West Virginia Economic Outlook 2022-2026

Greetings! I am happy to present the 2022-2026 West Virginia Economic Outlook to you. My intent is for this document to serve as a thorough and rigorous reference for where our state’s economy is today and where it is likely heading in coming years. And my sincere hope is that you will find this document useful as you lead your business, government agency, or community organization through the economic opportunities and challenges we face in West Virginia.

Since 1948, our mission here at the Bureau of Business & Economic Research, a unit within WVU’s College of Business & Economics, has been to serve the people of West Virginia by providing you, the state’s business, policymaking, and advocacy communities, with reliable and timely data as well as rigorous applied economic analysis. We hope that the data and analysis we provide ultimately enables you to design and implement better business practices and public policies.

Our research is sponsored by public- and private-sector clients throughout West Virginia and nationally. For instance, our recent public-sector clients include the West Virginia Legislature, the West Virginia Department of Revenue, the West Virginia Higher Education Policy Commission, the American Cancer Society, and the Appalachian Regional Commission. We have also been engaged by several private-sector companies in the state.

Please feel free to call on me personally anytime concerning your economic research needs. We are always interested in pursuing new opportunities to provide research and data in areas such as public policy analysis, health economics, energy economics, economic development, economic impact analysis, economic forecasting, tourism and leisure economics, and education policy, among others.

To learn more about our research, to find contact information for myself or any of our staff, or to find an electronic version of this document, please visit our website at https://www.business.wvu.edu/bber.

Sincerely,

John Deskins
Director
Bureau of Business & Economic Research

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Executive Summary

West Virginia’s economy continues to rebound from the COVID-19 recession. The pandemic continues to affect public health, particularly as the Delta strain caused large increases in hospitalizations and deaths, and the economy in perceptible ways but the state has managed to record significant improvement over the past 18 months or so. Indeed, several big-picture measures of the state’s economy have improved enough that they within range or have even surpassed levels seen prior to the pandemic and those that are lagging should reach those levels over the next several quarters. Even though the state’s near-term prospects are positive on balance, some sectors face challenges due to structural issues that existed long before the pandemic while several regions in West Virginia possess limited potential for growth due to a range or economic and demographic factors. Overall, this report provides a foundation to understand West Virginia’s long-run economic challenges and opportunities.

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

• Despite being the shortest official recession on record, employment fell by roughly 94,000 in March and April 2020. As of late-summer 2021, nearly 70,000 jobs have been regained leaving the state at roughly 96 percent of its pre-pandemic level.
• While some sectors have seen activity return to what was considered typical prior to the pandemic, several remain encumbered by supply chain issues, unfilled job openings and worker isolation/quarantines. West Virginia’s healthcare sector has been under significant strain during the pandemic due to high hospitalizations and ICU capacity utilization.
• The state’s unemployment rate surged to nearly 16 percent in April 2020, but has fallen sharply in the months since then, recently falling below five percent for the first time since late-2019.
• 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 nearly 7 percent in 2020, with a large share of that increase coming from federal pandemic relief in the CARES Act. Per capita personal income in West Virginia stands at 76 percent or so of the national average.
• West Virginia’s real GDP plunged 5.5 percent in 2020, which nearly surpassed the cumulative drop in real output that occurred during the state’s protracted bout with recession in the early 1980s. Even prior to the pandemic, the state’s output growth was quite volatile due to natural gas pipeline construction activity and energy extraction.
• Exports from West Virginia declined in 2020 significantly as a result of the pandemic, but shipments of many of the state’s leading exported products have increased sharply during the first half of 2021. Expanding and diversifying the state’s export portfolio is of vital importance to economic development in West Virginia over the long run.

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

• Coal output plunged to its lowest levels in decades during 2020, falling to roughly 60 million short tons. Production has rebounded over the past several quarters, however, and should average in the low- to mid-80-million-ton range during the medium term on the weight of global export demand.
• As domestic demand for West Virginia’s coal continues to shrink, the rising reliance on the global coal trade will likely lead to more year-to-year volatility in production going forward.
• Natural gas output posted another strong year of growth in 2020, increasing 20 percent, and has expanded at a double-digit rate since late-2016. West Virginia recently became the nation’s fifth-highest producing state for natural gas in 2021.
• The emergence of downstream manufacturing in the Appalachian Basin is essential to support long-term supply growth in West Virginia’s natural gas industry.

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

• Employment in West Virginia is expected to reach pre-pandemic levels by mid- to late-2022, estimated to increase nearly 0.9 percent per year on average through 2026, compared to an expectation of 1.4 percent for the nation.
• We anticipate the state’s energy sector will rebound over the forecast horizon, but longer-term prospects are better for natural gas. Coal will benefit from recovering global demand, but domestic coal use is expected to weigh on output as more coal-fired power plants retire.
• The construction sector’s outlook is mixed but should see some benefits from rising public infrastructure spending, particularly at the federal level. The Virgin Hyperloop project will be one of the state’s largest projects on record.
• Manufacturing will trail broader job growth over the five-year forecast horizon, but among the major subsectors, aerospace, automotive equipment and food/beverage will be the leaders in job growth going forward.
• The state’s unemployment situation will likely see smaller changes when compared to the declines observed over the past year. West Virginia’s jobless rate is expected to fall to the low- to mid-4-percent range.
• Real per capita personal income is expected to grow 0.9 percent annually through 2026, as transfer payments decline significantly after the end of most federal pandemic relief in 2021.  

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 73,000 since 2012. Population losses are expected to be smaller in magnitude going forward.
• A positive shock to encourage in-migration is essential to lessen the severity of natural population decline.
• 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 two dozen counties are expected to lose jobs or record growth that is less than one-half of the statewide average. T he highest rates of job growth tend to be in the northern counties.
• While the state overall is expected to lose population in coming years, around 10 counties are expected to add residents during the outlook period. Population gains will be heavily concentrated in North-Central West Virginia and the Eastern Panhandle.
• Policymakers should be keenly aware of significant economic differences across West Virginia and ensure that economic development strategies consider each region’s specific strengths and weaknesses.

Chapter I: The United States Economy

Overview

The United States remains on a path to recovery after the onset of the COVID-19 pandemic caused the nation to experience its most abrupt and severe economic shock in history. After seeing massive collapses in economic output and employment during the second quarter of 2020, some topline measures such as real GDP, consumer spending and business investment have surpassed levels seen prior to the pandemic. Some aspects of the economy, such as payroll employment, still lag pre-pandemic levels, but the increased availability of vaccines and therapeutic treatments has enabled more than three-fourths of the jobs lost during the early pandemic response to be recovered.

Even with these improvements, however, the COVID-19 pandemic continues to exert its influence on the broader economy, especially as new cases and hospitalizations have surged to pandemic-level highs in some states due to the spread of the highly infectious Delta variant. In addition to the impacts associated with the Delta variant surge, the pandemic has thrown global supply chains into disarray for much of the past year and when combined with the release of pent-up consumer demand, price levels for some goods and commodities have risen rapidly over the course of 2021. Finally, labor markets remain encumbered by the pandemic to some extent as employers in some sectors have had to aggressively raise starting wage levels for jobs due to historic levels of unfilled job openings.

Overall, we expect the US economy to remain on a continued path of economic recovery going forward and for a return to pre-pandemic levels of employment by some time around mid-2022. However, the lingering presence of the pandemic remains a source of uncertainty, though its impact is expected to decline further as increased testing, availability of vaccines to younger children and more therapeutic treatments entering the market the burden of COVID-19 disease will be dramatically reduced. In this chapter we: a) explore recent trends in the United States economy; b) provide a forecast of how the US economy is likely to evolve over the coming five years; and c) explore several major challenges that have the potential to threaten the long-run US economic outlook.

Recent Trends and Intermediate-Term Economic Outlook

GDP As illustrated in Figure 1.1, economic output, as measured by real Gross Domestic Product (GDP), fell dramatically in early 2020 due to the outbreak of the COVID-19 global pandemic. While the drop was historic in terms of its speed and depth, real GDP has recovered at a very strong pace over the past several quarters. Indeed, after collapsing by more than 9 percent during the second quarter of 2020, real GDP has rebounded over the past four quarters to the point that it now sits at nearly 1 percent above its pre-pandemic level during the second quarter of 2021. Later in this chapter we return to a broad discussion of how GDP will likely look like as the nation recovers from this pandemic.

PRODUCTIVITY Worker productivity, as measured by output per hour worked, is the fundamental key driver of economic prosperity over the long run. For instance, very high levels of productivity fundamentally explain why nations such as the US and UK enjoy high standards of living while very low levels of productivity explain why nations such as Haiti and Zimbabwe suffer extremely low standards of living. In Figure 1.2 we illustrate the intermediate-run growth in productivity in the US over the last two decades or so. As illustrated, productivity growth has been low by historic standards since 2013. Productivity growth is expected to remain below the 30-year average, and the question of why this is the case continues to be hotly debated among economists and policymakers.

GOVERNMENT SPENDING The recent evolution of government spending in the US is reported in Figure 1.3. Total federal, state, and local government spending, which amounts to approximately one-third of US GDP, declined through the years 2011 through 2014, as the economy recovered from the Great Recession and removed associated stimulus measures. However, government spending again began to grow at a faster pace in 2018 and 2019, followed by rapid growth in 2020. Although not shown, federal spending will be very high for 2021 as well. This much higher rate of federal spending in 2020 and 2021 was the result of very aggressive stimulus measures passed in response to the recent recession.

EMPLOYMENT As depicted in Figure 1.4, the US labor market was in very good shape prior to the pandemic, and in fact was growing at levels that exceed what economists generally perceive as the maximum level of jobs the economy can sustain over the long run (also referred to as “full employment”). Over the course of the initial onset of the COVID-19 pandemic, nearly 25 million people in the US lost their jobs. While the US labor market cannot be strictly defined as that of as a “V-shaped recovery,” the rebound in payrolls over the last year or so has been strong as the most recent reading shows nearly 20 million jobs have been recovered between April 2020 and August 2021. We return to a discussion of the employment forecast below.

UNEMPLOYMENT Turning to the unemployment situation, the national unemployment rate stood at a low of 3.6 percent just before the beginning of the COIVD recession, as noted in Figure 1.5. This was one of the lowest jobless rates experienced since the beginning of modern economic statistics. The unemployment rate skyrocketed at an unprecedented pace, reaching a peak of nearly 15 percent in the Spring of 2020. However, the rate improved rapidly as COVID-based lockdowns ended in 2020 and has continued to improve in 2021. Currently the rate stands in the low-five percent range.

