Chapter III: West Virginia’s Economy: Industry Focus
Energy
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.
[Figure 3.1]
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.
Coal
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.
[Figure 3.2]
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.
[Figure 3.3]
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.
[Figure 3.4]
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.
[Figure 3.5]
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.
[Figure 3.6]
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.
Natural Gas
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.
[Figure 3.6]
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.
[Figure 3.7]
[Figure 3.8]
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.
[Figure 3.9]
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.
[Figure 3.10]
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.
Manufacturing
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.
[Figure 3.11]
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.
[Figure 3.12]
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.
Sector Outlook
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.
[Figure 3.15]
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
|
Export Category |
Export Value (millions of $) |
Share of Total WVMfgExports (%) |
|
Reciprocating Piston Engines |
633 |
17.2% |
|
Polyamides |
198 |
5.0% |
|
Aluminum Alloy Plates |
168 |
4.5% |
|
Civilian Aircraft & Parts |
158 |
4.2% |
|
Propylene Copolymers |
127 |
3.4% |
|
Polyethers |
125 |
3.4% |
|
Acyclic Aldehydes |
91 |
2.5% |
|
Polyesters (NESOI) |
88 |
2.4% |
|
Gas/Smoke Analysis Apparatus |
77 |
2.0% |
|
Polyacetals |
65 |
1.8% |
|
All Manufacturing Exports |
3,700 |
- |
Source: US Census Bureau
Construction
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]
Residential Construction
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.
House Prices
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. [1] 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).
[Figure 3.19]
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.
Sector Outlook
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.
[Figure 3.20]