullbacks in exploration and new drilling activity. The emergence of downstream manufacturing in the Appalachian Basin will support long-term supply growth in West Virginia.
Highlights related to West Virginia’s economic outlook are as follows:
- Employment in West Virginia is expected to reach pre-pandemic levels by late-2022; overall, job growth is forecast to increase nearly 1 percent per year on average through 2025, compared to an expectation of 2 percent for the nation.
- We anticipate growth to occur in energy extraction activity over the forecast horizon; however, despite the likely uptick in coal output over the middle portion of the outlook period, natural gas will account for most of these gains.
- The construction sector will experience some volatility during the outlook period as most of the growth will be tied to public spending on big infrastructure projects . Legal and regulatory challenges remain a downside risk for completion of the Mountain Valley Pipeline and a handful of proposed pipeline projects.
- Manufacturing will trail broader job growth over the five-year forecast horizon, but among the major subsectors, aerospace, automotive equipment and chemicals will be the leaders in job growth going forward.
- The state’s unemployment rate is expected to fall sharply during the first few years of the outlook period before settling in the mid-5 percent range in late-2023.
- After excluding the extraordinary levels of transfer payments in 2020 associated with the federal government’s pandemic support programs, real per capita personal income is expected to grow nearly 1 percent annually between 2021 and 2025.
The Mountain State’s underlying demographics remain a major limiting factor to growth moving forward. Consider the following:
- West Virginia’s population has declined by nearly 65,000 since 2012. We project a slower rate of population losses over the next couple of years that will pick back up over the longer term as the state’s economy lags broader regional averages.
- A positive shock to encourage in-migration is essential to lessen the severity of natural population decline.
- The state has one of the nation’s oldest populations and will see its age distribution continue to skew toward older age groups in coming years.
- Economic development strategies should focus on ways to improve health outcomes, lower drug abuse, and advance educational and vocational training opportunities in the state to make West Virginia’s workforce more attractive to potential businesses.
Economic performance is expected to remain extremely variable across West Virginia’s counties . Consider the following:
- Nearly a dozen counties are expected to either lose jobs or record growth that is less than one-half that of the statewide average. T he highest rates of job growth tend to be in the northern half of the state.
- While the state overall is expected to lose population in coming years, around a dozen counties are expected to add residents during the outlook period. Population gains will be heavily concentrated in North-Central West Virginia and the Eastern Panhandle.
- Policymakers should be keenly aware of significant economic differences across West Virginia and ensure that economic development strategies consider each region’s specific strengths and weaknesses.
Chapter I: The United States Economy
The United States opened 2020 with a strong economy with unemployment at near-historic lows and was in the midst of the longest period of economic expansion in its history. In March of 2020, the US experienced its most abrupt and severe economic shock in history due to the COVID-19 pandemic. Economic output fell by more than 30 percent on an annualized basis, around 25 million jobs were lost, and the unemployment rate soared from under 4 percent up to around 15 percent. All of this occurred within roughly a two-month period. The US has already shown significant signs of economic improvement, adding back, for example, around 10 million of the jobs that were lost and observing an unemployment rate that has already fallen below 10 percent.
We expect a relatively quickly recovery from the deep recession that emerged in 2020. For example, as discussed below, we expect a full employment recovery by early-2023. However, it must be clearly stated that economic forecasting is extremely difficult at this time given the unprecedented nature of this recession coupled with the fact that the recovery largely depends on public health matters, rather than economic matters. As such, in the economic forecasts presented below, we present the baseline as well as alternative scenarios that rest on more optimistic or pessimistic assumptions.  In this chapter we: a) explore recent trends in the United States economy; b) provide a forecast of how the US economy is likely to evolve over the coming five years; and c) explore several major challenges that have the potential to threaten the long-run US economic outlook.
Recent Trends and Intermediate-Term Economic Outlook
GDP As illustrated in Figure 1.1, economic output, as measured by real Gross Domestic Product (GDP), fell dramatically in early 2020 due to the COVID-19 pandemic, after several years of relatively stable growth around two percent. This drop came after what had been the longest economic expansion in the nation’s history. The drop in GDP was very rare in terms of its speed and unexpected nature. Overall, the 2 nd quarter drop in economic output was nearly 10 percent on a year-over-year basis (shown in figure). Measured differently, the drop was in excess of 30 percent on an annualized basis. Later in this chapter we return to a broad discussion of how GDP will likely look as the nation recovers from this pandemic.
PRODUCTIVITY Worker productivity, as measured by output per hour worked, is the fundamental key driver of economic prosperity over the long run. For instance, very high levels of productivity fundamentally explain why nations such as the US and UK enjoy high standards of living while very low levels of productivity explain why nations such as Haiti and Zimbabwe suffer extremely low standards of living. In Figure 1.2 we illustrate the intermediate-run growth in productivity in the US over the last two decades or so. As illustrated, productivity growth has been has been low by historic standards since 2013. Productivity growth is expected to remain below the 30-year average, and the question of why this is the case continues to be hotly debated among economists and policymakers.
GOVERNMENT SPENDING The recent evolution of government spending in the US is reported in Figure 1.3. Total federal, state, and local government spending, which amounts to approximately one-third of US GDP, increased substantially during the Great Recession. This rise was driven by a concerted economic stimulus effort that actively increased government spending and as safety net expenditures rose naturally as the economy went into recession. After the economic recovery began, inflation-adjusted federal government spending decelerated rapidly and started to declined outright for four years. This decline was driven by the waning of federal government transfer policies as well as federal sequestration policies. In contrast, real federal government spending did pick up in recent years, and will be much higher for 2020. This increase was driven by several discretionary spending choices made by Congress over the past couple of years or so and very aggressive stimulus measures for 2020.
EMPLOYMENT As depicted in Figure 1.4, total US employment from the household survey was extremely strong at the beginning of 2020 – slightly above what economists consider to be the maximum level of employment that the economy can sustain for the long run. Then the economy dramatically lost around 25 million jobs over a roughly two-month span due to the COVID-19 pandemic. As of the most recent data, the nation has gained back around 10 million of the lost jobs. We return to a discussion of the employment forecast below.
UNEMPLOYMENT Turning to the unemployment situation, the national unemployment rate peaked at around 10 percent in late-2009, as noted in Figure 1.5. This was the second-highest jobless rate experienced during the post-WWII era, exceeded only by the 1982/1983 recession (a peak of 10.8 percent in late-1982). The unemployment rate improved very steadily through the beginning of 2020, reaching a near historic low of below four percent. In sharp contrast, the rate skyrocketed over a two-month period in early-2020 due to the COVID-19 pandemic, reaching a high of nearly 15 percent, the highest rate observed since the Great Depression in the 1930s. The figure fell sharply in mid-2020 as the pandemic lockdowns eased, and now stands below 10 percent.
Another important statistic is the share of all unemployed persons who have endured long unemployment spells, which is typically defined as 27 weeks or more. As illustrated, this figure rose substantially during the last recession, did finally return to long-run norms by 2018, in conjunction with improvement in the unemployment rate over that period. The figure plummeted in early-2020 as millions of newly unemployed men and women joined the unemployment rolls.
There are two common criticisms associated with the conventional unemployment rate reported in Figure 1.5. The first is that the figure does not account for workers who can only find part-time work but who would prefer a full-time opportunity, often referred to as “under-employed.” The second relates to discouraged workers. Here, the idea is that if one is looking for work for an extended period of time and is ultimately unsuccessful at landing a job, the individual may become discouraged and quit looking for work altogether. When this happens, the person is no longer counted as “unemployed” or part of the labor force at all by the conventional measure, since the conventional measure only considers people we are actively looking for work. For both of these reasons, the conventional unemployment rate understates the overall severity of the unemployment situation.
In Figure 1.6 we report the conventional unemployment rate (referred to as U-3) along with a measure that also includes discouraged workers and individuals who are only able to find part-time work due to economic reasons (U-6). It is important to note that these criticisms are legitimate and that what many would consider to be “true” unemployment is higher than the conventional statistic indicates. However, it is also important to note that the movement of the two figures over time is quite consistent and despite their level differences, the unemployment situation has improved demonstrably in recent years until the COVID-19 pandemic, regardless of which metric is used.
LABOR FORCE PARTICIPATION The labor force participation rate is a complementary measure to the unemployment rate. The labor force participation rate captures the share of the adult population that would like to work—termed “in the labor force”—while the unemployment rate captures the share of the labor force that is unable to find employment at any given moment in time. Ultimately, the labor force participation rate is a more fundamental descriptor of an economy’s long-run employment situation.
In Figure 1.7 we report labor force participation for the US since 1950. As illustrated, the figure peaked in the late-1990s at 67 percent, fell substantially after 2008, improved slightly over the past couple of years, standing at just over 63 percent in early-2020. The broad evolution of this figure is largely driven by demographic processes, namely the emergence and aging of “Baby Boom” generation. Notice that the figure began to rise substantially around 1965, when the first of the “Baby Boomers” turned 20 years old. This measure continued to rise through around 1998, when the first of this group turned 55 years old, but then began to decline substantially around 2008—the point when the leading edge of the Baby Boom approached conventional retirement age. The figure fell substantially once again during 2020 as some of the men and women who lost their jobs due to the pandemic left the labor force altogether.
In addition to the baby-boomer effect, the post-WWII structural change in labor force participation rates was driven in large part by large increases in the female labor force that occurred through the mid-1990s. Overall, the recent declines in labor force participation likely present an impediment to the nation’s long-run economic growth potential as fewer workers will be available to support retirees vis-à-vis private pension plans as well as Social Security and other federal programs. Furthermore, many economic challenges below might interact with a lower rate of labor force participation in the long run, leading to a significantly different performance for the US economy over the long term.
UNEMPLOYMENT INSURANCE CLAIMS Following up on our discussion of unemployment, in Figure 1.8 we report the number of initial unemployment insurance each week nationally. As illustrated, the figure was very stable at around 230 thousand leading into the COIVD-19 pandemic. The figure skyrocketed to nearly six million in an extremely short period of time through March and April of 2020. After dramatic improvement as well in late-May and June, we have observed slower improvement, and the figure remains well above the pre-COVID-19 norm.
CONSUMER CONFIDENCE Recessions typically have a catalyst in some exogenous shock (such as the bursting of a housing bubble or high oil prices), but falling consumer sentiment is often the key driver of demand during recessions. Typically, the initial recession catalyst reduces demand directly, and thereby output. This drop in output reduces confidence, which reduces demand further, and a vicious cycle ensues. On the upswing of the business cycle, an economic system is unlikely to ever achieve its full potential until confidence is restored.
As reported in Figure 1.9, US consumer confidence fell markedly in early-2020 in response to the COVID-19 pandemic and has shown little sign of improvement since. Improving confidence will be key to a full economic recovery.
GDP OUTLOOK As described above, economic forecasting is especially difficult currently given the nature of the current recession and the fact that much of the recovery depends on public health matters, rather than economic matters. As such, we present a baseline forecast, but we include additional bounds on our forecasting reflecting more optimistic or more pessimistic assumptions.
As illustrated in Figure 1.10, our baseline forecast calls for continued declines in GDP in 2020, followed by very strong growth in 2021. Further, we expect above-average growth for two more years as full recovery emerges, until the economy settles back into its normal growth pattern around 2024. The more optimistic scenario presents a similar pattern, but a faster path to full recovery. The pessimistic scenario foresees negative GDP growth continuing into 2021, and correspondingly, a longer time period to return to normal GDP growth patterns.
EMPLOYMENT and UNEMPLOYMENT OUTLOOK Our employment outlook is illustrated in Figure 1.11. The baseline forecast calls for employment to recover around half of the jobs lost due to the COVID-19 pandemic by the end of 2020. Full recovery is not expected until early-2023. The pessimistic forecast does not call for full recovery until 2024. In Figure 1.12 we present the forecast for the unemployment rate. The baseline forecast calls for a rate of around eight percent by the end of 2020. Further, the baseline expectation is for the rate to remain above the normal range of around five percent for nearly two additional years. The figure also illustrates the more optimistic and the more pessimistic forecasts. All three scenarios place the unemployment at full recovery by 2024.
Challenges Facing the US Economy
Issues related to the long-run sustainability of the US federal government budget remain a primary concern for long-run economic growth. As such, we explore US federal government budgetary issues through figures 1.13 through 1.15.
FEDERAL GOVERNMENT DEBT As depicted in Figure 1.13, federal debt held by the public, which was consistently below 40 percent of GDP between 2000 and 2008, began rising dramatically in 2008 as tax revenues plunged and the federal government ramped up spending in part to stimulate the weakening economy. This shock placed the figure is in the upper-70-percent range, a rate that is nearly double the average from the prior 30 years. Further, fiscal policy actions in 2019 and aggressive stimulus measures so far in 2020 have increased the figure once again, now to a level just above 100 percent of GDP. This places the figure at its highest level since the World War II Era. The figure is expected to rise further in 2021 due to ongoing effects of the COVID-19 pandemic. Further, assuming no changes in public policy, the figure is forecast to explode in the long run (not shown) given the aging of the US population and the additional public benefits that an older population receives (i.e. Medicare and Social Security).
A public debt level that surpasses a critical level can be detrimental to long-run economic prosperity if the public debt becomes large enough to drive interest rates high enough that they ultimately crowd out private-sector savings and investment activity—a key driver of productivity growth in the long-run. While economists are unsure of what that critical level is, clearly the US is much closer to that level compared to historical norms that existed before the 2008 recession.
TRANSFER PAYMENTS The recent dynamic involving US federal government debt is closely related to the increase in transfer payments from the US federal government. Examples of transfer payments include Social Security, unemployment benefits, welfare benefits, Medicare, and Medicaid. As illustrated in Figure 1.14, transfer payments increased substantially in 2008, reaching a high of around 18.5 percent of personal income, compared to a 30-year average of around 15 percent. Recent stimulus efforts have dramatically increased the figure further, placing it in excess of 23 percent for 2020, and it is expected to remain at that level for 2021. Both waves of increase are attributable to two major factors: a) falling income and rising unemployment during recessions, and b) more generous public policy, such as the extension of unemployment benefits. The figure is expected to fall to around 22 percent by 2022, but this still places the figure well above historic norms.