Another important statistic is the share of all unemployed persons who have endured long unemployment spells, which is typically defined as 27 weeks or more. As illustrated, this figure was below 20 percent in early-2020. However, the figure has risen significantly over the first part of 2021, surpassing 40 percent. However, in recent months the figure has started to show signs of improvement, signaling a return to a healthier labor market.

There are two common criticisms associated with the conventional unemployment rate reported in Figure 1.5. The first is that the figure does not account for workers who can only find part-time work but who would prefer a full-time opportunity, often referred to as “under-employed.” The second relates to discouraged workers. Here, the idea is that if one is looking for work for an extended period of time and is ultimately unsuccessful at landing a job, the individual may become discouraged and quit looking for work altogether. When this happens, the person is no longer counted as “unemployed” or part of the labor force at all by the conventional measure, since the conventional measure only considers people who are actively looking for work. For both reasons, the conventional unemployment rate understates the overall severity of the unemployment situation.

In Figure 1.6 we report the conventional unemployment rate (referred to as U-3) along with a measure that also includes discouraged workers and individuals who are only able to find part-time work due to economic reasons (U-6). It is important to note that these criticisms are legitimate and that what many would consider to be “true” unemployment is higher than the conventional statistic indicates. However, it is also important to note that the movement of the two figures over time is quite consistent and despite their level differences, the unemployment situation has improved demonstrably in recent years until the COVID-19 pandemic, regardless of which metric is used.

LABOR FORCE PARTICIPATION The labor force participation rate is a complementary measure to the unemployment rate. The labor force participation rate captures the share of the adult population that would like to work—termed “in the labor force”—while the unemployment rate captures the share of the labor force that is unable to find employment at any given moment in time. Ultimately, the labor force participation rate is a more fundamental descriptor of an economy’s long-run employment situation.

In Figure 1.7 we report labor force participation for the US since 1950. As illustrated, the figure peaked in the late-1990s at 67 percent, fell substantially after 2008, and then maintained stability up until the early-2020. The broad evolution of this figure is largely driven by demographic processes, namely the emergence and aging of “Baby Boom” generation. Notice that the figure began to rise substantially around 1965, when the first of the “Baby Boomers” turned 20

In addition to the baby-boomer effect, the post-WWII structural change in labor force participation rates was driven in large part by large increases in the female labor force that occurred through the mid-1990s. Overall, the recent declines in labor force participation years old. This measure continued to rise through around 1998, when the first of this group turned 55 years old, but then began to decline substantially around 2008—the point when the leading edge of the Baby Boom approached conventional retirement age. The figure fell substantially once again during 2020 as some of the men and women who lost their jobs due to the pandemic left the labor force altogether.

likely present an impediment to the nation’s long-run economic growth potential as fewer workers will be available to support retirees vis-à-vis private pension plans as well as Social Security and other federal programs. Furthermore, many economic challenges below might interact with a lower rate of labor force participation in the long run, leading to a significantly different performance for the US economy over the long term.

The figure once again fell substantially immediately as a result of the COVID-19 recession, as “discouraged workers” left the labor force, reaching a low of just over 60 percent. Immediately after the lockdowns, the figure improved somewhat, but has been roughly stable for the past six months or so. Still the figure falls substantially short of its pre-COVID level.

UNEMPLOYMENT INSURANCE CLAIMS Following up on our discussion of unemployment, in Figure 1.8 we report the number of initial unemployment insurance each week nationally. As illustrated, the figure was very stable at around 230 thousand leading into the COIVD-19 pandemic. The figure skyrocketed to over five million in an extremely short period of time through March and April of 2020. After dramatic improvement as well in late-May and June, we have observed continued improvement and the figure currently stands at around 380 thousand, around 40 percent above its pre-pandemic level.

CONSUMER CONFIDENCE Recessions typically have a catalyst in some exogenous shock (such as the bursting of a housing bubble or high oil prices) but falling consumer sentiment is often the key driver of demand during recessions. Typically, the initial recession catalyst reduces demand directly, and thereby output. This drop in output reduces confidence, which reduces demand further, and a vicious cycle ensues. On the upswing of the business cycle, an economic system is unlikely to ever achieve its full potential until confidence is restored. 

As reported in Figure 1.9, US consumer confidence fell markedly in early-2020 in response to the COVID-19 pandemic. Further, the figure has shown noticeable improvement during the recent recovery but remains noticeably below its level from early-2020.

Economic Outlook

GDP OUTLOOK As described above, economic forecasting is especially difficult currently given the nature of the current recession and the fact that much of the continued recovery depends on public health matters, rather than economic matters. As illustrated in Figure 1.10, our forecast calls for continued rapid growth in GDP through the end of 2022, followed by return to the longer-run average rate of growth through the end of the recovery period.

EMPLOYMENT and UNEMPLOYMENT OUTLOOK Our employment outlook is illustrated in Figure 1.11. The forecast calls for employment to continue to recover over the remainder of 2021 and over the course of 2022, with a return to the pre-pandemic level of employment by the middle to latter part of the year. This will be followed by a much slower rate of growth through the latter part of the forecast period. In Figure 1.12 we present the forecast for the unemployment rate. The forecast calls for a rate of just above five percent by the end of 2021. Further, we expect continued improvement over the course of 2022, with a return unemployment seen prior to the pandemic by the end of 2022. If employment continues to recover as expected the recovery from the recent recession will be much faster than the recovery from the last three US recessions.

Challenges Facing the US Economy

Issues related to the long-run sustainability of the US federal government budget remain a primary concern for long-run economic growth. As such, we explore US federal government budgetary issues through figures 1.13 through 1.15.

FEDERAL GOVERNMENT DEBT As depicted in Figure 1.13, federal debt held by the public, which was consistently below 40 percent of GDP between 2001 and 2008, began rising dramatically in 2008 as tax revenues plunged and the federal government ramped up spending in part to stimulate the weakening economy. This shock placed the figure is in the upper-70-percent range, a rate that is nearly double the average from the prior 30 years. Further, fiscal policy actions in 2019 and aggressive stimulus measures in 2020 and 2021 have increased the figure once again, now to a level just above 100 percent of GDP. This places the figure at its highest level in history in with the exception of brief episodes during the Civil War, the Great Depression, and World War II. The figure is expected to remain high throughout the forecast period depicted. Further, assuming no changes in public policy, the figure is forecast to explode in the long run (not shown) given the aging of the US population and the additional public benefits that an older population receives (i.e. Medicare and Social Security).

A public debt level that surpasses a critical level can be detrimental to long-run economic prosperity if the public debt becomes large enough to drive interest rates high enough that they ultimately crowd out private-sector savings and investment activity—a key driver of productivity growth in the long-run. While economists are unsure of what that critical level is, clearly the US is much closer to that level compared to historical norms that existed before the 2008 recession.

TRANSFER PAYMENTS The recent dynamic involving US federal government debt is closely related to the increase in transfer payments from the US federal government. Examples of transfer payments include Social Security, unemployment benefits, welfare benefits, Medicare, and Medicaid. As illustrated in Figure 1.14, transfer payments increased substantially in 2008, reaching a high of around 18.5 percent of personal income, compared to a 30-year average of around 16 percent. Recent aggressive stimulus efforts have dramatically increased the figure further, placing it at a recent high of 24 percent for 2020. Both waves of increase are attributable to two major factors: a) falling income and rising unemployment during recessions, and b) more generous public policy, such as the extension of unemployment benefits. The figure is expected to eventually fall to around 18 percent by some time in 2022, but this still places the figure well above historic norms.

In Figure 1.15 we report the composition of US federal government spending. As illustrated, mandatory spending, which includes transfer payment programs such as Social Security, Medicare, Medicaid, unemployment insurance, and the like, comprised 74 percent of all federal spending in 2020. Although this figure is exacerbated by a few percentage points for 2020 due to the year’s recession, we have observed an important increase over the past 20 years or so and comes largely as a result of an aging population. At the same time, defense spending and nondefense discretionary spending have fallen correspondingly. If the long-term debt burden is to be reduced, it will have to be accomplished through either higher taxes, or a reduction in one of these areas of spending, and each path carries its own set of concerns and difficult political realities.

INFLATION As reported in Figure 1.16, inflation has been mostly modest by historic standards in the US for more than two decades, rarely moving outside of the 1 to 3 percent range. Inflation has been below its long-run average with few exceptions for the past decade or so, up until the COVID-19 recession. Core inflation, which excludes food and energy prices from the equation (yellow line in figure), has been below the 2 percent figure that monetary policymakers explicitly state as a target since the beginning of 2012 through 2019. COVID has caused major supply chain and broader economic disruptions in various ways that have led to a sharp spike in inflation in recent months. However, this spike is expected to dissipate as the economy returns to normal over the next year or so and then to remain modest or on target throughout the forecast. 

However, there is a chance that faster growth in price levels could eventually re-emerge. The US Federal Reserve (Fed) took unprecedented steps to stabilize the economy during the Great Recession and in 2020, and in so doing has increased the monetary base—primarily the volume of reserves held by banks—dramatically through its purchase of US Treasury Securities and other assets, such as private-sector mortgage-backed-securities. This monetary stimulus is not expected to translate into higher long run inflation, as stated. But inflationary pressures will eventually have the potential to build as lending and the broader economy continue to improve. As such, the Fed will eventually have to withdraw liquidity from the monetary system so as not to create an environment for inflation to build. The uncertainty stems from the fact that monetary policy across the globe is in uncharted territory given the volume of monetary stimuli over the past decade, and particularly in 2020, the nature of the asset purchases, and the persistence of negative interest rates in major economies such as the European Union and Japan and other areas.

INTEREST RATES A related concern is interest rates in the US economy in the very long run. We have observed the Fed’s “normalization” process in recent years wherein the Federal Open Market Committee (FOMC) unwound some of its previous asset purchase programs and other forms of monetary stimulus discussed above during the Great Recession. Short-term interest rates generally climbed in concert with hikes in the federal funds rate by the Fed over recent years. In response to the COVID-19 pandemic, the Fed reversed course dramatically in 2020 and aggressively again lowered interest rates again in order to provide new stimulus to the economy. Although rates are expected to remain very low until at least 2024, eventually rates will rise again and if rates rise too quickly, it could precipitate much weaker levels of investment and consumer spending growth. On the other hand, if the Fed waits until too late to allow rates to rise, inflation would eventually be a concern. Figure 1.17 reports the forecast for three key US interest rates.

