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.