West Virginia Economic Outlook 2023-2027

Greetings! I am happy to present the 2023-2027 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 has nearly fully recovered from the COVID-19 recession. While the pandemic does continue to have lingering impacts on aspects of the economy, e.g., the labor force and persistent bottlenecks in supply chains for some products, most of the state’s big picture economic indicators now surpass pre-pandemic levels and several have even managed to reach new highs (or lows). West Virginia’s economic growth prospects for the next five years are moderately positive overall thanks to further waning of the pandemic and some major economic development announcements and initiatives; however, the state’s economy does face heightened downside risks to its performance over the next year or so because of national concerns over the impacts of high inflation and rising interest rates. Also, geopolitical issues continue to cast a shadow of uncertainty. 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 95,000 in March and April 2020. As of late-summer 2022, preliminary data shows nearly 93,000 jobs have been regained—leaving the state nearly on par with its pre-pandemic level.
• Several sectors have seen activity return to or surpass what was considered typical before the pandemic, led by construction and business services. Nonetheless, many sectors continue to deal with severe supply chain problems and others are facing record-high rates of unfilled job openings.
• The state’s unemployment rate surged to nearly 16 percent in April 2020 but has declined significantly since then. The jobless rate reached an all-time low of roughly 3.5 percent during the second quarter of 2022.
• 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 key hurdle to economic growth.
• Per capita personal income in West Virginia increased by more than 7 percent in 2021, fueled in large part by federal government pandemic relief and surging wage growth. Per capita personal income in West Virginia stands at 76 percent or so of the national average.
• West Virginia’s real GDP increased 4 percent in 2021, helping to offset the drop in economic output observed during 2020. The state’s topline measure of real economic output remains volatile, largely because of the energy sector, and that volatility continues into 2022.
• Export shipments from West Virginia have also been quite volatile in recent years, due in large part to swings in energy demand, persistent problems with shortages of key manufacturing equipment, and congestion at seaports. 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 two years, however, and should average in the low-80-million-ton range during the medium term, in part due to global export demand.
• As domestic demand for coal continues to retreat over the long term, increased reliance on the global coal trade will create more year-to-year volatility for West Virginia’s coal industry.
• Natural gas production increased 6 percent in 2021, following two consecutive years of 20+ percent growth in output. Production growth has moderated further during the first half of 2022 but drilling activity has increased amid high market prices and rising global demand, which should boost output going forward.
• West Virginia’s natural gas industry has experienced significant output growth since 2016, becoming the nation’s fifth-leading producer of gas and third-highest producer of natural gas liquids. However, downstream manufacturing activity in the Appalachian Basin will be essential to supporting growth and broadening prosperity in West Virginia’s natural gas industry over the long term.

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

• West Virginia will reach pre-pandemic levels at some point during the fourth quarter of 2022, but ultimately employment growth is expected to slow in the coming quarters as higher interest rates and other factors weigh on broader US economic growth. Overall, payrolls in West Virginia are expected to increase 0.3 percent annually, compared to 0.4 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 see some benefit from global demand growth, particularly the developing world, but domestic use will shrink as more coal-fired generating capacity is retired.
• The construction sector’s near-term performance will be hurt by the national housing market slowdown, but the overall outlook has improved thanks to a mix of public infrastructure investment and major economic development projects. The $2.7 billion investment by Nucor will be one of the single-largest developments in state history.
• Manufacturing will also add jobs at an above-average pace during the five-year forecast horizon and is also expected to enjoy some diversification into new industries, such as clean-tech manufacturing.
• West Virginia’s healthcare sector will grow at a slower rate compared to the last decade or so, but the state’s underlying demographics should support service demand and recent strategic developments and additions by several health system networks provide upside potential.
• The state’s unemployment rate is expected to increase over the next year or so, reaching five percent or so by late-2023/early-2024. This increase will largely be driven by entry into the labor force.
• Real per capita personal income is expected to grow 1.6 percent annually through 2027. Investment income and transfer payments are expected to register the fastest growth over the next five years, while wages and salaries will increase at just over one percent annually.  