In Figure 1.15 we report the composition of US federal government spending. As illustrated, mandatory spending, which includes transfer payment programs such as Social Security, Medicare, Medicaid, unemployment insurance, and the like, comprised 67 percent of all federal spending in 2019. This represents an important increase over the past 20 years or so and comes largely as a result of an aging population. At the same time, defense spending and nondefense discretionary spending have fallen correspondingly. If the long-term debt burden is to be reduced, it will have to be accomplished through either higher taxes, or a reduction in one of these areas of spending, and each path carries its own set of concerns and difficult political realities.
INFLATION As reported in Figure 1.16, inflation has been mostly modest by historic standards in the US for more than two decades, rarely moving outside of the 1 to 3 percent range. Inflation has been below its long-run average with only one exception since the Great Recession ended. Core inflation, which excludes food and energy prices from the equation (yellow line in figure), has been below the 2 percent figure that monetary policymakers explicitly state as a target since the beginning of 2012. The figure is expected to remain modest or on target throughout the forecast.
However, there is a chance that faster growth in price levels could eventually re-emerge. The US Federal Reserve (Fed) took unprecedented steps to stabilize the economy during the Great Recession and in 2020, and in so doing has increased the monetary base—primarily the volume of reserves held by banks—dramatically through its purchase of US Treasury Securities and other assets, such as private-sector mortgage-backed-securities. This monetary stimulus has not translated into higher inflation due to continued modest demand and banks’ reluctance to lend and other factors. But inflationary pressures will eventually have the potential to build as lending and the broader economy improve. As such, the Fed will eventually have to withdraw liquidity from the monetary system so as not to create an environment for inflation to build. The uncertainty stems from the fact that monetary policy across the globe is in uncharted territory given the volume of monetary stimuli over the past decade, and particularly in 2020, the nature of the asset purchases, and the persistence of negative interest rates in major economies such as the European Union and Japan and other areas.
INTEREST RATES A related concern is interest rates in the US economy in the very long run. We have observed the Fed’s “normalization” process in recent years wherein the Federal Open Market Committee (FOMC) unwound some of its previous asset purchase programs and other forms of monetary stimulus discussed above during the Great Recession. Short-term interest rates generally climbed in concert with hikes in the federal funds rate by the Fed over recent years. IN response to the COVID-19 pandemic, the Fed reversed course earlier this year and aggressively again lowered interest rates again in order to provide new stimulus to the economy. Although rates are expected to remain very low for several years, eventually rates will rise again and if rates rise too quickly, it could precipitate much weaker levels of investment and consumer spending growth. On the other hand, if the Fed waits until too late to allow rates to rise, inflation would eventually be a concern. Figure 1.17 reports the forecast for three key US interest rates.
INCOME INEQUALITY The final concern that we consider relates to rising income inequality in the US. In Figure 1.18 we illustrate the share of aggregate income in the US that is earned by households divided into quintiles. As illustrated, the lowest-income quintile, while representing 20 percent of households, earned around 3 percent of the total income in the nation in 2018. The second lowest-income fifth of households earned around 8 of the total income in the nation in 2018, and so on. The highest-income quintile earned nearly 52 percent of the nation’s total income in 2018. Further, as illustrated, the income share for the highest quintile has risen by nearly 9 percentage points over the period illustrated, corresponding to a decline in the share earned by the other quintiles. In a similar vein, in figure 1.19 we report median income in the US over the long-run, compared with the average income for households in the highest-earning five percent (after accounting for inflation).
Overall, many individuals are concerned about the growing income concentration among higher income households and these individuals have often requested or proposed public policies that could reverse this trend. Finding an appropriate public policy response that balances promoting economic growth overall and achieving a socially-acceptable income distribution can prove to be challenging in many cases. However, it is clear that education plays an important factor in explaining the income distribution in the U.S. As reported in Figure 1.20, households where at least one resident holds a bachelor’s degree earn far more than any other group, and the gap between those with a bachelor’s degree and others has risen slightly over time.
Chapter II: The West Virginia Economy
Recent Economic Performance
West Virginia’s economy appears to have emerged from the worst of the COVID-19 recession, having recovered more than half of the 94,000 jobs that were lost between mid-March and mid-April when shelter-in-place orders, stricter social distancing, and maximum business capacity requirements were in effect. Job gains have averaged more than 14,000 per month since bottoming out in mid-April. However, preliminary data suggest the state’s rate of recovery in overall employment likely peaked during the initial phases of reopening during May and June as the end of shutdown orders for certain sectors as well as the relaxation of social distancing and capacity restriction mandates for others enabled businesses to bring a large number of furloughed employees back to work.
West Virginia has shown some resiliency in that it has managed to recover a large chunk of the jobs lost during the early stages of the pandemic response. However, the state’s economy did not enter 2020 on a particularly strong note as total employment declined over the course of 2019. In fact, the declines seen over the course of the year nearly erased all the payroll gains registered in the state since late-2016. Most of these losses were expected since they were linked to the completion of natural gas pipeline projects as well as the protracted legal delays affecting the Atlantic Coast Pipeline and Mountain Valley Pipeline projects. Some of the state’s economic regions and a few key industries did experience some growth to help offset some of these losses, but overall, the state’s economy lacked enough contributions from other sectors to keep total payroll levels at least stable.
EMPLOYMENT From a macro perspective, West Virginia’s economy has held up relatively well to date during the pandemic when compared to the national average and to what has occurred in most neighboring states. Indeed, between mid-February and mid-April payrolls declined by roughly 13 percent, a slightly smaller rate of decline than the 14 percent loss for the nation overall during this two-month period. Further, from mid-April to mid-August statewide payrolls increased approximately 9 percent, once again outperforming the national average by a small margin. While Pennsylvania, Kentucky and Ohio recorded stronger percentage increases in payroll levels over this same three-month timeframe, each of these states experienced steeper job losses during the previous two months largely as a result of stricter mitigation policies and/or larger shares of jobs in sectors that were affected by stringent social distancing restrictions that were held in place for longer periods of time.
UNEMPLOYMENT With many businesses shuttering operations and furloughing workers during the early phase of the pandemic response, the ranks of unemployed soared over the course of March and April in West Virginia (and nationally). According to the US Department of Labor, initial and continuing claims for unemployment insurance (UI) benefits in West Virginia peaked during the week of April 18 th at a total of nearly 47,000 and 147,000, respectively. These figures represented massive increases compared to the same weeks over the past few years and even managed to dwarf the peak level of UI claims observed during some of West Virginia’s worst economic episodes in the post-WWII era. As employers began to recall workers and the shelter-in-place order ended on May 4 th, UI claims began to fall appreciably through mid-August. Consequently, the state’s reported unemployment rate has fallen from a peak of nearly 16 percent in April down to below 9 percent by August 2020.
Like the path in employment levels over the course of the pandemic, West Virginia’s jobless rate compares favorably to the national average and most of its neighboring states. Initial unemployment insurance claims data from recent weeks do suggest the pace of month-to-month declines in the jobless rate have slowed, as initial claims have averaged 2,000 or so between early-August and mid-September – surpassing levels that were observed during stretches of the Great Recession and the subsequent sluggish recovery.
ENERGY SECTOR Despite the shrinking economic footprint of extraction industries in West Virginia, particularly coal, natural gas and coal remain a key foundational component of the state’s economy. The natural resources and mining sector accounts for just 3 percent of statewide employment, but their impacts are felt more broadly in the economy thanks to the high level of capital these industries deploy, their direct connection to other industries (i.e. transportation, manufacturing, engineering, etc) and the high wages coal miners and gas industry workers receive. Indeed, these two industries still accounted for more nearly one-third of total gross state product in 2019.
The coal industry experienced an appreciable rebound in employment and production from mid-2017 to late-2019, thanks in large part to burgeoning demand for metallurgical and steam coal from India, Ukraine, and host of other countries. After totaling roughly 80 million short tons during 2016, coal output hovered in the low- to mid-90 million short ton range for much of the 2017 to 2019 time period. Payrolls generally followed suit as some idled mines and a handful of new mining operations were opened to meet growing export demand, rising from less than 12,000 in late-2016 to 14,400 by mid-2019.
Even with the upturn in global coal demand over this time period, however, financial conditions still deteriorated. and due to the industry’s difficulty in securing funding from capital markets over the past several years, several major coal companies with operations within West Virginia entered bankruptcy proceedings during 2018 and 2019, including the state’s largest producer Murray Energy. Combined with the cooling of global coal demand in the second half of 2019 and ongoing losses in demand from the domestic electric power sector, these bankruptcies led to the closure and idling of several mining operations throughout the state. All told, the mining industry lost nearly 1,000 jobs and registered a 10 percent drop in output during the fourth quarter of 2019. The global spread of the COVID-19 pandemic caused the industry’s struggles to accelerate rapidly during the second half of 2020. Indeed, statewide coal output fell nearly 29 percent down to an annualized rate of 60 million tons and mine employment slipped below 11,000. Both levels marked new historical lows for the industry when excluding years with major strike events. 
By contrast, the state’s natural gas industry has enjoyed strong production growth in recent years. The addition of the Rover II, Mountaineer Xpress and other natural gas/condensate pipelines have eased the Mid-Atlantic region’s supply bottlenecks and enabled gas and natural gas liquids (NGLs) to reach the marketplace. Production has also benefited from natural gas supplanting coal as a fuel source in domestic electricity generation as well as the rapid growth in global demand for liquefied natural gas (LNG). After totaling more than 1.8 trillion cubic feet (Tcf) of gas withdrawals in 2018, statewide output of natural gas surged 20 percent in 2019 to 2.2 Tcf – representing more than a doubling of production since 2014. Production has continued to increase over the course of the COVID-19 pandemic, as withdrawals surpassed 600 billion cubic feet (Bcf) in both the first and second quarters of 2020. At the same time, the industry has shown some signs of weakness emerge that could soon begin to weigh on production and ultimately keep a lid on the industry’s hiring activity over the near term. For example, data from Baker-Hughes indicates the number of active natural gas rigs, which serves as a leading indicator of future production, operating in West Virginia has fallen from 16 to 8 between January and August 2020. Employment in the industry has also declined in recent quarters, due in large part to the drop-off in new well exploration and development that has occurred across the broader oil and gas industry.
SERVICE SECTORS While the pandemic has hurt West Virginia’s goods-producing industries to some extent, the most noticeable impacts have been felt across several service-providing sectors. Leisure and hospitality has been the hardest-hit of any major sector due to a combination of consumer concerns over the virus, business travel bans, requirements for restaurants to serve food by take-out orders only, as well as subsequent allowances for percentage capacity at indoor dining, bars and other similar establishments. As a result, hotels, restaurants, casinos and other businesses in the sector cut payrolls by more than 39 thousand during the initial phases of the pandemic in March and April. The sector has seen employment bounce back by more than 24 thousand between mid-May and Mid-August, but those gains have slowed appreciably in recent months due to continued restrictions on mass gatherings, hesitancy by consumers to dine indoors, 25 to 50 percent maximum capacity allowances for restaurants, bars and other indoor venue.
The trade sector (wholesale and retail combined) was heavily affected by the initial pandemic response, as the range of mandated business closures and social distancing requirements forced retailers to shutter operations for an extended period. Several retailers were granted exemptions as essential business operations, such as grocers and large retail chains, but even these establishments were subject to maximum capacity requirements that prompted some furloughing of workers. At the same time, the industry’s struggles pre-date the onset of the pandemic. The industry was already struggling in West Virginia due to weak economic conditions in several of the state’s economic regions as well as structural changes in the sector. Specifically, the rapid increase in e-commerce services such as Amazon and the replacement of in-store sales at brick-and-mortar establishments with curbside pickup or direct-to-home delivery for groceries and other non-traditional ecommerce options have proven to be significant disruptions to the sector in a relatively short period of time. Their use has accelerated as a result of the pandemic and has had a measurable effect on some retailers already, leading to bankruptcy declarations, store closures and/or announced shifts to an online sales focus.
Healthcare services experienced appreciable job losses during the early phases of the pandemic as well. Hospitals, doctors and dental offices furloughed workers as these providers were forced to postpone appointments, non-emergent care (e.g. elective surgeries) and other outpatient services as a means of preventing the spread of coronavirus. In addition, hospitals had to allocate more room capacity to care for hospitalized covid-positive patients to prevent spread of the virus within the facility as well as to surge capacity for ICU wards. Payrolls in the sector have bounced back by roughly 8 thousand since restrictions were relaxed in late-April/early-May, but the sector has experienced some turmoil over the past year or so as several healthcare providers have been forced to eliminate jobs or even close hospitals, including the closure of Ohio Valley Medical Center, Fairmont Regional Medical Center and Bluefield Regional Medical Center. WVU Medicine’s aggressive expansion of its services statewide vis-à-vis mergers and joint venture agreements with other regional hospitals has helped to offset some of these losses.
CONSTRUCTION The construction sector accounted for a significant majority of the state’s job growth between mid-2017 and early-2019, thanks in large part to the build-out of several natural gas pipeline projects as well as the construction of the massive $500 million Procter & Gamble campus and manufacturing facility in Berkeley County. A host of major commercial developments in North-Central West Virginia and addition of midstream natural gas assets (pipeline expansions/reversals, cryo-processing, etc) have also buoyed the sector’s performance. The Roads to Prosperity program has also bolstered the sector’s performance, particularly large-scale projects such as the phasic re-construction of I-70 (and several bridges) in Wheeling, though many of the projects planned for still require funding allocation through state bond purchases and others have been approved but remain delayed due to the pandemic or require further planning.
One recent event did emerge as a setback for the sector, as Dominion Energy and Duke Energy cancelled the Atlantic Coast Pipeline (ACP) project in July 2020. The project had been beset with numerous legal challenges, regulatory reviews and other delays that prompted its cost to bloat by nearly double its original price tag (from $4.5 billion to $8 billion) over its six-year lifetime. The project was granted a legal victory by the US Supreme Court earlier in the year but faced the likelihood of additional legal and regulatory obstacles going forward that would likely lead to additional delays and further cost overruns for the project’s backers. The cancelation resulted in the loss of thousands of high-wage construction and engineering jobs as well as future tax revenue streams for counties within the pipeline’s footprint. Berkshire Hathaway purchased Dominion’s midstream assets shortly after the cancelation was announced and gave no indication that it would resuscitate the project anytime soon, effectively ending the project’s prospects at this time. Although the project is closer to completion, the Mountain Valley Pipeline (MVP) is also delayed and faces many of the same legal and regulatory challenges that affected the ACP, suggesting it also faces an uncertain future.
