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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.

Figure ES.1 shows a summary measure of economic and demographic indicators for West Virginia and the US, comparing each area for the 2010-2020 historical period and 2021-2026 forecast horizon. West Virginia will lag the national average in all cases durin

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.