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 approximately 76,000 residents since 2012. Population losses are expected to be smaller in magnitude going forward.
• West Virginia’s age distribution ensures natural declines in the population will continue and likely grow larger in the coming years. Positive shocks to the economy are essential to encourage in-migration and reduce 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 half of the state’s counties are expected to lose jobs or record minimal job over the next five years. The highest rates of job growth tend to be in the northern counties.
• While the state overall is expected to lose population in coming years, a handful of counties are expected to add residents are expected to add residents during the outlook period. Population gains will occur 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

While the United States economy has now fully recovered by almost every measure from the sharp recession that was driven by the COVID-19 pandemic, a new wave of significant uncertainty has emerged that has the potential to trigger new recession. The cornerstone of this new wave of uncertainty surrounds inflation. The US is currently observing rates of inflation of around 8 percent on an annual basis, a rate that has not been observed since the early 1980s.

This rapid inflation is being driven by at least four factors: First, global supply chain constraints continue to linger after the pandemic, driving up prices for goods that are in short supply, such as automobiles. Second, widespread workforce shortages emerged during the pandemic as many men and women left the labor force. These workforce shortages lead to more aggressive wage increases to attract workers to fill job openings, and these wage increases typically filter through to higher prices. It is difficult to predict when either of these challenges will subside.

Third, energy prices have skyrocketed in 2022, due to several factors—one being Russia’s invasion of Ukraine. High energy prices not only have a direct impact on overall inflation, but filter through to increase the price of goods and services more broadly due to higher production and transportation costs. Finally, overall demand in the economy has been strong, in part due to aggressive fiscal and monetary policy stimulus measures over the past two years.

This high rate of inflation would undoubtedly create great long-term damage to the US economy if left unchecked, as observed in the US in the 1970s and in many other countries over time. Returning inflation to a modest and stable position is and should be a top priority for economic policymakers. As such, the Federal Reserve has worked very aggressively over the course of 2022 to raise interest rates to suppress overall demand in the economy and therefore reduce inflation. Indeed, the speed at which the Fed has increased rates this year has been as aggressive as ever observed over a short period of time. The fast pace of interest rate increases is partly because the Fed was slow to begin the cycle of interest rate increases due to lingering concerns over new coronavirus variants and outbreaks that continued until early-2022, as well as the unanticipated rapid increases in energy prices in 2022.

Overall, much of the great uncertainty facing the US economy currently stems from the interaction between inflation and these interest rates increases. Indeed, our baseline expectation is that the US economy will follow a path of very slow, albeit positive, economic growth over the next five years overall. In other words, we believe it is possible that the interest rate increases can be timed appropriately such that a broad recession does not develop, and inflation returns to a rate that is considered acceptable (around 2 percent).

However, a strong probability exists that the interest rate increases will prove to be too detrimental to economic growth and would likely tip the economy into at least a moderate broad recession within the next year.

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. Likewise, GDP growth was strong as the economy emerged from the pandemic. Over the course of 2022, in contrast, GDP growth has weakened considerably, and though year-over-year growth rates have remained in positive territory, annualized GDP growth rates that are typically quoted in news media (not shown) have now been negative for the first two quarters of 2022 (according to preliminary data). While these outright declines in GDP constitute a recession by the traditional definition and would typically raise serious concerns that the US economy will soon be in a full recession, the quarter-to-quarter declines in real GDP have been concentrated in a few sectors, such as housing, auto sales and federal government spending.

PRODUCTIVITY Worker productivity, as measured by output per hour worked, is the fundamental 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. Despite a brief rise around the COVID-19 recession, productivity growth is expected to remain below the 30-year average, and the questions of why this has occurred and how to reverse it are 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, rose significantly during the COVID-19 recession due to a large increase in transfers and several stimulus measures. Over the course of 2022, in contrast, federal government spending has fallen significantly as the labor market has strengthened and many of these federal pandemic relief measures have expired. Reductions in government spending create a headwind for overall economic growth in the short term.