MANUFACTURING West Virginia’s manufacturing sector enjoyed its second consecutive year of employment gains in 2019, though the gain was relatively small at fewer than 100 new jobs added compared to 2018. Growth was largely tied to additional hiring activity by expansions at several of the state’s major manufacturing sites, namely Procter & Gamble, Toyota, Northrop Grumman and Hino Motors. The state’s automotive parts supply chain production has been a steady source of job production in particular over the past several years thanks to ongoing investments by Toyota at its powertrain manufacturing plant in Putnam County as well as the opening of the Hino Motors truck assembly plant (and its expansion) expansion near Parkersburg.
Several manufacturing subsectors have struggled over the past year or so, with some such as lumber and wood products experiencing notable losses in business activity during the first half of 2020 due the COVID-19 pandemic. Indeed, sawmill capacity utilization rates remain well below what was in place prior to their pandemic-related shutdowns due to the difficulty in re-aligning tree harvest cycles with framing and other lumber needed for new home construction. With their tight connections with the coal industry, fabricated metals and machinery manufacturers in West Virginia saw their conditions weaken substantially over the past year or so as mine closures and reductions in output have cut into demand for roof bolts, augurs and other equipment.
The large-scale layoff events in 2017 and 2018 at generic drug-maker Mylan Pharmaceuticals’ facility in Morgantown, along with the subsequent purchase by Pfizer’s spin-off Upjohn have cast significant uncertainty over the company’s long-term prospects in the state. The facility did receive a temporary boost following the FDA’s announcement of Emergency Use Authorization (EUA) to utilize hydroxychloroquine, which is produced in Morgantown, as a therapeutic to treat COVID-19 patient; however, the EUA was later revoked in June due to poor treatment effect results from randomized trials.
GOVERNMENT West Virginia’s underlying economic struggles and poor demographic trends have hurt the state government as well as many county and municipal governments. Local governments were particularly hard hit during 2013 to 2016 time frame as falling coal production and low natural gas prices weighed on severance tax collections over much of this period and forced many county and municipal governments to cut payrolls and reduce services, particularly for city and county governments across Southern West Virginia. Falling population levels only exacerbated this trend. The revenue situation did stabilize and even showed signs of appreciable improvement in 2018 and 2019, owing to a rising inflow of severance tax revenue and significant amounts of new pipeline construction activity being built throughout the state.
The COVID-19 pandemic has generated significant concerns about the near- and long-term fiscal health of state and local governments in many parts of the country, including WV, as high levels of joblessness and the $600 / week bonus payout for unemployment insurance claims essentially exhausted the system’s trust fund in a matter of weeks. West Virginia University, Marshall University, and other higher education institutions instituted furloughs for many employees and salary reductions for executive-level personnel during the pandemic and have also incorporated other austerity measures such as travel bans and university-wide expense reductions to offset falling revenue streams and higher expenses on coronavirus mitigation efforts.
In addition, state and local governments are incurring increased expenses for social safety net programs, school reopening preparations as well as increased spending to fund COVID-19 testing and contact tracing capabilities for local health departments. Federal CARES Act funding has covered most of these expenses, but the pandemic’s rebound in late-summer and early fall has strained state and local budgets and could erode any previous fiscal cushion that might have existed from earlier rounds of federal spending if case counts and hospitalizations remain high or worsen during the transition into the fall and winter months.
The federal government also maintains a significant presence in West Virginia and has bolstered employment levels in recent years at several different agencies scattered throughout the state. Most notably, the FBI, US Treasury and National Park Service have increased staffing levels by the largest margin in West Virginia. The 2020 Census has prompted increased federal hiring in West Virginia – and nationally - by several thousand over the course of this year. Enumerators and data analysts have accounted for most of these additions, though these positions are temporary as the collection portion of the census is slated to end at the end of the federal fiscal year on September 30th. However, legislation is being considered in Congress to extend the count period until the end of 2020 as some states continue to have low response rates in certain areas.
LABOR MARKET DYNAMICS For most states, the reported unemployment rate offers a good representation of labor market health. In West Virginia and other states whose underlying demographic characteristics, cultural differences, industrial structure, etc differ to some extent, the unemployment rate can only provide a partial picture of labor market conditions. For example, even as the state’s economy struggled over much of the 2012 to 2016 time period, the unemployment rate indicated some manner of improvement. While this was the case for certain areas, such as the Eastern Panhandle and North Central West Virginia, trends for the rest of the state were certainly less sanguine as more than 31,000 people exited the labor force, via moving to another state, retirement, disability, or the discouraged-worker effect. As a result, attrition in the labor force had a stronger impact on the downward movement in the jobless rate than improving economic fundamentals.
In addition to the factors pointed out above, the opioid epidemic has likely had an appreciable effect on workforce participation in recent years and especially among the prime working age. In addition, West Virginia faces other workforce-related problems that hurt participation for portions of the state’s population, such as poor health outcomes or human capital limitations for available jobs. As of 2019, West Virginia’s labor force participation rate was the lowest among all states at just over 55 percent, just as it has since data collection began in the 1970s. Age distribution does explain some of the state’s workforce participation deficit with other states, but the underlying causes extend to other issues since the state also lags well behind others among the prime working age population (25-54 years of age). On a positive note, the rate has improved over the past couple of years and the workforce participation gap with the nation has narrowed and West Virginia has seen its rate move to within one percentage point below the state with the second-highest gap (Mississippi).
INCOME Per capita personal income, without accounting for inflation, in West Virginia reached approximately $42,300 in 2019, representing a 3.5 percent increase from the previous calendar year. After ranking fifth nationally in 2018 at 5.9 percent, West Virginia’s per capita income growth fell further back in the pack during 2019, ranking 41 st nationally for the year. Overall, West Virginia’s per capita income is roughly 75 percent of the national average. Income gains were relatively uneven over the course of 2019 as well, as the completion of several pipeline construction projects and uneven performance of the state’s energy sector created significant volatility in wage growth during the second half of the year. Indeed, personal income declined in the fourth quarter of 2019 even prior to the onset of COVID-19 pandemic in the US. Income did bounce back slightly during the first quarter of 2020, but most of this growth was driven by transfer payments attributed to CARES Act pandemic relief payments and expanded unemployment insurance that came on-line at the end of March.
WAGES Completion of natural gas pipeline projects and contracting coal mine activity during the second half of 2019 led to a significant slowdown in wage growth. Indeed, the statewide average annual wage increased less than 1 percent compared to 2018 (without adjusting for inflation) for the full calendar year, reaching roughly $46,400. The utilities sector continued to receive the highest average annual wage at just over $97,000, followed by the natural resources and mining sector at $84,000 due to the high wage rates received by coal miners and workers involved with the natural gas industry.
The fact that changes in wage income differ from growth in per capita personal income can be explained by faster (or slower) growth in other sources of personal income. For example, transfer payments to individuals, such as Social Security benefits, are a component of total income but are not counted as wages. Other forms of non-wage income, such as investment returns, pensions and earnings from the self-employed can affect year-to-year changes in personal income as can adjustments to tax withholdings by state or federal governments and income earned in other states by commuters.
GDP Given their high wages and capital intensiveness, the state’s coal and natural gas industries exert a disproportionate influence on GDP growth. In addition, the boom-and-bust natures of these industries suggest the state could depart significantly from the pattern of growth occurring in most other states and the national level. Even with the massive increases in natural gas pipeline construction activity between mid-2017 and early-2019 as well as coincident growth in coal and natural gas output over much of this same time period, increasing at 1.6 percent annually between 2017 and 2019 versus a 2.6 percent average annual increase at the national level.
Recent Demographic Trends
POPULATION West Virginia’s population declined for the seventh consecutive year during 2019, as the total number of residents estimated to live in the state slipped below 1.8 million for the first time since the early-1990s. Indeed, the absolute and percentage losses in population observed since 2012 have easily surpassed what occurred during the mid- to late-1990s, though they do lag the massive population losses West Virginia experienced in the late-1980s when the number of residents living in the state shrank by an average of 25,000 per year.
With below-replacement birth rates, a disproportionate share of residents over the age of 65, and higher-than-normal death rates among many age groups, West Virginia experiences a natural decline in residents each year as deaths outnumber deaths. Moreover, this rate of natural decline has increased sharply in recent years as death rates among several age groups has surged, due in part to the dramatic increase in drug overdose deaths. Given the state’s underlying demographic characteristics for age and trends in mortality and births, any substantial improvement or deterioration in population growth largely come from changes in (domestic) migration flows. Given West Virginia’s poor economic performance compared to states in the nearby region as well as performance during a healthy backdrop for the US economy, net migration flows have accounted for an increasing share of the state’s population declines.
According to the US Census Bureau, only 5 of the state’s 55 counties are estimated to have gained residents between 2018 and 2019. Kanawha County saw the largest absolute decline in population (-2,300). Twelve counties recorded an annual percentage loss in population of at least 1.5 percent during 2019, with McDowell County registering a 3.3 percent decline in resident population – falling to just 17,600. Berkeley County remained the state’s fastest-growing county in absolute and percentage terms, adding more than 1,900 residents (1.7 percent) for the year. Monongalia County, which had been one of the state’s fastest-growing counties over the past decade, saw a slight decline due to smaller inflows of domestic movers and net international migration turning negative due to increasingly tighter restrictions on student and work visa programs.
AGE DISTRIBUTION The age distribution represents one of the defining demographic characteristics of the West Virginia’s population when compared to most of the US and this age structure has palpable impacts on broader economic trends in the state. West Virginia’s median age increased slightly in 2019 to 42.9 years, placing it 4.5 years higher than the national figure and ranking fourth highest among all 50 states. Another sign of the state’s skewed age distribution is the fact that more than 27 percent of the state’s residents are aged 60 or older, exceeding the national figure by more than five percentage points.
HEALTH While the state’s older-than-normal population does contribute to higher rates of mortality, even when accounting for the population’s age distribution West Virginia tends to experience higher incidences from various morbidities as well as higher mortality rates. According to the Centers for Disease Control (CDC), West Virginia’s age-adjusted mortality rate is the second highest among all states and also ranks among the tier of states with high incidences of heart disease, cancer and diabetes. Furthermore, behavioral or lifestyle factors that contribute to poor health outcomes such as physical activity during leisure time are among the lowest in the nation and rates of cigarette smoking and smokeless tobacco use among the adult population are among the highest nationally. Another source of the state’s poor health outcome trends over the past decade or so has been the skyrocketing use and death from opioid overdoses. Indeed, crude mortality rates among young men – particularly those between the ages of 25 and 34 – have risen significantly. For example, even as the 25 to 34 population has shrunk by roughly 3 percent since 2012, deaths among residents in this age group has increased by nearly 17 percent and non-drug-related causes of death have shown negligible changes over this same time period.
The impact of the COVID-19 pandemic on mortality trends for the population as a whole are currently unclear, though CDC data on excess deaths for all age groups mortality trends through the course of the pandemic (as of mid-August) are below the level expected based upon data the average from the past five years.
West Virginia Outlook
EMPLOYMENT GROWTH Expectations for the US and broader global economies will directly influence West Virginia’s economic performance during the outlook period.  For this report, instead of solely focusing on the baseline forecast, we also include separate estimates that illustrate how the state’s expected path of growth will vary under alternative scenarios with various optimistic or pessimistic assumptions for the US economy’s performance over the next five years.
For example, the baseline forecast assumes US real GDP will increase to $21 trillion (in 2012 dollars) by 2025 while the optimistic scenario calls for real GDP to reach roughly the same level but achieve it on a faster timeline. By comparison, the pessimistic forecast calls for the US economy to reach a value of just over $20 trillion by the end of the outlook period – indicating the US economy will be roughly 5 percent smaller due to lasting damage to the economy or perhaps a negative structural change caused by the pandemic. Since numerous economic and demographic variables interact with one another to determine the final value of goods and services in the US, and these variables can influence the West Virginia economy in different ways under each specific set of assumptions, the scenarios will allow us to see a plausible range of outcomes should actual growth fall below, match, or surpass expectations.
Overall, the baseline forecast calls for total employment in West Virginia to increase at a rate of nearly one percent annually between 2020 and 2025. Of course, expected growth during 2021 will be the strongest given the relatively easy comparisons to the sharp drop-off in activity that occurred during the first half of 2020. Nonetheless, a range of therapeutics, vaccines and non-pharmaceutical interventions (masking and social distancing) are expected to help business activity and consumer confidence “return to normal” by mid- to late-2021. This will eventually allow sectors such as tourism, restaurants and other consumer-oriented activities to operate at higher levels of capacity or even re-open fully. Job growth will remain healthy at nearly 1.7 percent in 2022 as gains broaden to other sectors – including energy.
We anticipate the state’s economy will see employment peak at levels that are on par with what was observed in late-2019 by late-2022/early-2023. Afterward, West Virginia’s long-term structural economic and demographic characteristics are expected to limit the state’s growth potential and will cause payrolls to dip slightly over the final two years of the outlook period.
LEISURE & HOSPITALITY The sector that has been hurt the most by the COVID-19 pandemic is tourism and the portfolio of pharma and non-pharma interventions are expected to help the industry return to more normal conditions by 2021/2022, helping the sector grow at the fastest pace going forward (roughly 3.5 percent per year). Maximum capacity allowances for restaurants, bars and other consumer-oriented indoor establishments have been implemented because these venues have been found to be at much higher risk to spread COVID-19. As these treatments become available to a broader set of the population, indoor dining and other activities are expected to become safer and will be allowed to operate at higher capacity levels. In addition, tourism is also expected to benefit from these improvements as tourists should begin to feel safer traveling greater distances, stay in hotels and other lodging and ultimately participate in whitewater rafting, ziplining, hiking, ATV trail riding and a whole host of other adventure activities that allow visitors to enjoy the state’s scenic attractions.