INCOME INEQUALITY The final concern that we consider relates to rising income inequality in the US. In Figure 1.18 we illustrate the share of aggregate income in the US that is earned by households divided into quintiles. As illustrated, the lowest-income quintile, while representing 20 percent of households, earned around 3 percent of the total income in the nation in 2019 The second lowest-income fifth of households earned around 8 of the total income in the nation in 2019, and so on. The highest-income quintile earned nearly 52 percent of the nation’s total income in 2019. Further, as illustrated, the income share for the highest quintile has risen by nearly 9 percentage points over the period illustrated, corresponding to a decline in the share earned by the other quintiles. In a similar vein, in figure 1.19 we report median income in the US over the long-run, compared with the average income for households in the highest-earning five percent (after accounting for inflation).

Overall, many individuals are concerned about the growing income concentration among higher income households and these individuals have often requested or proposed public policies that could reverse this trend. Finding an appropriate public policy response that balances promoting economic growth overall and achieving a socially acceptable income distribution can prove to be challenging in many cases. However, education plays an important factor in explaining the income distribution in the U.S. As reported in Figure 1.20, households where at least one resident holds a bachelor’s degree earn far more than any other group, and the gap between those with a bachelor’s degree and others has risen slightly over time.

Chapter II: The West Virginia Economy

Recent Economic Performance

West Virginia’s economy remains on a path to recovery after enduring its deepest, yet short-lived, recession since the Great Depression. As the COVID-19 pandemic began to exert its grip across Europe and North America, businesses and consumers quickly began to pull back and ultimately public health authorities decided to initiate shelter-in-place and various capacity restrictions to slow the spread of the virus. Consequently, West Virginia employers recorded a net loss of nearly 95,000 jobs combined during March and April 2020. The recovery in payrolls was at its strongest during the initial reopening phases in May and June 2020, but businesses in the state have added roughly 70,000 workers overall during the last 16 months or so – putting statewide employment at approximately 96 percent of its pre-pandemic level as of August 2021. While the upward trend in employment over this time period is decidedly positive, West Virginia’s economy was struggling prior to the pandemic and has endured significantly volatility over the past decade or so due to ongoing structural changes to the energy sector and challenges posed by several underlying demographic trends.

Although West Virginia’s economy avoided worse outcomes such as L- or W-shaped recovery scenarios, due in large part to federal fiscal support, the state has not enjoyed a robust strictly V-shaped recovery either. In the months immediately following the phased reopening process in late-spring 2020, the state’s economy did manage to outperform the national average and the rate of job growth in several neighboring states. Overall, total employment increased by roughly 16,000 per month over the course of May, June and July 2020. The state’s recovery sputtered during the next several months as payrolls were essentially unchanged between July and December.

West Virginia’s pace of job creation did pick up during the first few months of 2021, exceeding that of the nation. One factor that likely helped the state’s upturn in new job creation during the first quarter of 2021 was a strong initial rollout of covid vaccines. While the initial phase of vaccinations focused on elderly health care facilities and several classes of essential front-line workers, the vaccines appreciably reduced the incidence of new infections but also helped to dramatically reduce the risk of severe disease and death among high-risk residents in the state. Since late-spring, however, the state’s vaccine uptake rate has lagged the national average and West Virginia has become one of the hardest-hit states from the Delta variant of SARS-CoV-2 in the US, with hospitalizations, ICU capacity and ventilator use at their highest points at any time during the pandemic.

Capacity restrictions and other public health measures have not been re-instituted on a widespread basis during the Delta variant surge and based upon various measures of mobility, consumers have not reverted to high levels of caution they practiced during earlier periods in the pandemic. Nonetheless, the massive increases in cases and hospitalizations have clearly exerted stress on the state’s healthcare providers. For the broader state economy, the Delta surge has affected business activity in a direct manner via staffing shortages arising from covid quarantines and isolations. In addition, the threat of infection has caused some unemployed workers to remain on the sidelines, even as employers have raised nominal wages significantly in many industries over the past year in a bid to alleviate shortages in the labor supply.

Prior to the pandemic, West Virginia’s unemployment rate was generally one to two percentage points higher than the national average. Since the beginning of the pandemic, however, the state’s jobless rate has generally been in line with or even come in below the national average. Indeed, the statewide unemployment rate peaked at 15.6 percent in April 2020, but reversed course quickly in the subsequent six-month period, falling by roughly half as the phased re-opening process took place. At the same time, the unemployment rate declined more slowly amid the late-fall/early-winter surge as businesses slowed hiring activity due to the re-introduction of public health measures to limit viral spread while some workers voluntarily left their jobs due to concerns over exposure to the virus.

Since the beginning of 2021, West Virginia’s jobless rate has continued to trend lower and even fell to its pre-pandemic level in August. Most of this downward trajectory in the unemployment rate can be linked to a fundamental improvement in labor markets from the early months of the COVID-19 pandemic. For example, high job openings relative to hiring suggests many employers have struggled with chronic staffing shortages directly or indirectly as a result of the pandemic. Despite strong increases in wages to attract workers across a wide swath of sectors and vaccine availability, the state has seen approximately 5,000 workers leave the labor force since January 2021.

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 three 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 14 percent of real output in 2020 and can contribute as much as one-third of the overall growth in real output each year.

The coal industry suffered one of its worst years ever recorded during 2020. While the industry was already struggling in late-2019 and early-2020 as the persistently weak domestic steam coal market combined with a flagging global steam and met coal market to hurt demand. Unfortunately, as the COVID-19 pandemic emerged and spread across much of the world, global coal demand fell even further. Indeed, after averaging in low- to mid-90 million short ton range (annualized) for much of the 2017 to 2019 time period, statewide coal output plunged to as little as an annualized rate of 57 million short tons during the second quarter of 2020.

For the 2020 calendar year, production totaled just over 67 million short tons, which represented the industry’s lowest non-strike year output since the late-1910s. Coal mine employment saw large declines over the course of the year as well, falling from an average of nearly 14,5000 workers from the beginning of 2018 through late-2019 down to just over 11,000 during the last nine months of 2020. Conditions have improved for the industry thanks to increases in global coal demand and temporary improvements in the domestic steam coal market. Indeed, production averaged nearly 80 million short tons during the first half of 2021. Output growth was strongest in the state’s northern counties as higher natural gas prices and broader increases in US economic growth have bolstered coal-fired generation. Moreover, the region has benefited from a growing base of met coal operations and should see further increases in output over the very near term as the Leer South mine in Barbour County recently became operational and scales to full production potential by early-2022. While Northern West Virginia coal output has returned to pre-pandemic levels, the state’s southern mines have registered increases in mine tonnage over the past few quarters, though production has yet to recover to levels seen prior to the pandemic.

West Virginia’s natural gas industry showed more resiliency in terms of new production growth during the pandemic, as continued technological progress in upstream operations and development of new high-yield plays in 2018 and 2019 allowed withdrawals to increase roughly 20 percent while most shale gas-producing states recorded declines or very slight gains in output. Output growth has been less pronounced through the first half of 2021 as dry gas production from horizontally drilled wells has increased 7 percent compared to the same period a year ago. At the same time total marketed production has increased more considerably during the first six months thanks to a strong rebound in natural gas liquids (NGL) production.

The midstream segment has provided a boost to the state’s natural gas production potential in recent years. For example, the addition of Rover II, Mountaineer XPress and other new pipeline capacity, along with the installation of more condensate network lines to transport NGLs, the state’s gas deposits are much more accessible to industrial users and utilities in the Mid-Atlantic and can be shipped to downstream processing hubs along the Gulf Coast. In addition, midstream infrastructure development has also enabled local shale gas production to enter the global market over the past few years thanks to the construction of new LNG export terminals in Maryland and several other US coastal locations.

Despite the dramatic growth in production over the past few years, employment levels in the natural gas industry increased only modestly between 2017 and 2019. Most of this weaker-than-expected job growth can be attributed to rapid technological progress and innovations in drilling practices that have enabled new well production per rig to double in just the past two years. Examples of new innovations include increasingly lengthier laterals, improved rotary engines and other equipment that allow drillers to operate more wells from one rig and access deeper wells with a larger ‘sweet spot.’ Payrolls fell significantly in 2020 as industry-wide reductions in exploration activity during the second half of 2019 hurt new well development and reduced manpower needs while the COVID-19 pandemic caused additional reductions in activity at well sites due to outbreaks and labor supply shortages that were felt across many industries. [1]

MANUFACTURING After seeing several positive developments over the past several years, including the continued development of Procter & Gamble, expansion announcements by Toyota and Northrop Grumman, as well as other additions, the sector has struggled over the past year or so. In addition, the sector’s recent struggles are not solely due to the pandemic, although that has had a significant negative impact on several subsectors vis-à-vis persistent problems with supply chains. The biggest story for the sector was last winter’s announcement by Viatris that it would shutter the Mylan generic drug manufacturing facility in Morgantown, which will ultimately result in the elimination of more than 1,400 jobs by early-2022. Previous large-scale layoff events in 2017 and 2018 at the facility, along with restructuring of the company’s IT operations, already signaled high levels of uncertainty for the facility’s future. Last-ditch efforts by state and local officials to keep the plant open or facilitate its transfer to another company were ultimately unsuccessful, although Viatris has engaged in talks with West Virginia University to convey the facility for potential use by WVU Medicine or the creation of a public-private research venture.

Although an emergent linchpin for the state’s manufacturing sector over the past 20 years or so, West Virginia’s auto manufacturing industry has faced some difficulties as a result of the pandemic and other issues. For example, a major global shortage of semiconductors and other electronic components has reverberated across the auto industry, leading to significant cutbacks and delays in new car production, which has slowed activity for powertrain production at Toyota’s plant in Putnam County. Prospects for the facility going forward are positive, however, as it is slated for more than $200 million in capacity expansions and the addition of more than 100 jobs. Hino Motors, which began operations in 2019, was forced to shut down its commercial truck assembly operation in Wood County during 2020 due to certification issues for several engines used in the North American market. The company recently announced it will restart production in the fourth quarter of 2021, though it remains unclear what the initial level of output will be due to the broader supply chain issues affecting the auto industry.

The wood products subsector continues to recover from a host of problems that measurably hurt production for a few years. First, softwood lumber trade disputes with Canada limited US lumber supplies. The onset of the COVID-19 increased the supply shortfalls manifold as mill shutdowns caused by outbreaks and labor shortages de-synchronized harvest cycles and seasonal supply schedules for new home construction and other end market demand. Coupled with surging new home demand during the pandemic, lumber supply shortfalls have persisted throughout the past 18 months, and wood products manufacturers have only recently seen capacity utilization rates equal pre-pandemic levels. Finally, given their tight connections with the energy sector, fabricated metals and machinery manufacturers in West Virginia have struggled further as the pandemic weighed on global demand and gas exploration activity.