EMPLOYMENT As depicted in Figure 1.4, the US labor market was strong 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 and the labor market is at or close to its pre-pandemic level, depending on which measure of employment is examined. Overall, the national economy again is at or near its full employment level.

UNEMPLOYMENT Turning to the unemployment situation, the national unemployment rate stood at a low of 3.6 percent just before the beginning of the COVID-19 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 jobless rate fell rapidly as pandemic-driven lockdowns ended in 2020 and has continued to improve since as hiring activity has remained consistently strong for much of the last 16 months or so. Currently the rate stands near a historic low in the mid-three 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 has fluctuated widely over the course of the COVID recession and recovery in an understandable way. As the labor market has strengthened over the past two years, the figure is now roughly equivalent to its pre-COVID level.

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 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 the early 1980s. As illustrated, the figure peaked around 2000 at 67 percent, fell substantially after 2008, and then maintained stability up until early-2020. The broad evolution of this figure is largely driven by demographic processes, namely the emergence and aging of “Baby Boom” generation. The figure began to rise substantially around 1965, when the first of the “Baby Boomers” were nearing 20 years old. This measure continued to rise through the late 1990s, 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.

In addition to the baby-boomer effect, the post-WWII structural change in labor force participation rates was driven in large part by meaningful gains in the female labor force that occurred through the mid-1990s.

Labor force participation once again fell substantially because 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 begun to improve, recovering to over 62 percent. However, the figure is still about one percentage point below its pre-COVID level, due primarily to a slower recovery in labor force participation among workers in older age groups (i.e. 55 and older).

Overall, the declines in labor force participation 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.

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 200 thousand leading into the COVID-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 over the second half of 2020, the figure fell to its pre-pandemic level in the spring of 2022 and has increased only slightly.

HOUSING STARTS Housing starts are often an important signal of movements in economic activity. In Figure 1.9 we report housing starts for the nation. As illustrated, housing starts suffered noticeably during the COVID-19 recession, but then bounced back in 2021, in large part due to extremely low interest rates, large increases in household savings and pent-up consumer demand. Over the course of 2022, however, the level of single-family starts has declined significantly in recent months due to a major erosion in affordability caused by significant increases in mortgage rates and high house prices. This is an important early indicator that the recent interest rates increases have had a major impact on one major segment of the economy that is negatively affecting broader US economic activity.

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 achieve its full potential until confidence is restored. 

As reported in Figure 1.10, US consumer confidence fell markedly in early-2020 in response to the COVID-19 pandemic. The figure showed some noticeable improvement over the course of 2021. However, the figure has fallen dramatically over the course of 2022 and is near historic lows currently, driven largely by high gasoline prices, high overall inflation, and other factors such as the massive volatility in equity markets and Russia’s invasion of Ukraine. Low consumer confidence is a crucial measure currently and is an important factor in determining the probability of a new recession.

Economic Outlook

GDP OUTLOOK As described above, economic forecasting is especially difficult currently given the situation that the nation faces with regards to inflation and rising interest rates. As illustrated in Figure 1.11, our forecast calls for a very slow rate of growth over the next two years, with a gradual return to a more typical rate of growth later in the outlook period. However, we do not expect a return to a rate of growth that equals the 30-year average over the outlook period.

EMPLOYMENT / UNEMPLOYMENT OUTLOOK Our employment outlook is illustrated in Figure 1.12. The forecast calls for employment to continue to grow at a modest pace over the outlook period. However, this is subject to a higher-than-average level of uncertainty, as discussed above. In Figure 1.13 we present the forecast for the unemployment rate. The forecast calls for a gradual increase in the rate over the next two years, returning the figure close to its natural rate of around 5 percent. This expected increase in the unemployment rate will largely be driven by entry into the labor force, rather than by job loss.

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 1.14 through 1.16.