ENERGY The forecast calls for somewhat of an uneven performance for the state’s natural gas and coal industries. The overall energy sector is expected to record average annual job growth of 2.7 percent annually and real output growth of more than 3.7 percent per year through 2025. As with most other parts of the state’s economy, growth rates using 2020 as the starting point tend to show relatively strong performances largely as an artifact of how steep economic activity declined during the first half of the year. Indeed, coal mine tonnage is expected to increase from the low-60 million short ton total during 2020 before climbing to the mid-70 million short ton level in 2022 and 2023. Export demand for both steam and metallurgical coal is expected to improve from currently weak readings as such as India, Vietnam, Egypt and other countries continue to raise coal consumption to manufacture steel and generate electricity to feed their rapidly expanding economies. However, we do not anticipate coal export tonnage from West Virginia to reach the elevated levels that defined much of early-2017 to mid-2019 time period.
Domestic demand for coal will continue to face significant pressure due in large part to the likelihood of further losses in market share for electricity generation. A significant portion of coal production from Northern West Virginia will be at risk over the next several years as much of it is consumed by coal-fired power plants in the US. However, the region’s coal output should receive a boost in late-2021 and again in 2022/2023. Arch Resources is expected to open their Leer South longwall met coal mine operation in Barbour County by the second half of 2021. At the same time, Japanese investment firm Itochu and other partners have indicated they will build a longwall met coal operation in Barbour County as well by the end of 2022. Combined these two mines are expected to produce roughly 7 million short tons of coal. Several older and smaller coking coal operations in Northern West Virginia are expected to reach depletion over the course of the outlook period, so the overall net gain in met coal output from these two new operations will not be the full 7 million tons, but should still help to offset expected declines in domestic steam coal shipments from the large mines owned by American Consolidated Natural Resources – the company that emerged from Murray American Energy’s bankruptcy proceedings in September 2020.
The outlook is at best mixed for steam and met coal mines in the state’s southern-producing counties. While an anticipated upturn in coal demand from developing economies should raise global market prices, many operations in Southern WV are high-cost mines that are best categorized as swing suppliers that come online in periods of very high market prices. Furthermore, many of the region’s mines are closer to economic depletion, so the base of reserves available for production from southern counties will continue to decline barring any major new developments. For additional discussion of the coal industry forecast and potential impacts of regulatory policy, see the Energy section in Chapter 3.
West Virginia’s natural gas industry is expected to lose some steam in 2021 as the slowdown in exploration and development activity during over the course of 2020 causes depletion rates offset continued productivity gains and re-fracking of existing wells. This weakness should wane in late-2021/early-2022 as continued growth in demand from the electric power sector and the start of production at the Shell cracker plant bolsters NGL production in West Virginia’s northwestern counties. Indeed, marketed production is expected to reach more than 2.9 Tcf in 2023 and continue rising to an annual total of 3.3 Tcf of natural gas volume by the end of the outlook period.
CONSTRUCTION & MANUFACTURING West Virginia’s construction sector is expected to enjoy a healthy increase in activity over the next few years. Despite ongoing regulatory issues and lingering judicial challenges, the forecast calls for the Mountain Valley Pipeline project to be completed by early-2022. Given the project’s advanced state of progress in West Virginia, the overall direct impact on the state’s economy will be much smaller compared to if both the MVP and ACP moved forward. Other natural gas pipeline projects are under consideration in the state and while Berkshire Hathaway decided against keeping the ACP project on the board when it purchased Dominion’s midstream assets, the company did specifically mention that it intended to expand natural gas pipeline capacity and other midstream assets in West Virginia and rest of the Mid-Atlantic region.
Nonresidential construction activity will be located primarily in the Eastern Panhandle and North-Central West Virginia, but additional developments in a handful of areas will buoy the sector as the downshift in pipeline construction activity continues over the next two years or so. While Procter & Gamble’s new $500 million manufacturing facility in Berkeley County is mostly complete on the exterior, additional work on configurations for some of the facility’s production lines will continue until the plant becomes fully operational by the end of this year. In addition, further growth remains likely for the facility’s on-site supply chain network once these other production lines enter operation and we also anticipate the P&G plant to spur additional development in transportation and warehousing activity along the I-81 corridor in the coming years.
Another industrial development expected for Berkeley County within the next couple of years comes from Clorox’s announcement in early-2020 that it plans to build a $190 million facility to produce Fresh Step and Scoop Away cat litter. The $150 million ROXUL insulation materials manufacturing plant in Jefferson County is in the final stages of construction and is working toward an early-2021 completion. North Central West Virginia represents a key location for commercial development activity in the state going forward as well, particularly Monongalia County. For example, new hospital capacity additions from WVU Medicine, Reynolds Hall’s construction as well as the buildout of WestRidge Business & Retail Park will account for a significant amount of new commercial development at least for the next year or so.
Public Infrastructure investment will likely provide a boost to construction sector activity for the next several years. Aside from the short-term lift provided by ramping up routine maintenance and repair work that was hampered in the spring and early summer by COVID-19 pandemic restrictions, the Roads to Prosperity will be the primary mechanism to support new highway construction activity into 2023. The multi-billion obligation bond-supported program will support projects such as the $210 million I-70 bridge repair and replacement in Ohio County, the $176 million Corridor H upgrade in Tucker County as well as several other major projects throughout the state.
OTHER SERVICES Professional and business services sector is expected to add jobs at nearly 2 percent per year during the outlook period. Owing to their heavy utilization by the state’s natural gas-related companies and coal operations, contract labor is expected to account for a large share of growth over the next couple of years or so as energy sector output improves. In addition, an expanded scope for the natural gas industry in the tri-state area beyond up- and mid-stream activities such as drilling, pipeline and processing/storage into a more downstream focus (e.g. the Shell ethane cracker) will benefit the state’s engineering, legal and management consulting businesses that work with the industry.
The forecast calls for education and health services to post job growth just above the overall statewide average during the outlook period. Employment gains in the health care sector over the next year or so will largely reflect hospitals, doctors and other health service-related offices normalizing staffing levels for routine appointments and non-emergency medical procedures as COVID-19 hospitalizations begin to wane from current levels. In addition, WVU Medicine is expected to increase its footprint in the state going forward. For example, the WVU Children’s Hospital at JW Ruby Memorial will not only create a centralized state-of-the-art hub facility to treat children for a wider range of illnesses that would otherwise be sent to Pittsburgh or Cleveland. In addition, the facility could also engender future medical research dedicated to children and help to attract renowned researchers and clinicians.
West Virginia’s healthcare services sector does face some downside risks going forward. While latent healthcare demand in the state is higher when compared to most states, owing to an older population with poorer health outcomes, the state’s population losses over the past several decades have left many medical centers to serve areas with low-density populations lacking insurance or rely on publicly-funded systems such as Medicare and Medicaid. With additional population declines expected over the next five years, more providers could face the financial pressures that led to the closure of large hospitals in Fairmont, Bluefield and Wheeling as well as bankruptcy proceedings for Thomas Health. This could result in the loss of additional facilities or to smaller facilities in multiple towns and/or counties to consolidate into larger regional operations.
Among the state’s major service-providing sectors, retail trade is expected to face the most downward pressure on payrolls during the forecast horizon. The relaxation of maximum capacity restrictions at stores and the expectation of new rapid testing, therapeutics and vaccine treatments being introduced and becoming more widely available over the next year or so should alleviate consumer concerns regarding coronavirus. Consequently, these measures would increase the likelihood of consumers returning to in-store shopping in larger numbers, as should the general improvement in economic conditions. Nonetheless, any sustained growth in retail jobs will be more probably for the state’s stronger economic regions and even in these areas the sector’s growth will be hampered by the ongoing shift in consumer spending to online platforms such as Amazon. Also, traditional retailers are increasingly using their own online platforms for direct-ship goods in order to compete with Amazon or to provide contact-less curbside pick-up by consumers.
PUBLIC SECTOR Government payrolls are expected to increase at a rate of 0.3 percent annually through 2025. Public sector employment has suffered some negative effects from the COVID-19 pandemic, though most of the impact has been felt through temporary furloughs by state and local agencies. Direct federal aid to state and local governments for pandemic relief along with expanded unemployment insurance benefits has buoyed budgets thus far and the state’s sizable rainy-day fund has provided additional insurance against weak tax collections. Over the longer term, local governments in many parts of the state face the greatest risks, as their tax bases shrink as a result of structurally lower coal severance tax collections and weaker B&O and property tax collections caused by declining employment and population levels.
UNEMPLOYMENT After averaging less than 5 percent at the close of 2019, West Virginia’s jobless rate is expected to average nearly 9 percent during 2020. Of course, this reading is being driven in large part by the double-digit rates of unemployment observed during the second quarter. Forecasting the unemployment rate for small states such as West Virginia is difficult under most circumstances as labor force data (such as the unemployment rate) are often subject to sizable revisions each year; however, current economic conditions make this task even more complicated as economic relationships do not conform quite as well to their traditional patterns. With that said, the baseline forecast calls for the unemployment rate to decline sharply over the next two years, averaging 7.1 percent in 2021 and 6.3 percent in 2022. The rate will continue to track lower over the remainder of the outlook period, ultimately falling to roughly 5.4 percent in 2025.
INCOME Following a 3.7 percent increase in real per capita income during 2018, the pace slowed to 1.9 percent in 2019. The completion of natural gas pipeline construction projects in late-2018 and early-2019 weighed on income gains as did an abrupt downturn in the coal industry during late-2019. Real per capita income growth is actually expected to accelerate to more than 7.5 percent in 2020, largely as a result of pandemic relief payments provided to households during March and April, as well as $600 per week supplemental unemployment insurance benefits paid out to furloughed workers and even small business owners who have traditionally been omitted from receiving these benefits. With most of these programs having ended and given the uncertainty regarding the timing and magnitude of additional federal pandemic relief, the forecast calls for per capita income to decline roughly 5 percent during 2021. Income growth comparisons become easier as the forecast transitions into 2022 and given the state’s slower rate of job growth during this portion of the outlook period, per capita income growth will average roughly 1 percent per year.
Transfer payments are projected to fall slightly between 2021 and 2025, though the 2021 level is expected to remain somewhat elevated due to persistent levels of unemployment in certain industries plus some form of federal relief payments – though the mechanism and level of these payments are far from certain at the time of this report given gridlock between the two chambers of Congress and the Trump Administration. Focusing on 2022 to 2025, the inflation-adjusted level of transfer payments is forecast to increase nearly 0.7 percent per year and even with this relatively tepid rate of safety net programs such as Medicare, Social Security and disability payments will account for nearly 30 percent of overall personal income. Real wages and salaries to increase by an annual average of nearly 1 percent per year between 2021 and 2025, with the strongest wage gains expected during 2021 and 2022 as several high-wage sectors, notably coal, natural gas and construction, see coincident improvements in payrolls.
Growth in West Virginia’s real per capita personal income will outperform the national average during the initial phases of the outlook period but will begin to trail the nation’s performance by mid-2022. Consequently, with the state expected to see real per capita income rise by 1.4 percent versus 1.7 for the nation, the state’s average income ratio with the US will fall from 76 percent in 2021 currently down to just below 74 percent by 2025.
POPULATION Due to what is expected to be an improvement in its relative economic performance, the fast rates of population declines seen in recent years will likely come to end during the outlook period. Deaths will continue to exceed births in most counties in West Virginia and the margin will widen in some parts of the state over the next five years. At the same time, counties that struggled with steep losses in employment and income should see population levels decline more slowly or even stabilize as labor market conditions improve more broadly. This should at least slow the tide in net-outflows from migration for some counties. At the same time, the state’s primary economic growth centers in the Eastern Panhandle and North Central regions will continue to receive the lion’s share of people migrating into West Virginia. Overall, total population for the state will contract at a rate of 0.2 percent per year, leaving the total number of residents at roughly 1.76 million by 2025.
AGE DISTRIBUTION The state’s population will continue to become increasingly concentrated in the 65-and-older age group. Most of this increase should occur as residents in the 60 to 64 years of age cohort age in place and return migration of older residents moving back to West Virginia to receive long-term medical care or to live closer to family members. Over the longer term, these processes will eventually lead to one fourth of the state’s population being at least 65 years of age.
Forecast Sensitivity Analysis
In addition to the massive economic upheaval the COVID-19 pandemic has already created, a significant amount of uncertainty remains how the pandemic will continue to progress both in the US and other countries. Rather than focusing on the baseline (or likeliest) scenario as we typically do, this section compares the base case against alternative scenarios of economic growth in West Virginia that include optimistic or pessimistic assumptions underlying the US and global economic outlook.
TOTAL EMPLOYMENT Under the baseline scenario, West Virginia is generally expected to follow a V-shaped pattern of recovery, with the overall level of employment returning to pre-pandemic levels in early-2022 but underlying structural and demographic weaknesses in the state will cause employment to fall moderately over the remainder of the outlook period. By contrast, the optimistic scenario calls for employment to recover at an even faster pace thanks to a stronger US economic backdrop created by a faster-than-anticipated deployment of vaccines and therapeutics from multiple companies that will allow a faster end to social distancing restrictions for many industries. Payrolls are expected to recover to pre-pandemic levels by mid-2021 and continue rising at a strong pace until 2023, reaching parity with level of employment seen in 2018.
The pessimistic scenario calls for the state’s economy to struggle beyond the bounce-back in jobs that occurred during the summer months following the end of shelter-in-place orders and relaxation of sector-specific shutdowns. In the context of the pessimistic outlook, vaccine approvals will proceed at a much slower timeline and the US as well as Europe experience a “twindemic” of COVID-19 and the flu in the late fall/winter months, which causes hospitalizations and deaths to spike once again. Social distancing restrictions will have to be tightened as a result and healthcare providers will have to cancel non-emergent care and routine appointments like what occurred in the initial phases of the pandemic response. Ultimately, consumer and business confidence would see significant damage under these conditions and lead to lasting damage to the economy as many businesses would fail and lead to a rash of bankruptcies across multiple sectors. Overall, employment in the pessimistic scenario would improve very slowly between 2021 and 2022 then show limited change over the remainder of the forecast horizon, leaving payrolls 2.5 percent lower than the baseline and 2 percent below pre-pandemic levels.
SECTORAL DIFFERENCES While the differences in overall employment growth are significant, changes in the underlying assumptions between the optimistic, baseline and pessimistic scenarios affect West Virginia’s major sectors in a significant manner. For example, the natural resources and mining sector payrolls are expected to increase nearly 3 percent between the first quarters of 2020 and 2023. By comparison, the sector’s employment levels are expected to increase 8 percent over this same time period, with this scenario likely to produce much stronger demand for natural gas across a range of end-market uses as well as stronger export activity for steam and metallurgical coal. With a pessimistic scenario, global economic growth will fall well short of the baseline, which will in turn weigh on the amount of coal and natural gas needed to generate electricity and manufacture steel, plastics, chemicals and cement.
