Executive Summary

West Virginia’s economy continues to recover from the initial response to the COVID-19 pandemic, when shelter-in-place orders and broad shutdowns caused state employers to shed jobs at a dramatic pace between mid-February and mid-April 2020. As shelter-in-place orders ended and businesses could re-open at various levels of maximum capacity (depending upon their sectors), employers managed to bring back more than half of the jobs they had previously eliminated by mid-August. Although the state has shown some economic resiliency since March and April, West Virginia’s economy was on somewhat shaky ground before the pandemic started. Payrolls fell during much of 2019 as pipeline construction projects were completed or delayed by legal challenges and few sectors or regions registered enough growth to pick up the slack caused by abrupt loss in economic activity. Overall, this report provides a foundation to understand the long-run economic challenges and opportunities facing West Virginia.

Highlights related to West Virginia’s recent economic performance are as follows:

• After losing nearly 94,000 jobs (13 percent) between mid-February and mid-April, employment in the state rebounded by 57,000 over the mid-April to mid-August time period.
• Sectors most affected by social distancing requirements, namely retail and leisure and hospitality, have experienced the most volatility since the pandemic began. Healthcare services also saw some disruption as providers delayed non-emergent care and routine appointments to limit spread of the virus and allow hospitals to surge bed and ICU capacity.
• The state’s unemployment rate surged to nearly 16 percent in mid-April (rising from just under 5 percent), but has quickly reversed course in the months since, falling to just below 9 percent in mid-August.
• Only 55 percent of West Virginia’s adult population is either working or looking for work. Though an improvement from recent years, this remains the lowest rate of labor force participation among all 50 states and represents a major obstacle to future economic prosperity.
• Per capita personal income in West Virginia increased 3.5 percent in 2019, marking an appreciable slowdown from the 5.9 rate of growth observed in 2018. Per capita personal income in West Virginia stands at 76 percent or so of the national average.
• West Virginia’s real GDP rose 1 percent in 2019, a more than one percentage point drop in the rate of real output growth observed in 2018. The state’s economic volatility in recent years has been driven largely by natural gas pipeline construction and energy extraction.
• Exports from West Virginia declined in 2019 as global demand for coal, the state’s chief export commodity, weakened significantly as the year progressed. Given the global impact of the COVID-19 pandemic on economic activity, exports fell even more sharply in the first half of 2020. Expanding and diversifying the state’s export portfolio is of vital importance to economic development in West Virginia over the long run.

Figure ES.1: West Virginia and US Forecast Summary

	West Virginia		United States
	2009-2019	2020-2025	2009-2019	2020-2025
Population (average annual growth, %)	-0.3	-0.2	0.7	0.7
Employment (average annual growth, %)	-0.5	1.0	1.4	2.1
Real GDP (average annual growth, %)	0.7	1.4	2.3	3.0
Unemployment Rate (annual average at end of time period, %)	5.1	5.5	3.5	3.6
Real Per Capita Personal Income* (average annual growth, %)	0.7	1.0	1.9	1.7

Sources: US Census Bureau; US Bureau of Labor Statistics; US Bureau of Economic Analysis; WVU BBER Econometric Model; IHS Markit

*Note: Per capita income growth covers 2021-2025

[Figure ES.1]

The energy sector is an important driver of economic activity in the state:

• Coal output dipped slightly in 2019, falling to 93 million short tons. However, market conditions differed dramatically between the first and second halves of 2019 as exports slumped and domestic power plants continued to retire coal capacity. Output during 2020 will likely fall to a low not seen in many decades due to the pandemic but will show moderate gains in 2021 and 2022 thanks to a rebound in global coal demand and new met coal mine capacity.
• Given the massive decline in domestic coal use over the past decade, and the fact that it is expected to continue going forward, coal production in West Virginia will likely display even greater volatility from year-to-year as it becomes increasingly attached to the changing global energy and climate policy landscape as well as the global business cycle.
• Natural gas output has expanded at a double-digit rate since late-2016, though withdrawals increased very rapidly in late-2019 to mid-2020. After another anticipated double-digit gain in 2020, production is expected to dip in 2021 due to recent pullbacks in exploration and new drilling activity. The emergence of downstream manufacturing in the Appalachian Basin will support long-term supply growth in West Virginia.

Highlights related to West Virginia’s economic outlook are as follows:

• Employment in West Virginia is expected to reach pre-pandemic levels by late-2022; overall, job growth is forecast to increase nearly 1 percent per year on average through 2025, compared to an expectation of 2 percent for the nation.
• We anticipate growth to occur in energy extraction activity over the forecast horizon; however, despite the likely uptick in coal output over the middle portion of the outlook period, natural gas will account for most of these gains.
• The construction sector will experience some volatility during the outlook period as most of the growth will be tied to public spending on big infrastructure projects . Legal and regulatory challenges remain a downside risk for completion of the Mountain Valley Pipeline and a handful of proposed pipeline projects.
• Manufacturing will trail broader job growth over the five-year forecast horizon, but among the major subsectors, aerospace, automotive equipment and chemicals will be the leaders in job growth going forward.
• The state’s unemployment rate is expected to fall sharply during the first few years of the outlook period before settling in the mid-5 percent range in late-2023.
• After excluding the extraordinary levels of transfer payments in 2020 associated with the federal government’s pandemic support programs, real per capita personal income is expected to grow nearly 1 percent annually between 2021 and 2025.

The Mountain State’s underlying demographics remain a major limiting factor to growth moving forward. Consider the following:

• West Virginia’s population has declined by nearly 65,000 since 2012. We project a slower rate of population losses over the next couple of years that will pick back up over the longer term as the state’s economy lags broader regional averages.
• A positive shock to encourage in-migration is essential to lessen the severity of natural population decline.
• The state has one of the nation’s oldest populations and will see its age distribution continue to skew toward older age groups in coming years.
• Economic development strategies should focus on ways to improve health outcomes, lower drug abuse, and advance educational and vocational training opportunities in the state to make West Virginia’s workforce more attractive to potential businesses.

Economic performance is expected to remain extremely variable across West Virginia’s counties . Consider the following:

• Nearly a dozen counties are expected to either lose jobs or record growth that is less than one-half that of the statewide average. T he highest rates of job growth tend to be in the northern half of the state.
• While the state overall is expected to lose population in coming years, around a dozen counties are expected to add residents during the outlook period. Population gains will be heavily concentrated in North-Central West Virginia and the Eastern Panhandle.
• Policymakers should be keenly aware of significant economic differences across West Virginia and ensure that economic development strategies consider each region’s specific strengths and weaknesses.