FEDERAL GOVERNMENT DEBT As depicted in Figure 1.14, 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 close to 100 percent of GDP. This places the figure at its highest level in history in apart from brief episodes during the Civil War, the Great Depression, and World War II. The figure is expected to remain high for the foreseeable future. Further, assuming no changes in public policy, the ratio 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 1.15, 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. Aggressive stimulus efforts surrounding the COVID-19 pandemic 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. However, as the economy has recovered since the pandemic began in early-2020, the figure has returned to around 18 percent, a figure that is still noticeably above historic norms.

In Figure 1.16 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 75 percent of all federal spending in 2021. Although this figure was boosted by a few percentage points for 2021 due to the lingering effects of the COVID recession and additional federal legislation such as the American Rescue Plan Act, we have observed an important increase over the past 20 years or so and most of this can be attributed to 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 Next, we turn to inflation – perhaps the most significant problem facing the U.S. economy in the short term. As reported in Figure 1.17, inflation has skyrocketed to around 7 to 8 percent on a year-over-year basis in recent months, depending upon which reported measure is used. This is the highest rate of inflation experienced in the US since the early-1980s and comes in sharp contrast to the mostly modest inflation that the US experienced for more than two decades, rarely moving outside of the 1 to 3 percent range—a period in economic history referred to as “The Great Moderation.” This sharp rise in inflation has been driven by at least four factors: a) high energy prices, in part driven by Russia’s invasion of Ukraine; b) continuing global supply-chain constraints that emerged during the COVID pandemic; c) workforce shortages that emerged during the COVID pandemic; and d) strong aggregate demand, in part driven by aggressive federal stimulus, both monetary and fiscal, over the past two years. It is very difficult to predict when the first three factors described will normalize. 

INTEREST RATES This high rate of inflation would undoubtedly create great long-term damage to the US economy if left unchecked, as observed in the US in the 1970s and in many other countries over time. Returning inflation to a modest and stable position is and should be a top priority for economic policymakers. As such, the Fed has worked very aggressively over the course of 2022 to raise interest rates to suppress overall demand in the economy and therefore reduce inflation. Indeed, the speed at which the Fed has increased rates this year has been as aggressive as ever observed over a short period of time. The fast pace of interest rate increases is partly because the Fed was slow to begin the cycle of interest rate increases due to lingering concerns over new COVID variants and outbreaks that continued until early-2022, as well as the unanticipated rapid increases in energy prices in 2022.

Overall, much of the great uncertainty facing the US economy currently stems from the interaction between inflation and these interest rates increases. It is possible that the rate increases can be timed appropriately such that a broad recession does not develop, and inflation returns to a rate that is considered acceptable (around 2 percent). However, a strong probability exists that the interest rate increases will prove too detrimental to economic growth and will ultimately tip the economy into at least a moderate broad recession.

INCOME INEQUALITY The final concern that we consider relates to rising income inequality in the US. In Figure 1.19 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 2020. The second lowest-income fifth of households earned around 8 of the total income in the nation in 2020, and so on. The highest-income quintile earned over 52 percent of the nation’s total income in 2020. 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. 

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.

We close the chapter by illustrating some facts surrounding race or ethnicity and the economic prosperity by gap in the U.S. In Figure 1.21 we illustrate median income by race or ethnicity. The figure shows stark differences across these race or ethnicity categories. Similarly, in Figure 1.22 we report earnings differences across race or ethnicity groups for those households who hold at least a bachelor’s degree.

Chapter II: The West Virginia Economy

Recent Economic Performance

West Virginia’s economy is on the verge of a full recovery from the COVID-19 recession. By some metrics, the state’s economy has already returned to pre-pandemic levels of performance. However, payroll employment, which contracted by approximately 95,000 between February and April 2020, has bounced back at a healthy pace since mid-2020—especially when compared to previous recession-recovery episodes. The rebound in employment rebound was strongest during May and June 2020 as the reopening process began, but payroll levels at businesses in the state have been on an upward trend for much of the last two years as nearly 93,000 jobs have been added on net since shelter-in-place orders were lifted in the second quarter of 2020.