Consumer-oriented sectors such as retail trade and leisure and hospitality are expected to be the most affected by a pessimistic forecast scenario. Hesitancy on the part of consumers to enter indoor places such as stores, restaurants, casinos and bars due to fear of contracting coronavirus would remain a significant weight on demand. Furthermore, some states and localities would likely implement targeted lockdown measures and strict social distancing protocols in order to limit the potential spread of COVID-19, which ultimately hurt retailers and indoor consumer-facing venues to a much greater extent than other sectors.
Unsurprisingly, the state’s unemployment rate will vary considerably by scenario during the first half of the outlook period. Under the baseline scenario, as mentioned above, the jobless rate is expected to average 7.1 and 6.3 percent during 2021 and 2022, respectively, as normalizing economic conditions help to push down the state’s unemployment rolls. Under more optimistic expectations for the US economic forecast, the unemployment rate will fall even more rapidly, reaching the mid-5 percent range by mid-2022 and averaging nearly 0.8 percentage points below the baseline scenario. Should the economy perform more poorly as is anticipated under the pessimistic forecast scenario, West Virginia’s unemployment rate will be on average 1.3 percentage points higher during 2021 and 2022 and will not fall below 6 percent until 2024.
Chapter III: West Virginia’s Economy: Industry Focus
While 2019 was a solid year for West Virginia’s energy markets, the COVID-19 crisis has upended the sector, sending demand for coal plummeting and the price of natural gas downward over the first half of 2020. Coal production fell rapidly at the beginning of this year, while employment in the industry also fell significantly during this period. Demand declines were led by domestic power producers, with exports of West Virginia coal also falling sharply. Electricity demand also fell over the first two quarters of 2020, with year-over-year electric power production by the state’s coal-fired power plants down by more than 20 percent. Declines were led by demand from commercial users that were shut down by the pandemic.
Employment in natural gas extraction and drilling stayed fell moderately between 2018 and 2019, but natural gas withdrawals continued to increase at a double-digit rate. Jobs in natural gas pipeline construction fell by nearly half between 2018 and 2019 as several large construction projects were completed.
We forecast continued turmoil over our five-year forecast. We forecast a rebound in the coal industry over the next two years as the economy recovers from the COVID-19 crisis, followed by a return to the gradual long-run decline in production and employment that existed before the crisis. In the natural gas industry, we forecast production declines in the next year or so with a return to a positive trend the following four years.
West Virginia’s coal industry began to weaken during the second half of 2019, as declining export activity caught up with continued declines in domestic coal use. Indeed, statewide coal production in 2019 totaled approximately 93 million tons, which was down just 2 million tons (or 3 percent) from 2018. However, the warning signs emerged toward the end of the year and only worsened during the final three months of the year with production dropping 10 percent on a year-over-year basis to about 21 million tons. The fallout from the COVID-19 pandemic sent demand from domestic power generators and overseas importers buying steam and coking coal sharply lower.
As the unfolding COVID-19 crisis prompted widespread commercial and industrial enterprises in March of 2020, coal production fell sharply in the first two quarters of the year. Coal production during the first quarter of 2020 was down by nearly 24 percent on a year-over-year basis, falling from nearly 24 million tons to just over 18 million. Output fell even faster during the second quarter of 2020, coming in at just above 15 million tons, a 38 percent drop from the same quarter in 2019 and one of the weakest quarterly production totals in decades.
Coal employment—including mining and support services—was essentially flat at the end of 2019, rising by about 20 jobs on average over 2018 to 14,136. By mid-2020, employment in the industry had fallen by about 3,000 jobs, a decline of nearly 21 percent.
REGIONAL TRENDS The production declines in the first half of 2020 were spread fairly evenly between the state’s coal regions. Production in northern West Virginia was down by about 32 percent in the first half of 2020, when compared with 2019, for a total production of about 16.8 million tons. Production in the state’s southern coal mines was also 16.8 million tons, a decline of about 30 percent from the first half of 2019. However, employment losses were higher in the southern part of the state, falling by about 2,000 jobs between December 2019 and June of 2020, a decline of about 25 percent. Northern West Virginia experienced a decline of about 1,000 jobs, a decline of 21 percent from the end of the previous year.
Worker productivity continued its gradual decline in the southern part of the state, falling to about 1.8 tons of coal per miner hour in the first half of 2020. While productivity continues to be higher in the northern part of the state, productivity fell sharply in the first half of 2020 to less than 4 tons per worker hour, a decline of about 0.6 tons per hour when compared with 2019.
EXPORTS While coal exports experienced a spike in 2018, they began to taper off the next year then fell steeply in the first half of 2020. The total value of coal exports fell from about $4.4 billion in 2018, to just over $2.2 billion in 2019, a decline of 50 percent. Exports fell again by more than 40 percent in the first half of 2020 to about $715 million, compared with $1.2 billion over the same period the previous year.
Exports to India fell the most in 2019, declining from nearly $974 million to nearly $388 million, a 60 percent drop from the year before. This moved Ukraine into the top export destination, with more than $480 million in exports to that country. However, this figure was down by more than a quarter from the year before, when exports were more than $663 million.
FORECAST Our forecast indicates that the worst may be over for the state’s coal industry. We forecast that the second quarter of 2020 will mark the bottom of production and job losses in the state, and the industry will begin a slow recovery over the course of the next few quarters.
However, our forecast shows that production and employment is not expected to return to pre-COVID levels during the next five years. We forecast production will peak in late 2022 at about 75 million tons annualized, well below 2019’s total volume of 93 million tons. Employment is expected to make a recovery over the next two years but remain about 2,000 jobs below 2019 levels by the end of our forecast in 2025.
Despite continued growth in West Virginia natural gas production in the first half of 2020, the state’s gas industry is showing signs of significant slowdown as a result of the COVID recession. Natural gas prices in the benchmark Henry Hub and the Marcellus region fell sharply in the first two quarters of this year, and as a result, drilling activity has nearly come to a standstill. Meanwhile pipeline construction activity has also declined as major pipeline projects completed or were abandoned during the 2019-2020 period.
STATEWIDE PRODUCTION TRENDS Natural gas production continued to rise rapidly in 2019, with total production reaching almost 2.2 trillion cubic feet (Tcf), a gain of almost 20 percent over the 2018 total of 1.8 Tcf. Withdrawals continued to be strong in the first two quarters of 2020, with each quarter totaling more than 600 billion cubic feet (Bcf), a 21 percent increase over the same period in 2019. The growth in natural gas production in the first half of the year was enough to push West Virginia above Ohio as the second-largest producer in the Marcellus region. Employment in the core gas industry—including production, drilling, and support services—fell slightly from about 6,700 jobs in 2018 to 6,500 jobs in 2019, a drop of about 3 percent.
However, production is a lagging indicator that comes as a result of drilling activity from months to a year prior. Rig counts from Baker Hughes indicate that new oil and gas drilling and exploration has fallen significantly over the first half of 2020. The number of active rigs peaked at 20 in the second quarter 2019, but were down to about 5 by the third quarter of 2020. Meanwhile, natural gas prices at the Tennessee Zone 4 hub that serves the Marcellus region fell by an average of 40 percent in the first half of the year, from an average of $2.35 per thousand cubic feet (Mcf) in 2019 to $1.40 in 2020. Local prices were down further than the benchmark Henry Hub, which fell by about 35 percent. While oil and gas employment data was not yet available as of third quarter 2020, these indicators suggest that employment has been negatively affected by the COVID recession.
COUNTY PRODUCTION TRENDS The state’s northwestern and Northern Panhandle regions continued to lead in natural gas production in 2019. Tyler County experienced rapid production growth, and had the highest gas production in the state at 432 Bcf, a gain of almost 60 percent over the previous year. Doddridge County also produced more than 400 Bcf, though the county’s production was down about 6 percent from the previous year’s total of 432 Bcf. The state’s Northern Panhandle had some of the highest growth rates in 2019. Brooke and Marshall counties both had close to 70 percent growth, at 59 Bcf and 276 Bcf respectively.
PIPELINE CONSTRUCTION With the completion of the Mountaineer XPress pipeline in early 2019, and the shutdown of the Atlantic Coast Pipeline—ultimately canceled in July 2020—pipeline construction employment in the state fell significantly over the course of this past year. As of the end of 2019, pipeline construction jobs numbered just under 4,000, a decline of 72 percent from the peak in mid-2018 at more than 14,500 jobs. As of third-quarter 2020, the Mountain Valley Pipeline (MVP)—with 2 Bcf/day capacity—was the only remaining large pipeline construction project that was active in the state. Other smaller projects include the Hammerhead Pipeline, which is a gathering line that feeds into the MVP, and the Buckeye Xpress, a 275 million cubic feet/day in the southwestern part of the state. The Supply Header Project—a 38-mile line from Pennsylvania to West Virginia—is also at risk, as it is associated with the ACP.
FORECAST Given the rapid decline in natural gas drilling activity in the state over the first half of 2020, we forecast that production and employment will soon follow suit. Our forecast indicates that natural gas production is expected to begin a slow taper in the third quarter of 2020, reaching a low point in second quarter of next year at 580 Bcf, a decline of 7 percent over 2020 Q2 totals. Production is then expected to recover over the following year, moving back into positive territory in the third quarter of 2022.
We forecast oil and gas employment will fall by more than 1,300 jobs in 2020, a decline of 21 percent over 2019’s average. Employment is expected to remain suppressed through 2022, after which we expect the industry to regain ground, ending our forecast at approximately 6,700 jobs, a gain of about 0.5 percent on an average annual basis.
Electric Power Generation
West Virginia’s Electric Power Generation industry ended 2019 largely unchanged, with a small employment reduction when compared with the previous year. However, since the COVID crisis, the industry has experienced significant declines in power demand from key commercial consumers and, to a lesser degree, the industrial sector. Coal-fired generators supplied by West Virginia mines had significant reductions in capacity utilization in 2019 as the nation continues to switch to natural gas as a primary fuel for power generation.
Total power generation in the state fell to 63 million megawatt hours (MWh) in 2019, a 5-percent reduction from 2018 levels. About 90 percent of the state’s power generation came from coal in 2019, which was a decline of 2 percentage points from the year before. As the COVID crisis hit, many large power consumers, particularly in the commercial sector, sharply reduced demand for the state’s generation. Power generation in the first half of 2020 was down more than 20 over the same period in 2019, falling to 26 million MWh from more than 31 million MWh for the same period in 2019. Coal-fired power fared worse, falling more than 20 percent.
The decline in electric power generation led to a continued reduction in the state’s utilization of existing generation capacity. Average utilization rates for the state’s coal-fired power plants—as measured by plant-level capacity factors —fell from 56 percent in 2018 to just over 53 percent in 2019. More concerning, however, is the fall in capacity factors at out-of-state coal plants supplied by West Virginia’s coal mines. Capacity factors at these plants fell from 41 percent in 2018 to 36 percent in 2019, which could indicate the potential for additional capacity retirements soon.
NATIONAL TRENDS The last two years have been extremely unfavorable for coal-fired power plants nationally, with high numbers of retirements across the US. More than 14 gigawatts of coal-fired capacity retired in each of the years 2018 and 2019, reducing total coal capacity by nearly 11 percent.
Due to these retirements and lower demand for coal-fired power at plants that continued operating, the share of the power market represented by coal continued to fall in 2019. The average share of national market served by coal-fired power was about 23 percent in 2019, a drop of 4 percentage points from the year before. The COVID crisis exacerbated these trends, sending coal-fired power generation sharply lower. By second-quarter 2020, the share of load served by coal-fired power plants fell to 16 percent, which was only slightly above the share for renewable energy. Natural gas also gained significantly, rising to nearly 40 percent of total generation in the first half of 2020, from 38 percent in 2019.
Fuel costs for Natural Gas power plants continued to be favorable in comparison to coal in 2018. The price per million Btu of natural gas averaged about $1.75 for every $1 of expenditure on coal. These relatively low fuel costs, combined with low capital costs and greater flexibility of gas-fired generation, continued to spur investment in natural gas power plants.
REGIONAL AND NATIONAL TRENDS Regionally, FirstEnergy’s decision whether to close the Pleasants Power Station in Pleasants County is indicative of the struggles the coal-fired fleet faces in the state. FirstEnergy subsidiary Allegheny Energy Supply announced in January 2018 that it planned to retire the plant by the end of that year after plans to transfer the plant to another subsidiary, MonPower, was blocked by the US Federal Energy Regulatory Commission. But the plant got a reprieve in October when the company announced it would extend the operation of the plant at least until May 2022.
In July 2019, the West Virginia State Legislature passed a law exempting the station from paying $12.5 million in business and occupation (B&O) taxes to prevent an early closure of the plant and the direct loss of 160 jobs. FirstEnergy plants in Ohio also will remain open following a decision by the state’s Public Service Commission to charge additional payments on ratepayers’ bills. At the same time, FirstEnergy Solutions announced it would accelerate the retirement of the Bruce Mansfield plant in Pennsylvania. Two natural gas power plants in Brooke and Harrison counties are continuing the process of construction, while a third plant—Moundsville Power in Marshall County—is now listed as postponed in federal databases. Longview Power in Monongalia County has also proposed to build nearly 1,300 MW combined-cycle natural gas capacity and 70 MW of solar generation on its campus along with its 710 MW coal generation.
FORECAST Employment in the state’s utilities sector—which includes electric power, water and natural gas companies—was down a little more than 50 jobs for a decline of about 1 percent. Virtually all job losses came in the electric power generation industry.
Though the COVID-19 crisis has reduced electricity demand significantly, as of mid-2020
there are no plans to retire any additional coal-fired capacity in the state, indicating
that workers at these plants will be fairly insulated from the effects of the demand
reductions. As such, we forecast that employment in the overall utilities sector
will dip by 100 jobs—about 2 percent—in 2020, followed by continued gradual decline
over the next four years. Total job losses are expected to equal about 300 jobs
by 2025, a loss of 1 percent per year on average.