SERVICE SECTORS While goods-producing sectors have endured significant turmoil over the course of the pandemic, employment in the energy sector and manufacturing sectors have recovered to close to pre-pandemic levels, several service-providing sectors experienced massive swings in economic activity and continue to see business activity lag pre-pandemic levels to a by an appreciable margin. Indeed, leisure and hospitality (i.e. restaurants, bars, hotels and museums) and other services (laundry and other personal services, as well as membership associations) posted year-over-year job losses of more than one-third during the second quarter of 2020 and each sector’s total payrolls remain around 10 percent below levels from the beginning of 2020.

While these two sectors had limits to how much they could recover over the course of 2020 due to encumbrances related to capacity restrictions and general consumer/worker concerns over infection risk, most covid-related restrictions have either been removed or significantly relaxed for indoor venues in West Virginia since spring 2021. Despite the lifting of these restrictions, hiring activity has been hampered by rising labor costs amid due to higher worker turnover rates and wage competition with other sectors. In addition, the recent surge in covid cases and hospitalizations associated with the Delta variant has weighed on these sectors as well during the past couple of months, as increased infection risk has dampened consumer appetites to congregate at indoor venues and labor supply issues have increased due to isolation and quarantine requirements due to workplace exposures.

Healthcare has directly felt the brunt of the COVID-19 pandemic. The sector experienced some sizable job losses during the initial phase of the pandemic response, as many of the state’s hospitals were required to delay non-emergent care, routine appointments and other outpatient services in order to surge workers and capacity over to covid care. Some staff were transferred to telework in order to maintain social distancing while others were temporarily furloughed due to the availability of expanded emergency unemployment benefits. With the initial wave of the pandemic being relatively limited, the sector restored most of their services by mid-2020 but facilities in certain parts of the state were forced to scale back services in the late-fall and winter months as covid hospitalizations surged to the point of stressing staff and resource availability. The sector’s payrolls did rebound close to pre-pandemic levels by mid-2021, but the rapid increase in hospitalizations and ICU capacity utilization across several of the state’s major health provider networks has placed significant stress on the sector during the third quarter, as hospitals once again curtailed certain types of non-emergent care in order to shift resources to covid units. On a positive note, WVU Medicine’s aggressive expansion of its service network statewide vis-à-vis mergers and joint venture agreements has helped several erstwhile-struggling regional hospitals to avoid larger service losses during the pandemic while also allowing other facilities to re-open after bankruptcies forced their closures. Moreover, the addition of a dedicated WVU Children’s Hospital at Ruby Memorial Hospital is providing a boost to the sector going forward in an area of service that was underserved and required many patients to travel to health providers in Pittsburgh, Cleveland and Baltimore for care.

GOVERNMENT In addition to the noted struggles of several private sector employers, West Virginia’s public sector endured its own share of losses during the pandemic as state and local governments sought to balance the provision of critical services versus declining collections among several key revenue streams. Aggressive federal fiscal policy response during 2020 and 2021 provided a significant backstop against revenue losses and helped state and local agencies to meet the costs associated with covid testing, mass vaccinations, school preparedness and other pandemic response programs.

Even prior to the pandemic, West Virginia’s public sector was struggling. Indeed, underlying structural economic problems and poor demographic trends have weighed on state and local government revenue collections for many years. Local governments were particularly hard hit during 2013-to-2016-time frame as the energy sector was suffering from a steep plunge in coal production and a supply-induced glut of natural gas that caused spot prices to remain at historically low levels for an extended period. The build-out of natural gas pipeline infrastructure via the Rover II, Mountaineer Xpress and other projects helped to lift the region’s weak price performance against the national benchmark spot price for natural gas, buoying severance tax collections as well as providing a boost to property and B&O tax revenue in areas that have dealt with a shrinking tax base for many years.

The federal government maintains a significant presence in West Virginia and has been a source of new job creation in several parts of the state. Most notably, the FBI, US Treasury and National Park Service have increased staffing levels by the largest margin in West Virginia. It remains unclear what the net effect of that state’s declining population will have on the federal government’s future decision.

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 stronger economic regions such as the Eastern Panhandle and North Central West Virginia, trends for the rest of the state were far less positive as more than 30,000 people exited the labor force, via retirement, migration to another state, or prolonged joblessness leading to the discouraged worker effect. As a result, attrition in the labor force has been as much, if not more, of a driver of the downward trend in the jobless rate statewide than broad-based improvements in underlying economic factors.

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 2020, 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 less than one percentage point below the next highest state (Mississippi).

Finally, the COVID-19 pandemic has likely had a negative impact on labor force participation that will likely be short-term in nature, as workers’ concerns over contracting the virus have caused them to delay rejoining the workforce even as nominal wages have surged. Additional evidence suggests some of the recent decline in labor force participation during the pandemic could be permanent, as data point to a larger-than-expected increase in retirements over the past year or so.

INCOME Per capita personal income, without accounting for inflation, in West Virginia reached approximately $45,000 in 2020, representing a 6.8 percent increase from 2019. Given the economic impacts related to the pandemic, the components of personal income posted wildly different rates of growth during the calendar year. For instance, wages and salaries fell by roughly 4 percent for the year, with a substantial 26 percent annualized drop-off in the second quarter, which reflected job losses caused by the onset of COVID-19 pandemic and initiation of public health responses. due to the steep rate of job losses in the second quarter. By comparison, transfer payments skyrocketed during the second quarter of 2020 (26 percent for the full year) as the federal government passed a series of income support and expanded unemployment benefit programs via the CARES Act. Transfer payments surged again during the first quarter of 2021 following the Biden Administration signing the American Rescue Plan Act into law. As with the CARES Act, it included direct payments to households, a new $300/week expansion of unemployment insurance benefits and other support programs.

WAGES Although accounting for the largest overall share of personal income, wages have become increasingly volatile in recent years – even prior to the pandemic. Indeed, wages surged during the early-2017 to early-2019 time period as natural gas pipeline construction activity picked up and coal mine production began to rebound thanks to global demand. As the pipeline projects wound down and global coal demand began to wane in 2019, total nominal wages were essentially flat compared to the previous year as the state had relatively limited growth from a geographic and industrial perspective. As mentioned above, wages did decline during 2020, though most of that decline occurred in the second quarter. Since the second quarter of 2020, wages and salaries have increased nearly 10 percent, even with a moderate decline during the first quarter of 2021 due to the winter surge in covid cases and hospitalizations across the state and nation. Persistent constraints on the labor supply due to the pandemic along with the ongoing economic recovery have created observable worker shortages for many industries, precipitating employers to bid up wages and benefits to prospective workers.

GDP As with other major economic indicators, the steep downturn in economic activity (30 percent annualized decline in 2020Q2) at the beginning of the COVID-19 pandemic caused the real dollar value of output in West Virginia to register its fastest overall annual decline on record. In fact, the year-to-year decline in real GDP in 2020 was nearly as large as the cumulative decline in real output West Virginia experienced during the state’s protracted economic struggles during the early 1980s.

While the pandemic has had a significant negative impact on the state’s rate of economic growth, West Virginia’s economy has experienced an uneven pace of output growth over the past decade or so. For example, year-to-year changes in real GDP oscillated between positive and negative territory for much of the last decade and the state recorded less than 7 percent in real output growth between 2010 and 2019, with most of that growth occurring in the last two years of that period due to pipeline construction and a rebound in coal production. By comparison, cumulative growth at the national level was more than 22 percent over this time period.

As much as the energy sector bolsters the state’s economy during periods in which demand is strong and production is rising, it also plays a major role in the volatility of economic output in West Virginia as energy demand tends to be highly cyclical. Moreover, completely exogenous drivers such as global geopolitical relationships and natural disasters can influence both the supply and demand for coal and natural gas at any given point in time. Indeed, these industries account for a disproportionate share of total GDP due to the high levels of capital deployed at coal mines and well sites and thus have the potential to contribute (positively or negatively) as much as one third to the topline growth rate each year. In addition, the coal and natural gas industries have a developed chain of manufacturers, wholesalers and transportation companies that provide equipment and services to mining and drilling sites, so the energy sector’s overall contributions to growth are magnified even further.

Other activities associated with the energy sector’s development in the state further serve to illustrate its impact on real GDP growth. Between the first quarters of 2017 and 2019 when significant amounts of natural gas pipeline capacity were under construction, the construction sector contributed an average of 1.2 percentage points to real GDP growth during a period in which statewide economic output grew at an average annualized rate of 1.8 percent. Of course, this contribution became decidedly negative to overall growth as these pipeline projects wound down toward completion (or were canceled/delayed) in 2019.

Recent Demographic Trends

POPULATION After falling below 1.8 million residents for the first time since 1991, West Virginia’s population declined for the eighth consecutive year as the number of residents fell by nearly 10,500 during 2020. Overall, the absolute and percentage losses in population observed since 2012 have surpassed the state’s population losses from the mid- to late-1990s, though are roughly half the magnitude of the massive population declines that occurred in West Virginia during the 1980s. In comparison to broader national demographic trends, West Virginia’s population declines over the last decade set it apart from nearly every state in the US as it posted the largest percentage loss in population (3.2 percent) between the 2010 and 2020 censuses. This decline will cause the state’s US House of Representatives delegation to shrink to two beginning with the 2022 mid-term elections.

With below-replacement birth rates, a disproportionate share of residents over the age of 65, and higher-than-average 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 must come from changes in (domestic) migration flows. Given West Virginia’s 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 five of the state’s 55 counties are estimated to have gained residents between 2019 and 2020. Kanawha County saw the largest absolute decline in population (-2,100). Twenty-four counties recorded an annual percentage loss in population of at least 1 percent during 2020, with McDowell County registering a 3.9 percent decline in resident population – falling to less than 17,000. Berkeley County remained the state’s fastest-growing county in absolute and percentage terms, adding more than 2,500 residents (2.1 percent) for the year. Monongalia County, which had been one of the state’s fastest-growing counties over the past decade has seen smaller rates of population growth in recent years due to smaller inflows of domestic movers and fewer international migrants entering the US due to 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 2020 to 43 years, placing it 4.4 years higher than the national figure and ranking fourth highest among all 50 states. Another sign of the state’s skewed age distribution is the fact that more than 27 percent of the state’s residents are aged 60 or older, exceeding the national figure by more than five percentage points.