Just as with the broader national economy, significant federal fiscal support, as well as a range of monetary and fiscal policy decisions (at the state level, as well as at the federal level), helped West Virginia’s economy avoid more catastrophic economic outcomes during the early phases of the COVID-19 pandemic. The state’s economy avoided the L-, W- or checkmark-shaped recovery scenarios that were feared by some and has recovered mostly on par with the V-shaped recovery that we anticipated in our forecast two years ago.

At the same time, West Virginia’s economic rebound from the COVID-19 recession has not gone without disruption. Indeed, spiking COVID-19 infections, hospitalizations, and deaths in late-2020 along with the surges associated with the Delta and Omicron variants in the second half of 2021 weighed heavily on healthcare capacity and disrupted business activity in many sectors across the state and caused the pace of recovery to trail that of the nation. Even with that said, however, total employment in West Virginia has recovered to 99.3 percent of its pre-pandemic level in January 2020 and we expect it should surpass the 100 percent mark at some point within the fourth quarter of 2022. With that said, by several metrics, West Virginia’s economy was not performing strongly prior to the pandemic due in large part to volatility in the state’s energy sector.

For several years prior to the pandemic, West Virginia’s unemployment rate averaged between five to six percent, exceeding the national average by roughly one percentage point or so during most months. Over the course of the pandemic, however, the state’s unemployment rate has been in line with or even below the national average. In fact, West Virginia’s jobless rate fell below 4.0 percent for the first time on record in early-2022 and has remained below that level in each month since, setting a new all-time low of 3.5 percent in May of 2022.

In many instances historically, declines in West Virginia’s unemployment rate can be explained at least in part by some combination of labor force attrition and underlying demographic trends. Over the 18 months or so, the sharp drop in the unemployment rate has arisen mostly from increased hiring activity, but ongoing friction between factors influencing the demand and supply for labor have also caused the labor market to appear even tighter based upon the measured unemployment rate.

ENERGY SECTOR Even as the economic footprint of extraction industries continues to shrink in West Virginia, especially with respect to coal, the natural gas and coal industries remain a key foundational component of the state’s economy. In some respects, these sectors also represent major opportunities and challenges for the state’s economy due to their connections to global economic, environmental, and political issues. Overall, the natural resources and mining sector accounts for just three percent of statewide employment, but the disproportionate deployment of capital equipment, highly interconnected supply chains (on both the input and output side), and the high wages paid out to coal miners and gas industry workers pushed the sector’s output to 15 percent of total statewide GDP in 2021.

 

After recording its lowest annual production level in roughly a century (outside of years characterized by major organized labor strikes) during 2020, West Virginia’s coal industry has rebounded over the past two years or so. However, even as global demand for steam and metallurgical coal has risen and Russia’s invasion of Ukraine has created a negative energy supply shock that has precipitated massive increase in world coal prices, further constraining the global coal trade, coal output from mines in West Virginia has only increased to the low 80-million-ton range. In addition, most of the rebound in production has occurred across the state’s northern mines, where tonnage levels have recovered to be roughly equal to pre-pandemic levels. New met coal operations have helped to bolster regional output in recent quarters, as has increased coal-fired electricity generation, which became more cost competitive amid the run-up in natural gas prices caused by the war in Ukraine.

West Virginia’s natural gas industry continues to develop and has benefited significantly from recent exploration and resource development in high-yield regions of the state’s Marcellus and Utica shale fields. After recording two consecutive years of production growth exceeding 20 percent in 2019 and 2020, natural gas output increased nearly seven percent in 2021 and withdrawals have jumped an additional six percent through the first half of 2022. Overall, these increases have enabled West Virginia’s natural gas output to rise to fifth among all states. Natural gas liquids (NGL) production has also expanded in significant fashion in recent years, increasing from 63 million barrels in 2019 to more than 102 million barrels in 2021. NGL production growth has slowed over the course of 2022, but NGL output from horizontal wells has increased nearly four percent through the first half of the year and is expected to see some increased demand over the near term as the Royal Dutch Shell ethane cracker just outside of the West Virginia border in Pennsylvania ramps up operations in the coming months.