West Virginia’s manufacturing sector has recorded moderate employment gains over the past few years. Although the pandemic did lead to some facilities to be closed for a period, either due to shelter-in-place orders or outbreaks in cases, the sector as a whole did not see the large-scale losses employment during the first half of 2020 that plagued other sectors in the first and second quarters of 2020. While the underlying details indicate the sector’s growth is not broad-based in that it has been driven in large part by a handful of large companies opening new facilities and/or expanding their operations in a couple of the state’s stronger economic regions, it marks a significant departure from the sustained job losses the sector experienced between 2001 and 2016.
Even with the challenges the sector has faced, however, manufacturing remains a key component in driving economic activity. In addition, the sector enables West Virginia to engage in global economic trade since many of the state’s leading exports are intermediate and finished manufactured goods. Overall, the manufacturing sector accounts for 7 percent of all jobs and roughly 10 percent of total economic output in West Virginia, but some regions within the state retain a sizable dependence on manufacturing activity where nearly one-fourth of the economic base come from historically-relevant industries such as steel, wood products and chemicals.
CHEMICALS The chemicals sub-sector accounts for roughly one-fifth of jobs in West Virginia’s manufacturing sector’s jobs as well as nearly 40 percent of the value of the sector’s economic output. Most of the state’s chemical manufacturers lie along the Kanawha and Ohio River valleys and produce numerous organic and inorganic compounds that are primarily used in industrial applications, but composite materials such as resins and synthetic fibers also factor into the industry’s portfolio of products.
However, the chemicals subsector contains a wide assortment of industries aside from the manufacture of intermediate compounds for industrial processes, as pharmaceuticals, petrochemicals, soaps and other cleaning compounds also account for a significant (and growing) share of the subsector’s activity in West Virginia. Indeed, the opening and build-out of Procter & Gamble’s $500 million facility at the Tabler Station site in Berkeley County has been the sector’s most significant development in many years. As construction of the facility’s internal operations and campus work toward completion, the workforce has increased to nearly 1,400 people, not including the staffing levels at packaging and logistics operations that are co-located on site. P&G has shifted operations from several of its older plants in the US and Canada to its Martinsburg-area facility, where products such as Bounce, Swiffer, Dawn and several shampoo and conditioner brands are produced. Research and development for these brands is expected to take place on-site as well, allowing the opportunity for skilled job growth at the facility during the outlook period.
The state’s pharmaceuticals industry is almost singularly concentrated in Monongalia County via generic drug-maker Mylan’s production and R&D facilities in Morgantown. However, the company has struggled over the past few years following and two separate mass layoff events and safety protocol violation citations by the US Food and Drug Administration. In addition, the company’s mid-2019 purchase by Pfizer’s spun-off generic unit Upjohn creates some long-term uncertainty about Mylan’s Mon County offices and generic productions operation as mergers can lead to job losses due to consolidation decisions.
TRANSPORTATION EQUIPMENT The state’s transportation equipment subsector is made up of a growing auto parts supply chain scattered throughout the Kanawha and Mid-Ohio River valleys as well as a mix of civilian and defense aerospace equipment production. Auto parts manufacturing has easily represented the fastest-growing portion of West Virginia’s manufacturing base, and in fact is the only one to record job and output growth over the past decade. Overall, auto parts plants have added jobs at a rate of more than 7 percent on an average annual basis since 2008. Much of this growth is connected to Toyota’s ongoing investments at its powertrain manufacturing facility in Putnam County, but other developments such as Hino Motors Manufacturing’s new truck assembly plant in the Parkersburg Area (and its subsequent expansion), and investments by companies such as NGK Spark Plugs and Allevard Sogefi have helped to position West Virginia as a nascent player in the US auto manufacturing supply chain.
Although the state’s aerospace industry has struggled at times over the past decade, conditions have improved during the past couple of years. Indeed, aviation services and aircraft parts construction firms have increased their presence in North Central West Virginia thanks to increased demand for commercial aircraft nationally as well as efforts to build out the region’s commercial travel options. Moreover, the Applied Ballistics Laboratory (ABL) in Mineral County has recorded some job gains in the past year or so thanks to new contract awards for building and testing advanced rocketry and the facility should see additional expansions as Northrop Grumman has announced that it will hire several hundred workers over the next few years.
OTHER MANUFACTURING Other than chemicals and transportation equipment, wood products, fabricated metals, transportation equipment (both auto parts and defense and non-defense aerospace) and primary metals, i.e. steel and aluminum. Combined, these industries accounted for more than three-fourths of the sector’s output and two-thirds of all manufacturing jobs found in the state during 2019.
Many of West Virginia’s manufacturers are procyclical in nature, in that they follow movements in the broader US business cycle. However, several manufacturing subsectors are closely linked to gains and losses in activity within the state’s coal and natural gas industries or to fluctuations in national housing markets. Consequently, the state’s manufacturing base has experienced a significant amount of volatility over the past decade and many parts of the sector have moved in noticeably different directions.
After the housing market collapse prompted massive losses in West Virginia’s wood products and furniture subs-sectors, sawmills, cabinetry, flooring and other related manufacturers experienced a moderate level of growth between 2014 and 2018. Since then, however, homebuilding activity has weakened due to trade-related issues and more recently, major supply disruptions caused by the COVID-19 pandemic. With the pandemic causing sawmills and other operations to shut down in March and April in Canada and the US, capacity utilization across the subsector has remained well below pre-pandemic levels as tree-harvesting schedules, delivery and processing timelines have yet to come back into sync. Finally, Verso Corporation, which operated a large paper mill just across the border in Allegany County, closed its doors in mid-2019. This move will have a ripple effect throughout the sub-sector as the paper mill used debarked and cut wood sheets to produce glossy paper for periodicals.
While fabricated metals production tends to track overall manufacturing activity nationally, the subsector serves as a direct supplier/servicer to the state’s coal industry as manufacturers produce roof bolts for underground mines or service mining equipment for surface and underground operations. Not surprisingly, the subsector has struggled significantly since 2012 as coal production has fallen by such a large margin at many mines in southern West Virginia. The subsector did briefly experience a bounce back in jobs and real GDP that coincided with 2017 to 2019 rebound in coal production. Conditions have deteriorated for roof bolt and other fabricated metals producers tied to the coal industry, initially as global demand for coal weakened and then plunged as a result of the COVID-19 pandemic.
When compared to the past 10 years, the forecast calls for West Virginia’s manufacturing sector to face appreciably better conditions for the next five years. Overall, manufacturing employment is expected to rise at a pace of nearly 0.5 percent per year. Transportation equipment, consisting of both the aerospace equipment and motor vehicles and parts industries, will be the leader among the largest manufacturing subsectors in the state in terms of new job growth during the 2020 to 2025 outlook period (machinery will lead overall).
The commercial aircraft parts and aviation services industry in North Central is slated for additional growth going forward as Pratt & Whitney, Bombardier and others invest in regional operations. At the same time, Northrop Grumman recently announced its intentions to hire as many as 500 workers over the next several years as the company expands the ABL facility to work on new rocket-based technologies for defense programs. West Virginia’s auto manufacturing industry is expected to add jobs at an overall rate of roughly 1 percent annually over the next five years, with most of the increase attributed to Toyota’s $110 million investment at its plant in Buffalo to double production of hybrid transaxles and the additional $40 million upgrade by Hino to its recently-opened truck assembly plant.
CHEMICALS GROWTH The chemicals subsector is expected to make the largest absolute contribution to the sector’s growth over the next five years but will also see the second-fastest rate of growth overall going forward. The largest contributor to the subsector’s growth going forward will be two plants in the Eastern Panhandle. The first of these is the $500 million P&G facility that opened in early-2018 and will continue to build out its product line operations through the latter half of next year. Insulation materials manufacturer ROXUL is building a new $150 million facility in Jefferson County that is expected to come online in early-2021. These two projects are expected to yield a gross increase of nearly 500 jobs in the Eastern Panhandle and could eventually result in larger gains as supply chains are developed along the I-81 corridor. Finally, Clorox’s announcement to build a $195 million facility to produce Fresh Step and Scoop Away cat litter brands in Berkeley County will lift the subsector’s footprint even further over the next few years.
Continued growth in natural gas exploration and development will provide stimulus to the chemicals subsector as well, particularly as downstream development efforts in the tri-state area come closer to reality with the upcoming completion of Shell’s ethane cracker in Beaver County, PA. Prospects for the proposed PTT Global Chemical ethane cracker in Belmont County, Ohio, have become less certain over the past year as one of the investing partners backed out.
OTHER SUBSECTORS Wood products and furniture manufacturers are expected to increase payrolls 0.8 percent annually through 2025. Current supply disruptions caused by pandemic shutdowns throughout North America are expected to be resolved by early- to mid-2021, which should allow sawmills and other early-stage fabricators to benefit from a strong backdrop for new home construction. Also, several whiskey barrel manufacturing facilities and their raw materials suppliers in the Greenbrier Valley will provide a boost.
[ Figure 3.13]
The nonmetallic minerals subsector is expected to see solid gains in output and employment during the outlook period, though most of these gains will occur during the first few years of the forecast horizon reflecting increased spending on highways and other public infrastructure. The fabricated metals industry is expected to see employment post an average annual decline of more than 0.3 percent over the next five years. It should see a moderate increase in payrolls during 2021 and 2022, but given its ties to the coal industry, businesses such as roof bolt manufacturers and machine shops will struggle as overall coal production in Southern West Virginia continues its long-term downward trend and steam coal output in Northern West Virginia weakens as more electricity generation shifts over to natural gas and renewables.
The primary metals subsector is expected to register the largest percentage job losses, though output levels will likely remain more stable during the outlook period. Constellium, which produces aluminum alloy sheets at its Ravenswood facility, will likely enjoy steady gains in business activity thanks to its recent capital investments at the plant and business agreements with Airbus, though problems with non-defense air travel industry due to the COVID-19 pandemic do raise significant downside risks as airlines have experienced massive losses and will remain in trouble until travel volume returns closer to pre-pandemic levels. In addition, the global trade environment poses some downside risk to the subsector’s near-term performance, as the Trump Administration has implemented steel and aluminum tariffs and other nations have retaliated in kind. The 2020 presidential election could alter the course of this risk significantly but given the deterioration of trade relations between many countries across the world over the past few years, the global steel and aluminum trade will face challenges.
PRODUCTIVITY Real manufacturing output is expected to rise at an average annual rate of 2.8 percent between 2020 and 2025, representing a sizable multiple of job growth over this period. Productivity growth is expected to be weak in 2020 due to the scale of jobs created by openings and expansions mentioned in previous subsections. Nonetheless, the average value of real output per manufacturing worker in West Virginia is expected to reach an all-time high by early-2022 and continue to rise at a healthy pace thereafter.
[ Figure 3.14]
CHEMICAL EXPORTS While exports from the state’s chemicals industry briefly overtook coal as the largest export source in 2016, it has fallen back into the previous ranking it held between 2008 and 2015 as the number two export industry in each of the last two years. Chemicals exports have been remarkably stable thanks to steady levels of demand for the wide array of commercial- and industrial-use resins and polymers produced by chemicals manufacturers throughout the Ohio and Kanawha Valleys. Overall, chemicals exports amounted to more than $1.5 billion during 2019 - a $200 million drop from 2018 – but still more than 40 percent of the state’s manufacturing sector export base. Shipments are expected to decline by nearly 5 percent in 2020, though this is largely tied to the weakness in the global economy and the broader drop-off in global trade activity caused by the COVID-19 pandemic.
OTHER MANUFACTURING EXPORTS Aside from chemicals, exports of other manufactured goods from West Virginia totaled about $2.2 billion in exports in 2019, down slightly from the previous year. Industrial machinery and an array of transportation equipment (car engines, aircraft parts) comprise a significant share of the goods exported by West Virginia companies. Exports of machinery inched higher in 2019 and preliminary data through the first half of 2020 indicate machinery export shipments should decline in 2020. Transportation equipment posted a 20 percent increase in export value during 2019. Exports of aluminum alloy plates typically rank as one of the top five leading manufactured goods exported from West Virginia. Shipments rose 18 percent in 2019, but tariffs lodged by the Trump Administration against several major US trading partners linked to disputes over steel and aluminum will curtail metals exports from West Virginia in 2020.
Figure 3.16: Top 10 Manufacturing Exports from West Virginia, 2019
(millions of $)
Share of Total WVMfgExports (%)
Reciprocating Piston Engines
Aluminum Alloy Plates
Civilian Aircraft & Parts
Gas/Smoke Analysis Apparatus
All Manufacturing Exports
Source: US Census Bureau
The construction sector experienced a major transition in activity during 2019. After struggling throughout much of the period lasting between 2012 and 2016, the sector received a major shot in the arm during 2017 as a massive influx of natural gas pipeline development began. By the time pipeline construction activity peaked in mid- to late-2018, it had added nearly 12,000 jobs to sector’s total and boosted total wages from nearly $1.8 billion to $3.4 billion on an annualized basis. Upon completion of two projects of the Rover II and Mountaineer Xpress pipeline projects, and the shutdown of the Atlantic Coast Pipeline (ACP) and Mountain Valley Pipeline (MVP) projects due to legal challenges, the sector saw payroll levels reach what was observed in late-2017 by the fourth quarter of 2019. The COVID-19 pandemic response did lead to some initial layoffs for large-scale projects, but many of these were classified as essential activities so the majority of losses occurred at construction contractors that couldn’t perform work due to shelter-in-place orders and general consumer fears over viral spread.
While pipeline construction activity has been the leading contributor to the sector’s growth in recent years, other segments have posted gains as well. Residential construction payrolls reached their highest level in a decade thanks to a moderate pick-up in homebuilding activity across a few regions. Highway construction associated with the Roads to Prosperity program as well as catch-up maintenance and repair work buoyed the sector as well. Finally, nonresidential construction activity fell slightly in 2019 as major projects such as the P&G facility in Berkeley County and Hino Motors assembly plant worked toward completion during the year.
[ Figure 3.17]
According to data from McGraw-Hill, approximately 2,600 single-family homes were started during 2019 in West Virginia. This marked the state’s highest level of homebuilding activity since 2008 and a double-digit rate of improvement from 2018. The COVID-19 pandemic did weigh on new home construction somewhat during the second quarter, but some initial evidence suggests underlying demand for new single-family homes remains strong as the number of single-family building permits filed on a year-to-date basis through July have increased nearly 8 percent compared to the same period in 2019. Furthermore, mortgage rates have fallen to historic lows in recent months as the Federal Reserve maintains a very accommodative policy stance and federal support has helped to buoy household incomes.