HEALTH While the state’s older-than-normal population does contribute to higher rates of mortality, even when accounting for the population’s age distribution West Virginia tends to experience higher incidences from various morbidities as well as higher mortality rates. According to the Centers for Disease Control, West Virginia’s age-adjusted mortality rate is the second highest among all states and 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 COVID-19 pandemic has had a measurable impact on the state’s mortality trends, particularly since the late-fall/winter surge in 2020 and more recently with the Delta variant. As of late-September, a total of 3,600 covid deaths have occurred in West Virginia since the beginning of the pandemic, but nearly 600 have been reported in the month of September alone. With nearly 1,000 residents currently hospitalized and approximately 30 percent of those in ICU care, the level of reported deaths from COVID-19 will increase further and should lead to a measurable decline in the state’s life expectancy during 2020 and 2021.

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] Overall, the forecast calls for total employment in West Virginia to increase at a rate of 0.9 annually between 2021 and 2026. 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. Increased population immunity vis-à-vis a combination of vaccine-induced and infection-acquired immunity, along with upcoming vaccine approvals for younger children and the anticipated availability of therapeutic treatments such as prescription oral antivirals should help to reduce the incidence and burden of COVID-19 to lower levels.

Consumer confidence will be boosted to a significant degree with these treatments by significantly limiting the potential for infection at indoor venues. Meanwhile, businesses should also see an improvement in labor supply conditions as workers will miss less time due to quarantines and isolation and displaced/discouraged workers that have remained on the sidelines due to concerns over workplace exposure or problems related to childcare responsibilities can return to the workforce. Ultimately, these factors will allow the sectors that encompass travel, tourism and umbrella of consumer activities that have faced restrictions and/or reduced participation since March 2020 to recover at the strongest pace over the next two years – namely leisure and hospitality and other services.

We anticipate employment levels in West Virginia will reach pre-pandemic levels by mid-2022 and continue to climb into 2023 but the state is expected to see payrolls fall appreciably short of the peak levels recorded in 2018 and 2019. By early-2024, the forecast calls for the state’s rebound to lose momentum as the state’s long-term structural economic issues and underlying demographic problems return to the forefront. These factors ultimately will limit the state’s growth potential and lead to a decline in payrolls during the final two years of the outlook period.

INDUSTRIAL ACTIVITY Although West Virginia’s economic outlook over the near term will be influenced in large part by the changes in the covid situation, successfully diversifying the state’s industrial base will likely be a key component to bolster growth over the longer term. Manufacturing is expected to play a role in these efforts and developments such as the expansion of the state’s auto supply chain in the Kanawha and Mid-Ohio valleys and growth in civilian and defense aerospace in the North Central and Potomac Highlands regions serve as examples. In addition, the Eastern Panhandle region is expected to account for a growing share of manufacturing activity in the state going forward, thanks in large part to expanded activity at Procter & Gamble’s operations in Berkeley County and the fact that its presence will likely yield some spillover effects by fostering growth in businesses tied to the facility’s supply chain and could also create a critical mass to attract other manufacturers into the region. Other smaller developments such as the Clorox plant to manufacture Fresh Step and Scoop Away cat litters and the ROXUL insulation materials production bode well for the sector’s development in this region.

The sector’s long-term potential did take a hit within the past year after Viatris announced that it would begin closing the Mylan Pharmaceuticals drug production plant in Morgantown earlier this summer before completely shuttering the facility in early-2022. The site does have potential for other pharma companies to utilize, particularly given the growing interest by US policymakers to expand domestic production of finished drugs and active pharmaceutical ingredients (APIs) as a result of strained supply drug supply chains during the pandemic. However, Viatris is currently in talks to facilitate transfer of the plant to WVU for some use that has yet to be determined, so the overall impact of the facility’s closure is not clear at this time.

While this event does cast a shadow on the regional economy and the manufacturing sector’s health over the near term, other factors bode well for manufacturing activity going forward and offer significant upside potential. For example, the energy sector is expected to rebound over the near term and should engender a boost in payrolls and business activity for machinery, fabricated metals and various other manufacturers as coal, natural gas and NGL production increase over the next couple of years.

A more important evolution for the energy sector that would portend stronger growth in manufacturing activity over the longer term would be greater development of downstream processing of natural gas and NGLs. At present, the Shell ethane cracker that is under construction and slated for production to begin at some point in 2022 represents the only current downstream project under development. However, PTTGC has continued to express interest in building a similar facility in Ohio near Wheeling. Preliminary discussions are underway for other petrochemicals and plastics manufacturing projects in the tri-state area that would be expected to flow from the region’s wealth of natural gas and gas liquids deposits as well as sufficient pipeline takeaway capacity. 

CONSTRUCTION West Virginia’s construction sector is expected to post moderate growth during the outlook period, but growth will be stronger during the first half of the five-year forecast horizon thanks to increased federal and state infrastructure spending and healthy demand for new homes. The Roads to Prosperity program will be a key mechanism in supporting new highway construction activity for the next few years in West Virginia. 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 road enhancement projects throughout the state will help to resolve some of the state’s physical infrastructure deficiencies.

Federal spending will also buoy public sector investment within the state as the CARES Act and American Rescue Plan Act provided for billions in funding to states to upgrade school facilities, broadband and other needs. Additional federal funding is also under consideration in Congress, as the Infrastructure Investment and Jobs Act (IIJA) provides for an additional $550 billion in new spending ($1 trillion overall) over the next decade across a range of traditional surface transportation projects as well as utility systems, broadband and environmental remediation. The IIJA is falling victim to legislative gridlock stemming from partisan over the ultimate price tag and intra-party disagreements over the process related to the federal budget reconciliation plan.

One major project that could have measurable impacts on the state’s near-term outlook, as well as playing a hand in shaping broader public transit design and use over the long term, is the construction of the Virgin Hyperloop Testing and Certification Center in Tucker County. The $500 million project will be a development center for the company’s high-speed pod-and-tube transportation system, encompassing more than 800 acres with facilities for a planned welcome center, certification track and operations center, pod final assembly facility, production development test center, and operations, maintenance and safety training center.

The Mountain Valley Pipeline’s (MVP) ongoing delay from legal challenges and regulatory reviews remains a weight on the sector’s performance. Currently, the developers anticipate a mid-2022 completion, but the recent cancellations of PennEast Pipeline and Atlantic Coast Pipeline (ACP) point to a difficult future for pipeline projects not only from the difficulty of navigating the legal/regulatory issues but also the shifting economic issues that could affect alter the feasibility of these projects over the long term.

ENERGY The forecast calls for somewhat of an uneven performance for the state’s natural gas and coal industries. Coal production is expected to see a near-term improvement into the low- to mid-80 million short tons range during 2022 and 2023, as global demand for steam and metallurgical coal recovers from weakness related to the pandemic and developing nations such as India, Vietnam, Egypt and others build out new coal-fired generating capacity to feed their rapidly expanding economies.

High natural gas prices will bolster domestic coal-fired generation over the next several quarters, but domestic demand for steam coal will trend lower over the longer term due in large part to the continued shift away from coal for electricity generation. New environmental standards on effluent discharge from power plants could also weigh on potential coal production in West Virginia. Approximately 75 coal-fired power plants are expected to be impacted by the rule once the compliance period begins in 2028, including several large plants in West Virginia. These plants must undergo sizable capital expenditures to meet the standard and generators that have struggled with low utilization rates in recent years will likely face the highest risk of retirement, which could lead to some downside risk to Northern West Virginia’s steam coal production as several of the region’s mines supply coal to plants subject to the rule.

At the same time, Northern West Virginia’s metallurgical coal output is expected to rise in the coming years. Arch Resources is expected to open their Leer South longwall met coal mine operation in Barbour County soon and anticipates reaching full production capacity in early-2022. Another met coal project under consideration for the region comes from a conglomerate of foreign investors spearheaded by the Japanese firm Itochu. While several older met coal operations are approaching economic depletion of their reserves, these two projects are expected to offset these capacity losses by several million short tons. For additional discussion of the coal industry forecast and potential impacts of regulatory policy changes for the utility sector on coal use, see the Energy section in Chapter 3.

West Virginia’s natural gas industry is expected to see some moderate improvements over the next few quarters following a recent slowdown in exploration and development activity. High wellhead prices for natural gas should lead to strong seasonal increases in production during the winter heating season and supply constraints in Europe and Asia bode well for LNG demand. Finally, NGL production will be buoyed longer term once the Shell ethane cracker enters service in the next year or so.

SERVICES Professional and business services sector is expected to add jobs at nearly 1 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. However, engineering, legal and management consulting businesses are also well positioned going forward as the natural gas industry’s evolution from primarily upstream and into mid- and downstream services lifts demands for these fields with technical service expertise.

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 the Delta variant surge in COVID-19 hospitalizations wanes over the next several months. 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 should also engender future medical research dedicated to children and help to attract renowned researchers and clinicians. 

Among the state’s major service-providing sectors, retail trade is expected to face the most downward pressure on payrolls during the forecast horizon. Pent-up consumer demand and strong income growth that was buoyed by federal aid bodes well for spending, as does a high level of new home construction across certain housing markets in the state. In addition, consumer confidence should continue to improve as the high incidence of COVID-19 cases and burden of serious disease linked to the Delta variant decline over the next couple of months. Nonetheless, any sustained growth in retail jobs will be more likely in 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.

PUBLIC SECTOR Government payrolls are expected to increase at a rate of 0.7 percent annually through 2026. Public sector employment has suffered some negative effects from the COVID-19 pandemic, though most of the impact was precautionary in measure as state and local governments were deeply concerned about tax revenue collections. Direct federal aid to state and local governments via the CARES and American Rescue Plan, along with better-than-expected revenue performance, has left the state’s budget situation in relatively good shape and the possibility of more federal spending for physical infrastructure, broadband and economic development planning for rural communities could add another layer of fiscal support to West Virginia’s public sector. Over the longer term, local governments in several of the state’s economic regions do face downside risks from a declining base of population and an associated decline in property and business tax collections weigh on county and municipal fiscal capacity even further.

UNEMPLOYMENT Although some analysts feared the possibility of unemployment rates staying in the high-single and low-double-digit range as a result of the pandemic, West Virginia has seen its jobless rate decline significantly since most public health restrictions were initially relaxed in May 2020. The unemployment rate is expected to average 5.4 percent during 2021, though the rate will likely average below five percent over the second half of the year. The downward trajectory in the unemployment rate is expected to continue into 2022 and 2023, but the rate of decline will be significantly slower as discouraged workers re-enter the labor force and compete for open jobs.