Even as natural gas output has increased at a rapid rate over the past several years, including during the pandemic, employment levels in the natural gas industry are well below those seen during similar episodes of growth that occurred prior to the pandemic. While some of this represents an increased shifting of hires to contract labor firms, rapid technological progress and innovations in drilling practices have enabled upstream operators to enjoy dramatic increases in new well production without the same number of workers at the wellhead that might have been needed in previous years. Examples of new innovations include increasingly lengthier laterals, improved rotary engines and other equipment that have enabled drillers to operate more wells from one rig and access deeper wells with a larger ‘sweet spot.’ The net effect of these changing practices and innovations has been to dramatically increase operational efficiency and new well productivity. [1]

MANUFACTURING West Virginia’s manufacturing sector has experienced a rollercoaster ride in recent years. Following a string of positive developments, including the building out of Procter & Gamble’s campus in Berkeley County, expansion announcements by Toyota and Northrop Grumman, the sector has dealt with some significant issues over the past 2.5 years. Indeed, given the dramatic shift in consumer demand toward goods during the COVID-19 pandemic, producers in West Virginia (and elsewhere) have struggled with unpredictable production schedules due to global supply chain snarls for inputs ranging from semiconductors to lumber, labor shortages, and soaring fuel prices. In addition, decisions by Viatris to close its Mylan Pharmaceuticals facility in Morgantown and Mountain State Carbon to shutter its Follansbee-area coking coal plant have resulted in the combined loss of more than 1,700 manufacturing sector jobs in the state since mid-2021.

Despite the problems related to the pandemic and these recent plant closures, portions of the state’s manufacturing sector have performed well, and recent developments indicate some potential for growth in a sector that has been long characterized by stagnation or outright declines. For example, an additional $240 million capacity expansion is underway at the Toyota plant in Putnam County to build transaxles for hybrid vehicles and the company had already begun investing $210 million in the plant and hiring more workers to boost production of I-4 and V-6 engines.

Prospects for additional investments in the plant are also possible given the recent spike in gasoline prices and rising state and federal incentives for consumers to purchase hybrids and electric vehicles (EVs). West Virginia is also seeing a nascent emergence of other clean-tech manufacturers, following decisions by electric bus manufacturer GreenPower to build a plant near Charleston and next-gen EV battery manufacturer Sparkz’s announcement to build a 300-worker Gigafactory in Taylor County. Berkshire Hathaway Energy’s decision to build a renewable energy microgrid at the former site of Century Aluminum holds promise for further clean-tech developments but could also attract manufacturing firms to the area seeking to power their sites with lower-cost energy sources. Perhaps the biggest news for the state’s manufacturing sector comes from metals manufacturing, where Nucor has committed to build a $2.7 billion steel sheet mill facility in Mason County, which will employ as many as 800 workers upon completion in late-2024/early-2025. The Nucor development is expected to be one of the single-largest economic developments in West Virginia history.

SERVICE SECTORS While goods-producing sectors have endured significant turmoil over the course of the pandemic due to supply chain disruptions, labor supply shortages and erstwhile skyrocketing energy prices, the construction, energy, and manufacturing sectors have seen employment and output recover to the point that they are at least on par with pre-pandemic levels. By comparison, several service-providing sectors experienced massive drops in economic activity during the early phases of the pandemic and continue to see business activity lag pre-pandemic levels by an appreciable margin.

Capacity restrictions and concerns over infection risks in indoor settings were the significant hindrances for these sectors, particularly leisure and hospitality, during 2020 and portions of 2021. Since then, however, restaurants, bars and other leisure and hospitality sector businesses have faced persistent problems with labor supply shortfalls. Rising wage bills, increased worker turnover, greater competition for workers with other sectors and several years of lower immigration levels into the US have reduced the labor supply to some degree. Some segments of the leisure and hospitality sector will likely not see their payroll levels reach pre-pandemic levels until mid-2023 at the earliest, while portions of this sector are not expected to see staffing levels reach pre-pandemic levels at any point in the foreseeable future.