[ Figure 3.18]
Pipeline Construction Activity
Nonbuilding construction projects accounted for most of the growth in construction sector activity between mid-2017 and early-2019, thanks almost entirely to the build-out of natural gas pipeline takeaway capacity for the Appalachian Shale Basin. Growth in overall takeaway capacity was relatively modest during the initial phases of the natural gas boom earlier this decade; however, the massive growth in utility and industrial demand for natural gas throughout the US strained the existing pipeline infrastructure essentially created a bottleneck for the tri-state area’s shale gas supplies, which led to a market glut in 2015 and 2016.
Natural gas pipeline capacity in the state has increased by 10 Bcf/day since 2015 (more than 50 percent), but the largest increased over the past couple of years with the addition of the laterals to the Rover II, Mountaineer Xpress and several smaller scale reversal, capacity expansion projects and condensate lines throughout the state. The cancellation of the repeatedly delayed and increasingly expensive Atlantic Coast Pipeline by Dominion and Duke Energy does hurt prospects for future pipeline development in the region, including completion of the Mountain Valley Pipeline. For a more extensive discussion of pipeline construction infrastructure projects, see the Energy section of this chapter.
West Virginia’s housing market tends to be much less volatile over most business cycles, compared to the nation. Indeed, while the state did see house prices deflate in response to the bursting housing bubble, house price declines were more muted compared to most US states. The overall peak-to-trough decline in home prices in the state was 7 percent compared to an 18 percent decline for the US.  Just as the declines were smaller, house price appreciation has also been noticeably weaker over the past several years. Prices for existing single-family homes in West Virginia have increased nearly 16 percent, compared to a 49 percent gain for the nation since mid-2012.
Of course, changes in house prices have varied quite dramatically in recent years for the state’s different regions, reflecting local supply conditions and underlying demand for homes. After experiencing a dramatic run-up in prices during the bubble years, West Virginia counties that were part of the Hagerstown (Berkeley and Morgan counties), Winchester (Hampshire County) and Washington, DC (which includes Jefferson County) metro areas saw prices plunge by as much as 36 percent. The rate of price declines registered in the state’s other counties that lie within metro areas was significantly smaller in the aftermath of the housing market, ranging from a 2 percent drop in Morgantown (Monongalia and Preston) to a 10 percent loss in Weirton-Steubenville (Brooke and Hancock counties).
Similarly, house price appreciation for the state’s major housing markets has followed different tracks over the past several years. According to data from the Federal Housing Finance Agency (FHFA), the Beckley metro area experienced an outright decline in house prices between mid-2014 and mid-2017—the only major market in the state with that designation during this time period. Since then, it has enjoyed a double-digit rate of growth over the past three years. Overall, house price growth has been the strongest in the state’s counties attached to housing markets in the Greater Washington, DC area and the Northern Panhandle. Morgantown has seen price growth slow in recent years but remains one of the state’s more vibrant markets in terms of construction activity and price appreciation since 2012.
The forecast calls for the construction sector to see job growth average 2 percent per year through the end of 2025. Payrolls are expected to bounce back in 2020 reflecting a return to more normal activity following the pandemic-related closures earlier in the year. Extending beyond 2021, however, the outlook is somewhat mixed. Energy infrastructure development took a hit with the cancellation of the ACP project and the state’s remaining major pipeline project, the Mountain Valley Pipeline, remains at risk. The coal industry will provide a boost to energy-related construction activity during 2021 and 2022 thanks to the addition of two new longwall coal mines in North Central West Virginia.
Continued growth in the tri-state area’s natural gas industry should advance and produce additional opportunities for new commercial and industrial activity, particularly as the Shell ethane cracker moves closer to completion. The proposed cracker facility in Belmont County, Ohio, has faced setbacks in recent months with the loss of the project’s South Korean partner company as well as some underlying deterioration in global market conditions for NGLs. Nonetheless, we still expect growth in the tri-state area’s emerging downstream natural gas industries to continue going forward as global use of plastics expands further.
Public infrastructure investment will buoy the sector over the next few years. Recent weakness in severance tax collections, the disappearing windfall of revenue created by pipeline construction activity and sizeable increases in baseline spending on some areas will hamper the state’s fiscal situation over the next couple of years, particularly if the COVID-19 pandemic does not dissipate within the next year or so. The addition of more than $1 billion in road bond funds will provide support for numerous major infrastructure projects in the state over the next several years, including crucial portions of Corridor H, I-70 bridge repair in the Northern Panhandle and highway capacity in North Central West Virginia.
The extent to which infrastructure boosts overall construction activity is subject to some downside risks. Potential constraints to the industry include future progress in combating the COVID-19 pandemic, additional global trade disputes on steel and other commodities, the possibility for rapid growth in labor and materials costs in large capital projects. Finally, the outcome of the 2020 presidential election could also have appreciable impacts on infrastructure spending and development going forward.
The Eastern Panhandle is also expected to be a key area for construction over the longer term, as the P&G facility and will likely help to facilitate the development of the region’s manufacturing and distribution supply chain. Furthermore, the Eastern Panhandle Expansion pipeline project will improve the area’s attractiveness as it opens access to natural gas supplies for industrial and commercial customers. Finally, the Eastern Panhandle will also remain the state’s fastest-growing area in terms of population over the next five years.
In terms of the residential construction activity statewide, the forecast calls for single family housing starts are expected to increase at an average annual rate of more than 2 percent for the state as whole between 2021 and 2023. These gains will be centered in the state’s strongest economic regions, such as the Eastern Panhandle and North-Central WV, and this underlying demand for housing created by rising income levels and consistent in-migration of new residents will bolster house prices by a rate of nearly 2 percent annually during the outlook period.
Chapter IV: Government in West Virginia
As reported in previous sections, government is the largest employer in West Virginia, accounting for about one-fifth of all jobs in the state.  Further, total state and local government spending in the state is equivalent to more than 26 percent of West Virginia’s total personal income, and the US federal government transfers a significant amount of income into the state. Taken together, it is clear that government has a significant economic influence in the state, and as such, in this section we explore the role of government in West Virginia in two ways: First, we detail the size and composition of state and local government activity in the state. Second, we consider public assistance in West Virginia that is provided by the US Federal Government in conjunction with the State of West Virginia.
West Virginia Government
GOVERNMENT SIZE As illustrated in Figure 4.1, West Virginia ranks in the lower half of US states in terms of the size of overall state and local government when measured as total spending on a per capita basis. Twenty-one states have smaller state and local governments when measured by this metric.  However, it is also important to consider government spending measured relative to state personal income, especially since personal income per person in West Virginia falls below the national average. As reported in Figure 4.2, West Virginia’s state and local governments are larger than average when total spending is measured relative to personal income. Total state and local government spending in West Virginia is more than 26 percent of state personal income, compared to the US average of 22 percent; indeed, only eight states have larger governments by this metric. Overall, the answer to the question “How large is state and local government in West Virginia?” is mixed depending on the metric used: The absolute size of the government is relatively small, but a relatively large portion of the state’s limited resources are devoted to government expenditures.
EXPENDITURE COMPOSITION In Figure 4.3 we report the composition of state and local government spending in West Virginia. As illustrated, West Virginia devotes the largest share of its government resources to social welfare programs, such as Medicaid and the State Children’s Health Insurance Program (SCHIP). West Virginia governments devote 32 percent of their overall spending to this category, compared with a national average of nearly 27 percent. West Virginia devotes nearly 30 percent of its overall government resources to education services, above the national average of around 28 percent. West Virginia governments direct 9 percent of their expenditures to insurance trust expenditures for public employees, which is slightly below the national average of nearly 10 percent. Further, governments in the state focus relatively heavily on transportation spending. In West Virginia 7 percent of total spending goes to transportation-related projects, compared to a national average of just under 6 percent.
EXPENDITURE AND REVENUE GROWTH In Figure 4.4 we report the growth in state and local government expenditures per person in West Virginia over the past few decades. As illustrated, West Virginia governments have increased their aggregate size from around $5,700 in total spending per capita in 1990 to just over $10,000 by 2017, in inflation-adjusted terms. However, over the entire period, West Virginia governments have remained below the national average in terms of spending per capita. In Figure 4.5 we report revenue collection for the state government only. Here we see very steady revenue collection from 2012 through 2018 (not accounting for inflation), followed by a noticeable jump in the 2019 fiscal year and then some decline in the 2020 fiscal year.
OWN SOURCE REVENUE In Figure 4.6 we report state and local government own-source revenue per capita across the 50 states. Here West Virginia falls in the lower half of states based on this metric (10 other states have lower own-source revenue on a per capita basis). The fact that West Virginia is relatively low in terms of own-source revenue, compared to total expenditures per capita, is driven by the fact that West Virginia receives an above-average share of its revenues from the US Federal Government.
REVENUE SOURCES Figure 4.7 illustrates the sources of West Virginia state and local government revenue. West Virginia receives the largest share of its total revenue from the US Federal Government. Overall, 26 percent of total revenue received by West Virginia governments is a federal transfer, which is significantly higher than the national average of 18 percent. West Virginia governments are in alignment with most states in terms of their reliance on sales taxation: West Virginia governments derive 14 percent of their total revenues from sales taxation, which is slightly below the national average of nearly 15 percent. Similarly, West Virginia governments derive 9 percent of their total revenues from individual income taxation, slightly below the national average of nearly 10 percent. In slight contrast, the reliance on the property tax in West Virginia—less than 9 percent of total revenue—falls short of the national average of more than 13 percent.
STATE SHARE OF TOTAL SPENDING In Figure 4.8 we report the share of total state and local government spending in a state that is directed from the state government. As illustrated, West Virginia is fourth-highest among the states in terms of this metric. This indicates that West Virginia is a relatively centrally structured state with the state government taking on relatively more responsibility, and leaving relatively less responsibility to the local governments, compared to the national average.
Public Assistance in West Virginia
Total transfer payments made in West Virginia in 2019 amounted to around 29 percent of personal income in the state, as depicted in Figure 4.9. That figure has increased noticeably over the past decade or so. Further, transfer payments in West Virginia are substantially higher as measured against personal income when compared to the national average; for the nation as a whole, transfer payments were equivalent to 17 percent of personal income in 2019. Indeed, the 29 percent figure placed West Virginia highest among the 50 states in 2019 in terms of reliance on transfer payments.
In Figure 4.10 we disaggregate transfer payments into various broader categories. As illustrated, social security is by far the largest individual program, accounting for over 36 percent of total transfer payments made in West Virginia in 2018. Medicare and Medicaid came in second and third, accounting for around 25 and 20 percent of total transfer payments, respectively. All other transfer programs pale in comparison to these three when represented as a share of total expenditures in the category. The Supplemental Nutrition Assistance Program (SNAP) in the state comes in a distant fourth in terms of its spending share, accounting for two percent of total transfers.
It is interesting to note how the composition of transfer payments has evolved over the past 25 years. Spending on Medicare and Medicaid has increased substantially since 1993 as a share of total transfer payments. Social Security spending has fallen slightly in relative terms, along with all of the various other government retirement and disability programs reported.
In Figure 4.11 we illustrate the composition of transfer payments nationally. The figure illustrates a significant degree of similarity to the pattern observed in West Virginia in terms of the size of relative programs and in terms of the evolution of spending patterns over time.
Figures 4.12 and 4.13 illustrate the size of specific public assistance programs in West Virginia. In Figure 4.12, we report the number of individuals who receive benefits from specific public assistance programs in West Virginia. In Figure 4.13 we report the share of the population receiving benefits from each program, and we offer a comparison to the national share. With 476 thousand recipients, Social Security benefits are enjoyed by the largest number of West Virginians, representing nearly 27 percent of the state’s population. This figure is substantially higher than the corresponding figure at the national level of 19 percent, largely due to the state’s older population.
The SNAP program has the second highest number of recipients at 321 thousand, or around 18 percent of the state’s population. This figure is also higher than the national figure of around 13 percent. Participation in all other transfer programs in West Virginia pales in comparison to these largest two. Supplemental Security Income comes in at a distant third with 72 thousand West Virginians participating in a typical month in 2018. A larger share of West Virginians participate in all of these transfer programs compared to the nation, with the exceptions of the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).
Figures 4.14 and 4.15 examine the receipt of unemployment insurance benefits in West Virginia. As illustrated, the duration of unemployment insurance benefits fell significantly between 2010 and 2012, and again since 2017. As of the most recent data (before the COVID pandemic), the figure stands at the lowest level observed in nearly a decade. For 2017, the average unemployment insurance recipient received benefits was around 14 weeks, less than the comparable figure for the US of 15 weeks.
In Figure 4.15 we illustrate the average weekly unemployment insurance benefit amount. As illustrated, benefits have risen in nominal terms since 2001, except for a drop during 2009-2010 and again in 2017 as the economy improved. Overall, the typical West Virginian who received unemployment insurance benefits during 2019 received around $323 per week, compared to around $369 per week nationally.
Guest Insight: West Virginia Fiscal Forecast
By Mark Muchow, Deputy Cabinet Secretary, West Virginia Department of Revenue
The West Virginia economic expansion pace slowed in 2019 with estimated real GDP growth of 1.0 percent, 3.5 percent growth in personal consumption, and very little change in overall wage incomes. Trends of lower coal sales, lower energy prices, and lower exports of non-manufacturing goods weighed negatively on employment growth and wage growth. The value of non-manufacturing goods exported, mainly coal, rose by 32 percent in 2018 before declining by 47 percent in 2019 and by an additional 21 percent during the first half of 2020. A slowdown in the global economy resulted in softening demand for steel products and energy products. Excess supply relative to demand led to declining energy prices and financial distress for domestic energy producers. Natural gas prices fell by more than one-third over the year and West Virginia’s domestic steam coal market shrank by roughly 17 percent in 2019 and by more than 30 percent during the first half of 2020 due to the competitive price advantage for natural gas. Most other sectors of the economy were relatively stable with significant growth in public sector highway expenditures contributing to overall growth in economic activity despite a weaker energy sector.