INCOME After surging more than six percent during 2020, real per capita income is expected to slow measurably to 1.4 percent in 2021. Federal transfer payments provided a large boost to incomes during the first quarter of 2021 and is expected to account for practically all the increase in real per capita income for the full year. Despite the large first-quarter increase in federal transfers, this form of nonwage income is expected to decline nearly 5 percent in 2021 due to the end of expanded UI and more targeted direct payments to households. Nominal wage growth is expected to accelerate to as much as double-digit rates in some sectors as businesses aggressively raise wages to alleviate labor shortages unfilled job openings and covid-related worker quarantines. However, due to rapid increases in the overall price level, overall growth in real wages is expected to be more than 4.5 percent in 2021. Real wage growth will likely remain strong at 3.7 percent in 2022 as labor supply issues stemming from the pandemic begin to fade, with average annual growth of roughly one percent per year between 2023 and 2026.

After the extraordinary level of direct federal assistance to households in 2020 and early-2021, inflation-adjusted transfer payments are expected to decline over the next several quarters. The real value of transfers will increase over the remainder of the forecast horizon as the state’s aging population and continued economic weakness in several parts of the state necessitate increased federal assistance. With that said, federal safety net programs do have some potential for higher levels of baseline spending as the budget reconciliation package currently under consideration by both chambers of Congress has an estimated 10-year cost of $3.5 trillion. The final size of the federal budget deal will likely be smaller and/or designed differently in comparison to the initial proposal, but it is fully expected that safety net programs received by West Virginia residents will be larger and a greater percentage of the population will be eligible.

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.

Given the state suffers from natural population decline and will continue to do so over the forecast period, domestic migration flows represent the demographic component of change that will determine the rate at which West Virginia’s population declines (or even registers gains) during the outlook period. 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 2026.

Economic regions that have experienced steep losses in employment and income will continue to do so, as these patterns tend to be very difficult to reverse and often require an exogenous shock of some considerable magnitude for such a reversal of fortune to occur. The state’s main growth centers in the Eastern Panhandle and North Central regions will continue to receive the lion’s share of people migrating into West Virginia.

A new program called Ascend West Virginia represents at least one possibility in alleviating this trend of consistent population losses for many areas in the state. Indeed, the incentive program offers individuals $12,000 and a year’s worth of free outdoor recreation access (and complimentary equipment rentals) who move into West Virginia and work remotely. Given the state’s lack of broadband access, the program is currently limited to only a handful of cities (Lewisburg, Morgantown and Shepherdstown) with sufficient broadband availability, but future sites are a possibility and could provide the relative advantage some counties need to arrest the longstanding pattern of net out-migration. However this will require significant improvement in broadband capacity and speeds to even become a viable option for some areas.

AGE DISTRIBUTION The state’s population will become even more 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 the return migration of older residents who move back to West Virginia to receive long-term medical care or simply to live in proximity with family members. As a result, the forecast calls for the share of state residents aged 65 years and older will expand further to encompass roughly one-fourth of the population.

Chapter III: West Virginia’s Economy: Industry Focus

Energy

West Virginia’s energy sector was hit extremely hard by the COVID pandemic in 2020, with payrolls falling by more than 20 percent in the coal and natural gas industries when compared with a year earlier. In the first half of 2021, employment in the mining sector has rebounded somewhat, but coal employment and production remain well below where they stood before the pandemic effectively shut down large parts of the national economy.

Our forecast calls for a slow recovery in the energy sector, with jobs continuing to be suppressed through the end of 2021. However, we expect the sector to see a rebound starting at the beginning of next year through 2023, with a gradual taper through the end of our forecast in 2026.

Coal

National coal production in 2020 fell to levels not seen since 1965, according to US Energy Information Administration (EIA 2021). West Virginia was no exception to this rule, as production plummeted in both the northern and southern parts of the state through much of 2020. Employment followed this decline, falling by more than 22 percent on average from 2019 levels.

REGIONAL ACTIVITY Coal production in West Virginia was just over 67 million tons in 2020, a decline of nearly 28 percent from 2019 levels of 93 million tons. Production was down considerably in the state’s northern and southern coal-producing regions. However, the decline was more precipitous in the southern region, where production fell more than 34 percent, from 46 million tons in 2019 to just over 30 million tons a year later. Production in the northern coal basin fell by about 10 million tons (21 percent), from 47 million in 2019 to 37 million in 2020.

As of the first two quarters of 2021, coal production is on pace to rebound throughout the year but is expected to continue to be suppressed compared with 2019 levels. Production is up about 19 percent statewide in the first half of the year compared with the same period in 2020, which corresponded with the most widespread economic shutdowns and lowest production. However, the recovery has so far been mostly confined to the northern coal region of the state. Production in northern West Virginia has nearly returned to pre-pandemic levels, with production in the first half of the year totaling nearly 23 million tons, compared with about 25 million tons in the same period in 2019. The southern part of the state has produced only 16 million tons in the first half of 2021, a decline of more than 33 percent from the same period before the pandemic.

EMPLOYMENT Coal industry employment in West Virginia—including mining and support services—fell by more than 3,100 jobs in 2020, from 14,136 in 2019 to 10,997 in 2020, a decline of more than 22 percent (see Figure 3.1). As with production, the employment losses were more pronounced in the southern coal region, with about four-fifths of the employment declines coming in the state’s southern coal mines. According to data from US Mine Safety and Health, employment in the northern part of the state has recovered somewhat in the first half of the year as production has come back, with employment levels nearly even with where they were pre-pandemic. Employment in the southern coal mines has yet to recover, however, and remains well below 2019 levels.

EXPORTS The coal industry faced a broad-based decline, with domestic electric power and industrial sectors both reducing demand at approximately the same rate of 22 and 24 percent, respectively. Overseas demand for the state’s coal fell at an even higher rate, however. Coal exports were down more than 36 percent in 2020, falling from about $2.3 billion in 2019 value to about $1.4 billion the following year.

Exports declined to nearly all the countries that purchase coal from West Virginia. India remained the top destination country, with $354 million in total sales, followed closely by Ukraine with $329 million. These totals were down by 9 percent and 34 percent, respectively from their 2019 totals. Exports to the Netherlands was down by nearly two-thirds in 2020, falling from $283 million in 2019 to just under $102 million in 2020.

One bright spot in the overseas market is China. For the first two quarters of 2021, China has significantly increased its imports of West Virginia coal to $306 million, far outpacing any other country. If this pace continues through the end of the year, China will have imported nearly 15 times as much coal from West Virginia as in 2020, when the country purchased $38 million in total value.

FORECAST Our forecast indicates that the worst may be over for the state’s coal industry. We forecast that the second quarter of 2020 will mark the bottom of production and job losses in the state, and the industry will begin a slow recovery over the course of the next few quarters.

However, our forecast shows that production and employment is not expected to return to pre-COVID levels during the next five years. We forecast production will peak in late 2022 at about 75 million tons annualized, well below 2019’s total volume of 93 million tons. Employment is expected to make a recovery over the next two years but remain about 2,000 jobs below 2019 levels by the end of our forecast in 2025.

Natural Gas

The COVID-19 pandemic continues to negatively affect the natural gas industry in West Virginia. Industry employment fell by more than one-quarter in 2020 as drilling activity in the state’s shale fields fell by nearly two-thirds. While production continued to post gains through the end of the year, the falloff in new drilling in 2020 has slowed production gains in the first half of 2021.

STATE TRENDS Employment in the natural gas industry fell by nearly 26 percent in 2020, but the job losses were not uniform across the industry. Employment in new well drilling and support services declined much more steeply than in extraction. Oil and gas support services jobs fell by fell 37 percent from 2,900 jobs in 2019 to just over 1,800 in 2020, a decline of roughly 1,100 jobs. Drilling jobs fell by 27 percent, from more than 1,400 jobs in 2019 to approximately 1,050 in 2020. Oil and gas extraction jobs also declined, but at a slower rate of 9 percent, falling from 2,130 jobs in 2019 to 1,930 jobs in 2020, a decline of 200 jobs.

Drilling rig count data bear out the uneven distribution of job losses. The average number of active oil and gas rigs in the state fell by half from 18 in 2019 to just over 9 in 2020. The rig count was the lowest in the third quarter, when there were only about 7 active rigs in the state, a decline of almost two-thirds from the previous year.

Natural gas production performed well overall in 2020 and was up more than 20 percent for the year, moving from 2.2 trillion cubic feet (Tcf) in 2019 to nearly 2.6 Tcf in 2020. However, the lack of new wells began to slow production growth starting in late 2020 and into the beginning of 2021. Year-over-year production in each of the first three quarters of 2020 was up more than 22 percent, but production growth slowed to below 10 percent in the first and second quarters of the new year.

PRICES Natural gas prices in the Marcellus region fell significantly during 2020, with the average price at the Dominion South hub declining from $2.12 per thousand cubic feet (Mcf) in 2019 to $1.40 per Mcf a year later, a drop of nearly 34 percent. The average price at the benchmark Henry Hub declined less sharply, from $2.56 per Mcf to $2, a drop of 22 percent. While the two prices had been converging in recent years, the spread between the local gas price and the benchmark Henry Hub rose for the first time in five years to 60 cents per Mcf. Prices at both hubs have risen steeply in the first half of 2021, however. The price at the Henry Hub averaged $3.24 in the first half of the year, compared with $2.44 per Mcf for the local Dominion hub.

COUNTY PRODUCTION TRENDS Capitalizing on its position in the Utica shale formation, Tyler County has become the largest producer of natural gas in the state. The county produced nearly 598 billion cubic feet (Bcf) of natural gas in 2020, which was up about 38 percent from the previous year’s total of 432 Bcf. Marshall County’s production continued to rise rapidly, moving from 276 Bcf to 432 Bcf, a gain of nearly 57 percent, which moved the county into the second spot among the state’s natural gas producers. While Doddridge, Ritchie, and Wetzel counties each produced more than 200 Bcf, growth rates for these counties slowed in 2020, with Doddridge’s production falling by 8 percent and the other two counties coming in below 5 percent growth. Meanwhile, Brooke, Monongalia, and Harrison counties saw rapid growth above 35 percent in 2020, though production in each county remained below 200 Bcf for the year.

PIPELINE CONSTRUCTION With the cancellation of the Atlantic Coast Pipeline (ACP) project, and the completion of two other smaller projects, natural gas pipeline construction jobs fell sharply in 2020. Employment in pipeline construction fell from just under six thousand jobs in 2019 to less than three thousand in 2020, a decline of about 51 percent. The ACP was a $5 billion project that would have transported gas from the Appalachian region to consumers in North Carolina and Virginia. Duke Energy and Dominion Energy canceled the project in July 2020, citing increased costs due to multiple lawsuits and the potential for additional work stoppages.

During 2020, two other smaller pipeline projects—the Buckeye Xpress and Hammerhead Pipeline—completed construction. The Hammerhead Pipeline is a new pipeline that added an additional capacity of 1.6 Bcf per day between Pennsylvania and West Virginia, while the Buckeye Xpress was an expansion of an existing pipeline.