Healthcare is another sector that has faced a significant hit from the COVID-19 pandemic. Although many of the job losses the sector faced during the initial phases of the pandemic were recovered as hospitals began to re-open patient services by mid-2020, the successive waves of increased hospitalizations and ICU utilization rates in 2020 and 2021 took their toll on the sector, reaching the point of placing significant strains on staff and resource availability. Indeed, several of the state’s major health provider networks have struggled through episodes of over-capacity to the point of having to curtail other types of care and services and shift resources over to COVID-19 coverage.

Recent trends within the state’s healthcare sector enabled some providers to hold up relatively well during the pandemic and position themselves to maintain healthier financial conditions going forward. For example, the state’s largest health systems providers expanded their geographic footprints vis-à-vis mergers and joint venture agreements with smaller rural partners or struggling regional medical centers, which helped in not only buoying financial aspects of these facilities but also serve to protect (and eventually improve) patient care in underserved areas. Finally, the addition of a dedicated WVU Children’s Hospital at Ruby Memorial Hospital now provides the state, which has historically been underserved in many aspects of pediatric care, with advanced facilities and services that were once only available to residents who traveled to Pittsburgh, Cleveland, and other major cities along the East Coast.

PUBLIC SECTOR West Virginia’s public sector has endured some volatility of its own over the past 2.5 years of the pandemic. Aggressive federal fiscal and monetary policy response during 2020 and 2021 provided a significant backstop against revenue losses and lifted some of the burden off state and local agencies to pay for many emergency programs that were enacted during the pandemic. Furthermore, stronger-than-expected revenue growth allowed state and municipal governments in West Virginia to avoid the aggressive cutbacks in programs that many feared were possible at the onset of the COVID-19 pandemic.

With that said, however, total employment at the state and local government level in West Virginia has not yet recovered to pre-pandemic levels, as most of the health underpinning public sector finances over the past two years was made possible via federal government support. As temporary pandemic-era federal spending programs continue to expire over the next year or so, including many programs that were enacted as a result the American Rescue Plan Act in early-2021, state and local governments have had to maintain some degree of austerity with respect to some expenditure programs, including hiring, due to uncertainty over future budget conditions. Moreover, given that fiscal conditions were not especially strong prior to the pandemic due to a range of long-term economic and demographic trends, state and local government employment levels have declined by nearly eight percent since 2012.

By contrast, the federal government has been a source of new job creation in several parts of the state over the past several years, building upon the significant presence it already maintains within several regions such as North Central and the Eastern Panhandle. Most notably, the FBI, US Treasury and National Park Service have increased staffing levels by the largest margin overall.

LABOR MARKET TRENDS Based upon the unemployment rate, West Virginia’s labor market is at or close to full employment. While the state’s labor market is very tight in the context of the unemployment rate, it only provides a partial representation of labor market health. Specifically, West Virginia’s underlying demographic characteristics, cultural differences, industrial structure, and other unique factors differ enough that additional information is needed to assess labor market conditions. For example, while the state’s economy struggled for much of the 2012 to 2016 period, the unemployment rate indicated some improvement. Most of these gains were concentrated from a geographic perspective to stronger economic regions such as the Eastern Panhandle and North Central West Virginia. The rest of the state had much weaker conditions as more than 30,000 people exited the labor force, via retirement, migration to another state, or the discouraged worker effect. In addition, the opioid epidemic has had a significant impact on residents not maintaining steady employment or even actively participating in the workforce over the past decade or so.

As a result, one needs to examine the workforce participation rate, in conjunction with the jobless rate, for a more complete depiction of West Virginia’s labor market. As of 2021, West Virginia’s labor force participation rate was the lowest among all states at just over 55 percent, a ranking that it has maintained since the US Bureau of Labor Statistics began reporting this data series since 1976. 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 increased over the past couple of years and the workforce participation gap with the nation has narrowed slightly.