Growth in the economy came to a sudden halt in March 2020 due to the onset of the Covid-19 pandemic and a partial shutdown of various economic sectors to minimize the spread of Covid-19 and to maximize public health safety. A deep two-month recession ensued with the nation’s unemployment rate rising from 3.5 percent in February to a peak of 14.7 percent by April. Policymakers quickly adopted significant fiscal and monetary stimulus programs designed to minimize both short-term and longer-term economic damages associated with the pandemic. On March 18, 2020, the President signed the Families First Coronavirus Response Act (FFCRA). Among other provisions, FFCRA provided for an enhanced Federal Medicaid Assistance Percentage (FMAP) of 6.2 percent retroactive to January 1, 2020. On March 27, 2000, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In addition to various stimulus programs benefiting individuals, businesses, and certain public sector functions, the CARES Act provided direct general aid funds to state and local governments to offset pandemic related costs. West Virginia received an allocation of $1.25 billion for pandemic related expenditures. Economic recovery began in May with sharp gains in employment, personal income and consumption following in subsequent months. Nearly half of the initial loss of an estimated 92,000 payroll employment jobs in West Virginia were recovered by June.
West Virginia General Revenue Fund collections were on a path to meet or exceed year-end Fiscal Year 2020 estimates as of March 31st with cumulative collections of $3.3 billion ahead of prior year receipts, which was a 0.3 percent increase. In addition, the fourth quarter Fiscal Year 2020 revenue estimate was 6.2 percent less than actual revenues received in the prior year. The lower estimate was attributable to an expectation of lower year-end annual income tax payments following higher than usual income tax revenue gains in the prior year and lower severance tax revenues associated with a weakening energy sector. The combined revenues for the eight largest sources of revenue (i.e., personal income tax, consumer sales tax, severance tax, B&O Tax, corporation net income tax, insurance premium tax, tobacco products tax, and excess lottery fund transfers) were estimated to decrease by 7.0 percent from prior year receipts. Due to the economic impact of the pandemic and a related decision to defer payment of estimated and annual income tax return payments due between April and June to July, actual revenue collections for these revenue sources fell by nearly 27.5 percent from the prior year. As a result, the State suddenly faced a projected year-end budget gap above $300 million. Roughly one-third of the gap was due to revenue decreases associated with less economic activity and the remainder was due to the deferment of $200 million in income taxes due between April and June to July of the following fiscal year.
The implementation of a combination of various one-time revenues and expenditure authorization reductions resulted in the elimination of the projected budget gap. The major one-time revenues included $23 million from the Income Tax Refund Reserve Fund, nearly $16 million in accelerated retail liquor license renewal fees, and $57 million in CARES pandemic reimbursement funds. Expenditure authorizations were reduced by $199 million, including $13 million in funds that would have otherwise expired at year end and $186 million in Medicaid. The reduced general revenue allocation for Medicaid was replaced with funding from available reserve funds and funding associated with the enhanced FMAP. There was no reduction in any government services. These actions effectively closed the Fiscal Year 2020 budget gap. In addition, lower than anticipated government expenditures during the year resulted in a year-end budget expiration of nearly $28 million and a net budgetary surplus of the similar amount for Fiscal Year 2020. Half of the surplus was deposited in the State’s Revenue Shortfall Reserve Fund, $6 million was appropriated by the Legislature for the Milton Floodwall Project and $8 million remains for future appropriation.
Final Fiscal Year 2020 General Revenue Fund collections, inclusive of the one-time gap-fill revenues, totaled nearly $4.5 billion. Collections fell below original estimate by 4.2 percent and below prior year receipts by 5.5 percent. Severance tax collections fell by 42.3 percent due to lower coal sales and a sharp decline in natural gas prices. Personal income tax collections fell by 7.1 percent due to a shift of roughly $144 million in tax payments due in the April-June period to July of Fiscal Year 2021 and a 1.9 percent decline in wage withholding taxes. After rising modestly during the first nine months of the fiscal year, income withholding tax collections fell by 10.4 percent during the final three months due to temporary business closures and the sharp rise in unemployment brought on by the pandemic. Corporation net income tax collections fell by 23.3 percent due to a shift of roughly $56 million in payments due in the April-June period to July of Fiscal year 2021. Consumer Sales Tax collections finished the year up by 1.2 percent, but still $3.7 million below estimate. After rising by 2.3 percent during the first nine months of the fiscal year, sales tax collections fell by 7.8 percent in April and by 6.9 percent in May. However, federal stimulus payments helped boast May retail sales and resulting June sales tax collections by 6.5 percent. In addition, consumer spending shifted away from leisure and hospitality services, dining and apparel to food stores, and home improvement stores. There was also a greater shift away from local box stores to e-commerce shopping.
The official Fiscal Year 2021 General Revenue estimate of more than $4.56 billion, developed in November 2019 and updated in March 2020, is nearly $80 million above actual Fiscal Year 2020 General Revenue Fund collections. The Fiscal Year 2021 revenue estimate, established prior to the onset of the pandemic, does not account for the deferral of $200 million in income taxes from Fiscal Year 2020 to Fiscal Year 2021. Collections for key revenue components, including severance tax and income tax, will likely be less than originally projected in Fiscal Year 2021 due to changes in the direction of the economy as the result of the pandemic. However, the additional $200 million in deferred income tax collections should limit any potential revenue shortfall as compared with estimate to a manageable level. Due to continued weakness within the energy sector, the revenue estimate for this year is also nearly 4.1 percent below actual collections for Fiscal Year 2019. In addition to General Revenues, the state budget relies on roughly $463 million in the estimated state share of lottery funds deposited in either the Lottery Fund, the Excess Lottery Fund, or the General Revenue Fund in Fiscal Year 2021. The Lottery Fund projections are up more than $73 million from actual revenues in the prior year. The increase is largely associated with additional revenue expectations from the upcoming 10-year limited video lottery retail license rebid.
The West Virginia economy is expected to be on a gradual path of recovery from the pandemic recession in the coming year. Significant public highway construction activity funded with bond proceeds under the governor’s Roads to Prosperity Program will provide some stimulus, especially in the construction sector. Certain manufacturing industry expansions around the state should also provide some employment growth along with a rebound in the health care sector employment. Some employment recovery within the hard-hit retail and leisure and hospitality sectors should also occur, particularly with the anticipated development of vaccines and other effective treatments against the virus. However, tax revenue growth will continue to be constrained by low energy prices, sluggish exports, and the lower demand for domestic steam coal.
The base budget expenditures for Fiscal Year2021 from General Revenues and lottery revenues are $5.04 billion, $90 million less than the base budget expenditures included in the Fiscal Year2020 budget of $5.13 billion. The slight downward adjustment in base budget reflects some Medicaid savings associated with implemented managed care programs, some decline in Medicaid enrollment associated with an improving economy, and benefits from an enhanced FMAP. Over a four-year period, West Virginia’s FMAP rate increased from 71.80 percent in Federal Fiscal Year 2017 to 74.99 percent in Federal Fiscal Year 2021. The enacted Fiscal Year 2021 budget does not include additional federal Medicaid funds associated with the additional 6.2 percent FMAP as enacted by Congress in mid-March and made retroactive to January 1, 2020. The enacted budget includes a pay raise for corrections officers and additional funding for the Medicaid I/DD Waiver Program and social services.
The basis of the current budget outlook for Fiscal Years 2021 and 2022 is a forecast of gradual recovery in the state economy from the depths of a sharp two-month pandemic recession with a gradual rise in employment and wages to levels approaching or exceeding 95 percent of the base in place prior to the onset of the pandemic. The energy sector may pose some additional drag on tax revenues at least in the short-term due to falling prices and weak demand. However, some upturn in energy activity from the current trough is possible by the end of the forecast period. Some depreciation in the dollar combined with a gradual global economic recovery could be a boast to foreign goods exports. There remains significant uncertainty over the direction of the pandemic and its impact on the economy and future federal fiscal policy. Therefore, revenue volatility will remain above average over the next two years with greater propensity for both significant upward and downward collection trends within short periods.
Chapter V: West Virginia’s Counties
While statewide figures reflecting West Virginia’s economy are important, it is important to recognize that they mask significant economic and demographic variations across the state’s regions and counties. As such, in this chapter we illustrate several key economic statistics performed during the past decade across each of the state’s 55 counties and how these measures are expected to perform from a geographic perspective over the next five years.
Substantial amounts of federal government relief were provided during the first half of 2020 to offset income losses associated with the COVID-19 pandemic. Consequently, county-by-county comparisons for real personal growth in figures 5.6 and 5.7 will cover the 2021 to 2025 time period to avoid the potential for misleading interpretations of a given county’s expected path of income gains during the outlook period.
Chapter VI: Small Business Activity in West Virginia
The issue of disparities across racial groups has received a great deal of attention in the United States in recent months. It is clear that a variety of outcome measures – including economic outcomes – vary significantly across racial groups. This attention has served to spark a renewed conversation in the nation surrounding the longstanding causes of these disparities and the best solutions to achieve a higher level of equality and justice in the long-run. Undoubtedly the issues surrounding these causes and solutions are complex; we only just begin to address these myriad issues here. Rather, in this chapter we present a brief snapshot of a few fundamental economic outcome measures across racial groups. This presentation is intended to inform the reader of these basic facts to serve as a foundation and a motivating factor to further research these inequalities and to find solutions over time. Our presentation focuses almost exclusively on national-level statistics as there exists a dearth of race-related economic statistics for West Virginia specifically.
In Figure 6.1 we begin with a presentation of median household income across racial groups. As illustrated, the median household income across all racial groups was just over $63 thousand for 2018. Asian households far exceed the average, with a median household income of over $87 thousand. In contrast, Black and Hispanic households fall short of the overall average. Hispanic households post a median income of nearly $52 thousand, coming in at around 81 percent of the overall median. Black households report a median income of $41 thousand, or 66 percent of the overall median. Stated differently, the median Black household receives two dollars in income for every three dollars received by the median household across all races. Further, this general pattern has been quite consistent over the long run.
One potential driver of the disparities reflected in Figure 6.1 could be variation across geographic region. For instance, if a certain racial group tends to live in a region of the county that has a lower median income overall, that could explain part of the disparity illustrated. As such, in Figure 6.2 we illustrate the ratio of the median income for Black households relative to the median income for all households across the four major regions of the nation. For the most recent year that data are available, Black households earned the most relative to the overall regional median in the South. There Black households earned nearly 72 percent of the overall median. The figure was lowest in the Midwest, where Black household median income was around 57 percent of the overall median. The figure is largely stable over time, although there is a fair amount of variation in the West.
In Figure 6.3 we illustrate how median household income across the various racial groupings for the U.S. and for West Virginia specifically.  As illustrated, median income is lower in West Virginia for all racial groups compared to the nation. As in the nation altogether, Asian households receive the highest median income in West Virginia compared to the overall state median. In contrast to the nation, however, Hispanic households in West Virginia receive slightly more than the overall statewide median. Similar to the nation, Black households in the state receive less income than the state median. However, in the state, the income gap between Black households and the overall median is slightly smaller compared to the nationwide gap.
In Figure 6.4 we consider unemployment across the various racial groups. Of course, unemployment has skyrocketed across all groups in recent months because of the COVID-19 pandemic; we focus instead on trends that generally held before the recent crisis. Looking at the end of 2019, Black men and women posted an unemployment rate of 5.6 percent, compared to an overall unemployment rate of 3.5 percent. Hispanic men and women came in at 4.1 percent at that time. Asian men and women have consistently posted the lowest unemployment rate across all groups. As the overall economy improved over the decade that we illustrate (ignoring 2020), the unemployment gap shrunk consistently and considerably.
In a similar vein, in Figure 6.5 we illustrate labor force participation across racial groups. Similar to our approach with unemployment, we focus on the pattern that existed at the end of 2019 and ignore the significant shock that has occurred due to the current pandemic. At that time, the overall labor force participation rate was just over 63 percent, and white households were almost identical to the overall average. Hispanic men and women posted the highest labor force participation rate at nearly 68 percent. The labor force participation rate among Black households was just under 63 percent – a narrow gap of less than one percentage point that had improved noticeably over the decade illustrated.
Education is potentially one important driver of the disparities considered so far in this chapter. If educational opportunities are limited for one or more racial groups, then this can contribute to persistent economic inequities toward that group. As such, we consider a brief examination of educational attainment across racial groups. As illustrated in Figure 6.6, there are clear and significant differences in education attainment present. Forty-one percent of White household heads hold at least a bachelor’s degree, compared to 26 percent and 21 percent of Black and Hispanic household heads, respectively. All three groups fall well short of Asian households, where 63 percent of household heads hold at least a bachelor’s degree. Conversely, the share of household heads who hold only a high school diploma or less than a high school diploma varies similarly across all four major racial groups.
Overall, Figure 6.6 seems to make it clear that diminished educational opportunities for Black and Hispanic households are one contributor to the disparities in economic outcomes illustrated above. However, to provide a more in-depth overview, in Figure 6.7 we illustrate median household income across racial groups for only those households where the household head holds at least a bachelor’s degree. Here we see that Black households with a bachelor’s degree post a median income of just under $76 thousand, compared to the overall median for just under $102 thousand. This reflects a median income gap of around 25 percent even when restricting our examination to only those households with a college degree. In a similar vein, median income for Hispanic households with at least a college degree comes in at around 85 percent of the overall median.
In Figure 6.8 we provide a similar examination of median household income, but here for households with only a high school diploma. Here we find that Hispanic households are almost exactly at the median across all households. However, Black households with only a high school diploma receive only around $31 thousand, around one-third less than the overall median of around $46 thousand. Overall these figures illustrate that, while limited educational opportunities is one contributor to racial inequities, there are clearly more issues beyond education.
 This section represents the authors’ review, analysis, interpretation, and summary of information presented in the International Monetary Fund’s World Economic Outlook (2017) and IHS Economics’ US Economic Outlook (2017).
 This percentage includes federal government employment in West Virginia, in addition to state and local government employment.
 Census data on state government finances are for the 2016 fiscal year. Data for the 2017 fiscal year are not scheduled for release by the US Census Bureau until Fall 2019.
 The U.S. data presented in Figure 6.3 do not match the data in Figure 6.1. Data in Figure 6.1 are derived from the Census’ Current Population Survey while data in Figure 6.3 are derived from the Census’ American Community Survey. The primary difference between the data sources is that the latter relies on a five year average whereas the former focuses exclusively on one year.