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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.

Total Employment Chart showing total employment in West Virginia and US. Employment fell drastically in March due to the COVID shutdown but has started to recover.

[Figure 2.1]

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.

Employment Growth Comparisons - WV, US and Surrounding States Chart showing employment in West Virginia’s fell less than the national average during the first two months of the COVID crisis. Employment in the state has also recovered faster than the natio

[Figure 2.2]

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.

Unemployment Rate Chart showing West Virginia’s unemployment rate started above the US average, but has approximately matched it during the COVID crisis.

[Figure 2.3]

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.

Change in Unemployment Rate - WV and Surrounding States Chart comparing the unemployment rate in West Virginia to surrounding states.

[Figure 2.4]

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.

West Virginia Employment Distribution by Sector (2019) Pie chart showing the distribution of employment in West Virginia. Government is the largest sector with 20 percent of employment.

[Figure 2.5]

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. [1]

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.

: Change in West Virginia Payroll Employment by Sector Chart showing that the Leisure and Hospitality sector had the greatest number of job losses between February and April due to the COVID shutdown.

[Figure 2.6]

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).

: Labor Force Participation Rate, 2019 Bar chart showing that West Virginia continues to have the lowest labor force participation rate of any state in the country.

[Figure 2.7]

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.

Per Capita Personal Income Growth Line chart showing that per capita personal income in West Virginia grew at a rate above the national average between 2016 and 2019.

[Figure 2.8]

Per Capita Personal Income (2019) Map that shows West Virginia’s per capita personal income is in the bottom quartile of US states.

[Figure 2.9]

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.

Average Annual Salary by Sector (2019) Bar chart showing that salaries are highest in the Utilities and Natural Resources and Mining sectors.

[Figure 2.10]

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.

Real Gross Domestic Product Growth Bar chart showing that GDP growth in West Virginia has lagged the national average between 2012 and 2019.

[Figure 2.11]

: Real GDP Growth Line chart indicating that Natural Resources and Mining has driven GDP growth since 2013.

[Figure 2.12]

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.

Total Population Line chart showing that West Virginia’s population has declined since the end of 2011.

[Figure 2.13]

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.

Summary Population Profiles Table describing the state and US population.

[Figure 2.14]

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.

All-Cause Mortality Rates, 2018 Map showing that all-cause mortality rates in West Virginia are among the highest in the country.

[Figure 2.15]

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. [2] 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.

Employment Growth Forecast Line chart showing the BBER forecast for employment. West Virginia is forecast to experience a rapid recovery in 2021, followed by slower growth through 2025.

[Figure 2.16]

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.

West Virginia Employment Growth Forecast by Sector Bar chart indicating that employment growth from 2020-2025 is forecast to be highest in the Leisure and Hospitality sector, followed closely by Natural Resources and Mining.

[Figure 2.17]

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.

Unemployment Rate Forecast Line chart showing the BBER forecast for unemployment in West Virginia. The state is forecast to have a rapid decline in unemployment through the end of 2021 followed by a flattening through 2025.

[Figure 2.18]

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.

Forecast Growth by Major Source of Real Personal Income, 2021-2025 Bar chart showing that proprietors income is forecast to be the fastest growing source of income between 2021 and 2025.

[Figure 2.19]

Share of Personal Income by Component Pie chart showing that transfer payments are forecast to grow from 22 percent of personal income in West Virginia in 2005 to 28 percent in 2025.

[Figure 2.20]

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.

West Virginia Per Capita Personal Income Relative to US Average Line chart showing per capita personal income in West Virginia is forecast to fall to about 73 percent of US PCPI by 2025.

[Figure 2.21]

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.

West Virginia Population Growth by Age Group Bar chart indicating that while total population growth in West Virginia is forecast to decline between 2020 and 2025, the number of residents who are 65 years and older is expected to grow.

[Figure 2.22]

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.

Employment Forecast – Baseline vs Alternative Scenarios Line chart showing optimistic and pessimistic scenarios relative to the baseline forecast.

[Figure 2.23]

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.

Employment Change by Sector – Baseline and Alternative Scenarios Bar chart indicating that the Natural Resources and Mining sector would benefit the most in the BBER’s optimistic scenario, while Retail, Leisure, and Hospitality would fare the worst in the

[Figure 2.24]

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.

: Unemployment Rate Forecast – Baseline vs Alternative Scenarios Line chart showing that unemployment would remain high through much of 2021 under the BBER’s pessimistic scenario.

[Figure 2.25]