Currently, the Mountain Valley Pipeline remains the only large-scale state-to-state pipeline construction project under construction in the state. Valued at $6.2 billion, the pipeline is expected to run more than 300 miles from West Virginia to Virginia, opening an additional 2 Bcf per day in new transmission capacity by 2022. The project has been delayed multiple times due to potential environmental impacts, but in August, the pipeline project received a key environmental impact statement recommendation from the US Federal Energy Regulatory Commission.

FORECAST With drilling capacity recovering over the first half of the year, we forecast that natural gas production will continue to climb over the course of 2021. In the long term, our forecast shows production growth slowing to about 8 percent per year on average over the course of 2021-2026.

Natural gas employment is forecast to rise to about five thousand jobs by the end of 2021, as drilling activity remains suppressed until the latter part of the year. The industry is expected to recover measurably in 2022 and then continue to grow through the end of the forecast period.

Electric Power Generation

Employment in West Virginia’s electric power industry was down somewhat in 2020. There were no major plant retirements in the state, but power companies trimmed jobs in response to declining demand for electricity during the pandemic year. The industry remains under pressure as capacity utilization at the nations coal-fired power plants continued their decline.

NATIONAL AND STATE TRENDS Coal-fired power plants continued to lose market share to natural gas plants nationally in 2020. The share of generation coming from coal-fired power in the US fell to just over 19 percent in 2020, coming in below renewable energy (20.6 percent) for the first time on an annual basis. Generation from natural gas also climbed in 2020, raising to nearly 40 percent of total power generation. Overall, average utilization at US coal-fired power plants—as measured by capacity factor —continued to decline, falling from 40 percent utilization from 46 percent a year earlier.

West Virginia power plants generated about 57 gigawatt hours (GWh) of electricity in 2020, which was down from nearly 64 GWh the previous year, a drop of approximately 11 percent. The percentage of generation from coal in the state hovered between 87 to 92 percent of total power generation throughout 2020 and early 2021. Following generation declines, statewide employment in the power generation industry fell by about 7 percent in 2020, declining 283 jobs to 3,630. Capacity utilization at the state’s coal-fired power plants continued to decline as well, falling from about 53 percent capacity factor in 2019 to about 46 percent in 2020. Capacity factors at out-of-state plants supplied by mines in West Virginia remained low at 37 percent.

REGIONAL TRENDS: In August 2021 Wheeling Power received approval from the West Virginia Public Service Commission to increase electricity rates in order to pay for environmental improvements at the Mitchell Power Plant in Marshall County (“West Virginia PSC” 2021). Joint owners Wheeling Power and Kentucky Power (both subsidiaries of American Electric Power) stated that the upgrades would allow the plant to operate through 2040. However, regulators in Kentucky rejected the rate increase, agreeing to a plan that would keep the plant open only through 2028 (Tony 2021), leaving the plant’s future uncertain. An analysis by the BBER found that the 1,560-megawatt (MW) plant supports 661 jobs in the state (Christiadi et al. 2021).

The Mountaineer and John Amos power stations are also threatened after the Virginia Company Commission denied in August an application by Appalachian Power to upgrade wastewater treatment facilities. Appalachian Power received permission from the West Virginia PSC for the rate increases, but it is unclear how the company plans to move forward after failing to get permission from the Virginia regulator. Without the environmental upgrades the plants would have to close by 2028. The BBER study found that the Mountaineer and John Amos power plants support 980 and 1,030 jobs, respectively, in the state.

A natural gas power plant in Brooke county has been canceled after opposition from a variety of interest groups within the state. Energy Solutions Consortium announced in October 2020 that it would not pursue a loan guarantee from the state Development Authority to build the plant. ESC’s other plant scheduled for construction in Harrison County remains in the planning stages, while a third plant—Moundsville Power in Marshall County—has also been canceled. Longview Power abandoned plans to build 70 megawatts of utility-grade solar on a nearby property in Pennsylvania after negotiations with the landowner failed (Beard 2021). However, the company has said it intends to continue searching for an alternate site for the solar farm and is also on track to build a 1,200-MW natural gas plant on reclaimed mine land adjacent to the current facility in Monongalia County.

FORECAST: Utilities employment is forecast to remain relatively flat for the rest of 2021, followed by a period of decline through the end of our forecast period. Total employment is expected to fall under five thousand jobs in 2022, a decline of about 2 percent from 2020 levels, and remain suppressed through 2026. This forecast relies on the continued operation of all three of the West Virginia power plants mentioned above at least through 2028, after our forecast period ends.

Manufacturing in West Virginia

West Virginia’s manufacturing sector struggled during 2020, as the COVID-19 pandemic led to an unprecedented decline in activity across the US and global economies in the first and second quarters of the year only to be followed by major disruptions in the supply chain and labor markets that continue to this day. Overall, the sector recorded its largest annual decline in payrolls and output since the Great Recession and several subsectors have had difficulty recovering to pre-pandemic levels due to input shortages as well as ongoing labor supply problems related to unfilled job openings and workers being quarantined or isolated as a result of covid exposures.

Even with the major challenges the sector has faced during the pandemic, and a large portion of the past 20 years in general, manufacturing remains a key part of the state’s economy for several reasons. First, 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. Secondly, the manufacturing sector accounts for 7 percent of all jobs and roughly 10 percent of total economic output in West Virginia, yet some areas such as the Potomac Highlands and portions of the Kanawha and Mid-Ohio valleys retain a sizable manufacturing footprint. In addition, areas such as the Eastern Panhandle have experienced nascent growth in their manufacturing bases in recent years thanks to an influx of new facilities.

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 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 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 the site’s operational capacity has progressed and new product lines have been added over the past couple of years, the workforce has increased to more than 1,400 people. Furthermore, the facility has helped to spawn the co-location of several packaging and logistics firms at the site. The pandemic has caused some disruptions to the facility’s operations, largely as a result of worker quarantines/isolations due to covid exposure and supply chains that have been constrained throughout the economy. At the same time, however, many of the facility’s product lines have seen increased demand over the course of the pandemic as businesses and households have placed more focus on surface cleaning and hygiene.

While most segments of the West Virginia’s chemicals subsector have at least stabilized, the state’s small pharmaceuticals industry was dealt a major blow in late-2020 as Viatris announced that it was ceasing productions at its Mylan oral dose manufacturing plant in Morgantown. The company began by eliminating half of the onsite jobs in July and will effectively shutter the facility in early-2022. Altogether, the closure will result in the loss of roughly 1,500 jobs, though Viatris announced the company’s research and development labs in the Morgantown area would remain open. Viatris is also currently engaged in talks with West Virginia University to convey the production facility over to WVU Medicine for future use as a research facility or some other purpose.

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 been the fastest-growing segment of West Virginia’s manufacturing base over the past decade, and in fact is the only one to record consistent increases in jobs and output since the early 2010s. Overall, auto parts plants have added jobs at an average annual rate of 2.5 percent 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.

Unfortunately, the auto manufacturing industry has experienced significant turmoil during the pandemic due to a global shortage of semiconductors used in auto electronic components, which has led to production pauses at Toyota’s plant on several occasions. In addition, Hino Motors was forced to halt operations at its Parkersburg area facility as certification issues for its large truck engines during the third quarter of 2020 and the plant has remained idled since then as the company irons out the compliance issues. Hino recently announced it would restart its assembly operations in October 2021.

The state’s aerospace industry has struggled at times over the past decade, but the collection of aviation services and aircraft engine and parts manufacturing firms in North Central West Virginia have enjoyed solid growth in recent years thanks to increased 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. The facility should see additional expansions as Northrop Grumman has announced that it will hire several hundred workers over the next few years.

WOOD PRODUCTS Although West Virginia’s wood products and furniture manufacturers have enjoyed some degree of recovery from the national housing market’s collapse in the late 2000s, growth has been somewhat uneven over the past few years. Issues such as the softwood labor dispute with Canada had an appreciable impact on the domestic lumber supply chain that hurt a lot of domestic sawmills and framing lumber producers. Furthermore, the Verso Corporation’s paper mill closure in neighboring Maryland has eliminated a source of demand.

The biggest story over the past 18 months, however, has been the chaos across the industry’s supply chain caused by the COVID-19 pandemic occurring at the same time as demand for new housing has surged. Capacity utilization rates for sawmills and other raw lumber processors have only recently climbed back to levels seen prior to the pandemic. Framing lumber prices skyrocketed to historic highs earlier in 2021 due in part to a combination of labor shortages and out-of-sync tree harvesting schedules squeezing domestic supplies, particularly in the Southern US. Homebuilders have slowed the pace of new housing starts over the course of 2021 in order to smooth out these supply chain issues, which has allowed production to slowly catch up with these healthy levels of new home demand.

Sector Outlook

The forecast calls for West Virginia’s manufacturing sector to see markedly improved conditions in comparison to its performance from the past ten years. Some of these gains will reflect a rebound in activity as the impact of the COVID-19 pandemic wanes over the next year and supply chains begin to stabilize, but several subsectors are poised to build upon healthy growth observed over the past several years. Overall, manufacturing sector employment in West Virginia is expected to increase approximately 0.7 percent annually through 2026. The state’s aerospace equipment and motor vehicles and parts manufacturers are expected to be among the leaders in job growth going forward, along with food and beverage production as well as machinery manufacturers.

CHEMICALS OUTLOOK In a reversal from previous reports, the chemicals subsector is expected to be the weakest in terms of employment growth during the outlook period. However, we anticipate the ongoing job losses associated with the closure of Mylan’s plant in Morgantown will account for most of the subsector’s weakness over the forecast horizon. Indeed, outside of the losses associated with Mylan, prospects for the chemicals subsector in West Virginia are positive on balance, due in large part to its growth in the Eastern Panhandle. P&G is expected to expand capacity over the longer term at its state-of-the-art operations in Berkeley County as production from other older plants in North America are shifted to the newer, more efficient operation. Also, the plant will likely foster further growth vis-à-vis suppliers and logistics firms moving into the area, which could then in turn promote clustered manufacturing and supply chain development the area’s proximity to major population centers and availability of access to two interstate highways.

Insulation materials manufacturer Rockwool (ROXUL) recently began operations at its $150 million facility in Jefferson County, while Clorox continues to build out its Berkeley County plant where it will produce Fresh Step, Everclean and Scoop Away cat litter. The plant is expected to commence operations in the first half of 2022, resulting in the addition of just over 100 new jobs.

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 as one of the investing partners backed out, though PTTGC indicates they are still committed to move forward with the long-awaited project once an alternative partner is identified.

AEROSPACE AND AUTOS 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 2.5 percent annually over the next five years, with most of the increase attributed to Toyota and Hino re-starting or expanding production that has been hampered by supply chain disruptions for semiconductors.

At the same time, Toyota is also forging ahead with new investments at its Putnam County plant, particularly the $110 million investment to double production of transaxles for hybrid vehicles. Both Toyota and Hino could see additional capacity upgrades over the long term as production of electric and hybrid vehicles become an increasingly larger share of the US consumer and automotive fleet. In an effort to incentivize their use, provisions ranging from tax credits for electric vehicle purchases to the installation of hundreds of thousands of battery recharging stations across the country are featured in the Infrastructure Investment and Jobs Act and the 2022 budget reconciliation plan that are currently being debated in Congress.

OTHER SUBSECTORS Wood products and furniture manufacturers are expected to increase payrolls at an average annual pace of nearly 1 percent through 2026. The combination of strong homebuilding activity and the supply chain returning to normal conditions will buoy sawmills and other early-stage fabricators. The nonmetallic minerals subsector is expected to outpace the broader manufacturing sector in terms of employment growth during the outlook period, particularly during the first half of the forecast horizon. Several large highway and bridge construction projects funded by the state’s Roads to Prosperity program will boost demand for cement and concrete. In addition, the Biden Administration’s infrastructure package and budget reconciliation bill provide for aggressive levels of spending on surface transportation and other big-ticket projects that use these building materials.

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.

PRODUCTIVITY Real manufacturing output is expected to rise at an average annual rate of nearly 1.7 percent between 2021 and 2026. At the same time, the manufacturing sector will see weak productivity growth over the next couple of years as companies currently face labor constraints due to the pandemic and will need to increase hiring activity in order to expand production – or in the case of some manufacturers, to satisfy a backlog of orders that accumulated during the pandemic. Nonetheless, the average value of real output per manufacturing worker in West Virginia is expected to begin rising again by late-2022 and will increase at a healthy pace for the remainder of the outlook period.

MANUFACTURING EXPORTS Following several years of relative stability, chemicals exports declined during 2019 and 2020. Most of the state’s chemicals exports stem from the wide array of commercial- and industrial-use resins and polymers produced by chemicals manufacturers located throughout the Ohio and Kanawha Valleys. During 2020, the inflation-adjusted value of chemicals exports slipped to $1.3 billion, the subsector’s lowest export total since the Great Recession. Most of this weak reading can be attributed to the global pandemic outbreak during the first half of the year, as most industrialized countries shut down large portions of their economies in order to slow the spread of COVID-19. Shipments are on pace to rise moderately during 2021 as the Delta variant of SARS-COV2 led to a pullback in global economic activity during portions of the second and third quarter.

Aside from chemicals, exports from West Virginia’s other major manufacturing subsectors totaled $1.3 billion in 2020, a 13 percent loss compared to 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 slumped to less than $144 million during 2020, but preliminary data for 2021 suggest global shipments will double to roughly $300 million.

Chapter IV: Government in West Virginia

As reported in previous sections, government is the largest employer in West Virginia, accounting for about one-fifth of all jobs in the state. [3] Further, total state and local government spending in the state is nearly 25 percent of West Virginia’s total personal income, and the US federal government transfers a significant amount of income into the state. Taken together, government has a significant economic influence in the state, and as such, in this section we explore the role of government in West Virginia in two ways: First, we detail the size and composition of state and local government activity in the state. Second, we consider public assistance in West Virginia that is provided by the US Federal Government in conjunction with the State of West Virginia.

West Virginia Government

GOVERNMENT SIZE As illustrated in Figure 4.1, West Virginia ranks in the lower half of US states in terms of the size of overall state and local government when measured as total spending on a per capita basis. Eighteen states have smaller state and local governments when measured by this metric. [4] However, it is also important to consider government spending measured relative to state personal income, especially since personal income per person in West Virginia falls below the national average. As reported in Figure 4.2, West Virginia’s state and local governments are larger than average when total spending is measured relative to personal income. Total state and local government spending in West Virginia is about 25 percent of state personal income, compared to the US average of 21 percent; indeed, only eight states have larger governments by this metric. Overall, the answer to the question “How large is state and local government in West Virginia?” is mixed depending on the metric used: The absolute size of the government is relatively small, but a relatively large portion of the state’s limited resources are devoted to government expenditures. 

EXPENDITURE COMPOSITION In Figure 4.3 we report the composition of state and local government spending in West Virginia. As illustrated, West Virginia devotes the largest share of its government resources to social welfare programs, such as Medicaid and the State Children’s Health Insurance Program (SCHIP). West Virginia governments devote 30 percent of their overall spending to this category, compared with a national average of nearly 27 percent. West Virginia devotes more than 28 percent of its overall government resources to education services, above the national average of nearly 28 percent. West Virginia governments direct 9 percent of their expenditures to insurance trust expenditures for public employees, which is comparable to the national average of 9.4 percent. Further, governments in the state focus relatively heavily on transportation spending. In West Virginia 8.6 percent of total spending goes to transportation-related projects, compared to a national average of just under 7 percent.

EXPENDITURE AND REVENUE GROWTH In Figure 4.4 we report the growth in state and local government expenditures per person in West Virginia over the past few decades. As illustrated, West Virginia governments have increased their aggregate size from just under $6,000 in total spending per capita in 1990 to nearly $10,500 by 2019, in inflation-adjusted terms. However, over the entire period, West Virginia governments have remained below the national average in terms of spending per capita. In Figure 4.5 we report revenue collection for the state government only. Here we see very steady revenue collection from 2012 through 2018 (not accounting for inflation), followed by a noticeable jump in the 2019 fiscal year, a decline in the 2020 fiscal year, and then strength in the 2021 fiscal year.

OWN SOURCE REVENUE In Figure 4.6 we report state and local government own-source revenue per capita across the 50 states. Here West Virginia falls in the bottom fourth of states based on this metric (7 other states have lower own-source revenue on a per capita basis). The fact that West Virginia is relatively low in terms of own-source revenue, compared to total expenditures per capita, is driven by West Virginia receiving an above-average share of its revenues from the US Federal Government.

REVENUE SOURCES Figure 4.7 illustrates the sources of West Virginia state and local government revenue. West Virginia receives the largest share of its total revenue from the US Federal Government. Overall, more than 27 percent of total revenue received by West Virginia governments is a federal transfer, which is significantly higher than the national average of nearly 19 percent. West Virginia governments are in alignment with most states in terms of their reliance on sales taxation: West Virginia governments derive 16 percent of their total revenues from sales taxation, which is about the same as the national average. Similarly, West Virginia governments derive 11 percent of their total revenues from individual income taxation, also comparable to the national average. In contrast, the reliance on the property tax in West Virginia—nearly 9 percent of total revenue—is well below the national average of more than 14 percent.

STATE SHARE OF TOTAL SPENDING In Figure 4.8 we report the share of total state and local government spending in a state that is directed from the state government. As illustrated, West Virginia is fourth highest among the states in terms of this metric. This indicates that West Virginia is a relatively centrally structured state with the state government taking on relatively more responsibility, and leaving far less responsibility to the local governments, compared to the national average.

Public Assistance in West Virginia

Total transfer payments made in West Virginia in 2020 amounted to nearly 34 percent of personal income in the state, as depicted in Figure 4.9. That figure has increased noticeably over the past decade or so, with a rapid spike in 2020 due to the COVID recession. Further, transfer payments in West Virginia are substantially higher as measured against personal income when compared to the national average; for the nation, transfer payments were equivalent to nearly 22 percent of personal income in 2020. Indeed, the 34 percent figure placed West Virginia highest among the 50 states in 2020 in terms of reliance on transfer payments.

In Figure 4.10 we disaggregate transfer payments into various broader categories. As illustrated, social security is by far the largest individual program, accounting for over 36 percent of total transfer payments made in West Virginia in 2019. Medicare and Medicaid came in second and third, accounting for around 25 and 18 percent of total transfer payments, respectively. All other transfer programs pale in comparison to these three when represented as a share of total expenditures in the category. The Supplemental Nutrition Assistance Program (SNAP) in the state comes in a distant fourth in terms of its spending share, accounting for just under two percent of total transfers.

It is interesting to note how the composition of transfer payments has evolved over the past 25 years. Spending on Medicare and Medicaid has increased substantially since 1994 as a share of total transfer payments. Social Security spending has fallen slightly in relative terms, along with all of the various other government retirement and disability programs reported.

In Figure 4.11 we illustrate the composition of transfer payments nationally. The figure illustrates a significant degree of similarity to the pattern observed in West Virginia in terms of the size of relative programs and in terms of the evolution of spending patterns over time.

Figures 4.12 and 4.13 illustrate the size of specific public assistance programs in West Virginia. In Figure 4.12, we report the number of individuals who receive benefits from specific public assistance programs in West Virginia. In Figure 4.13 we report the share of the population receiving benefits from each program, and we offer a comparison to the national share. With 478 thousand recipients, Social Security benefits are enjoyed by the largest number of West Virginians, representing nearly 27 percent of the state’s population. This figure is substantially higher than the corresponding figure at the national level of 19 percent, largely due to the state’s older population.

The SNAP program has the second highest number of recipients at 304 thousand, or around 17 percent of the state’s population. This figure is also higher than the national figure of around 13 percent. Participation in all other transfer programs in West Virginia pales in comparison to these largest two. Supplemental Security Income comes in at a distant third with 71 thousand West Virginians participating in a typical month in 2019. A larger share of West Virginians participates in all these transfer programs compared to the nation, with the exceptions of the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Figures 4.14 and 4.15 examine the receipt of unemployment insurance benefits in West Virginia. As illustrated, the duration of unemployment insurance benefits fell significantly between 2010 and 2012, and again since 2017. For 2020, driven by the COVID-19 pandemic, the average duration of the unemployment insurance benefits received was at a historical low of 12.3 weeks, which is almost identical to the US average of 12.5 weeks.

In Figure 4.15 we illustrate the average weekly unemployment insurance benefit amount. As illustrated, benefits have risen in nominal terms since 2000, except for a drop during 2009-2010 and again in 2017 as the economy improved. Overall, the typical West Virginian who received unemployment insurance benefits during 2020 received around $335 per week, compared to around $383 per week nationally.

Chapter V: West Virginia’s Counties

While statewide figures reflecting West Virginia’s economy are important, it is important to recognize that they mask significant economic and demographic variations across the state’s regions and counties. As such, in this chapter we illustrate several key economic statistics performed during the past decade across each of the state’s 55 counties and how these measures are expected to perform from a geographic perspective over the next five years.

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