A significant trend that has emerged both nationally and within West Virginia that speaks to the massive swing in labor market conditions during the COVID-19 pandemic has been the sharp increase in the rate of job openings. According to the BLS, since early 2021 an average of seven to eight percent of all jobs available or filled in West Virginia. Some of this persistently high rate of job openings stems from the COVID-19 pandemic itself, as leisure and hospitality, healthcare and manufacturing have endured the highest share of open jobs. Of course, these sectors have recorded strong nominal wage growth over the past year or so as employers have had to compete directly with other sectors for hires. Other issues that are likely to be driving the high job openings rate for several sectors include an elevated level of early retirements during the pandemic as well as significantly lower levels of immigration into the US since 2016.

INCOME Per capita personal income, without accounting for inflation, in West Virginia reached approximately $48,500 in 2021, representing a 7.2 percent increase from 2020. While personal income growth was held up mostly by federal government transfer payments in 2020, several other forms of income contributed to rapid growth in the level of per capita incomes. Indeed, after a 3 percent contraction in 2020, wage and salary earnings for residents working within the state bounced back 6 percent in 2021 and commuters’ wages and salaries jumped 12 percent for the calendar year. At the same time, federal government transfers remained a big driver of personal income growth during 2021, as the expansion of the child tax credit and direct payments to households pushed transfer receipts 10 percent higher in 2021 after a 23 percent increase in 2020.

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 period as natural gas pipeline construction activity picked up and coal mine production began to rebound thanks to global demand. Wages did decline outright during 2020, though most of that decline occurred in the second quarter (26 percent annualized decline 2020Q2) in response to widespread business closures in the initial phases of the pandemic. Since the third quarter of 2020, however, wages and salaries (not adjusted for inflation) have increased at an average annualized rate of eight percent. Persistent constraints on the labor supply due to the pandemic and other underlying causes have driven much of this growth in wages over the past couple of years. However, broader inflationary pressures in the economy picked up significantly over the course of 2021 and 2022 and have led to much weaker increase in real wages and salaries. Indeed, real (inflation-adjusted) growth in wages and salaries has averaged just 3.5 percent since mid-2020 and several recent quarters have been characterized by outright contractions in real wages and salaries.

GDP After experiencing its largest annual percentage decline since the Great Depression (~4 percent), preliminary data indicate real GDP in West Virginia bounced back by a roughly equivalent rate in 2021. While the progression of the COVID-19 pandemic has created volatility in West Virginia’s economic performance, the state has tended to experience a much more uneven pace of real output growth over the past decade or so when compared to the national average. 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 a meager 0.5 percent average annual gain in real GDP between 2010 and 2019 (versus 2.2 nationally).

As much as the energy sector bolsters the state’s economy during periods in which demand is strong and production is rising, it accounts for a significant share of West Virginia’s economic volatility as energy demand tends to be highly cyclical and is also subject to global economic and geopolitical risk as well as natural disasters. 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, enabling them to contribute (positively or negatively) a disproportionate amount to overall statewide growth rate in a given year or quarter. In addition, the coal and natural gas industries have a highly developed supply 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.

West Virginia’s volatile pattern of growth continued into 2022, and the energy sector continued to account for an outsized share of changes in the inflation-adjusted value of real output. Indeed, real GDP declined at an annualized rate of 5.6 percent in the first quarter, and more than 3 percentage points of that drop came from the mining sector. Real GDP bounced back at a moderate pace in Q2 with a 1.4 percent (annualized) gain. The contribution from mining was smaller at 0.3 percentage points, but still represented the third largest positive contribution from any part of the private sector.

Recent Demographic Trends

POPULATION West Virginia saw its population decline in number for the ninth consecutive year in 2021 and has registered an overall loss of approximately 76,000 residents since 2012. Overall, the absolute and percentage declines in population over the past decade have surpassed the losses observed during the mid- to late-1990s but are demonstrably smaller than the massive population declines that occurred during the early- to mid-1980s economic collapse. West Virginia’s sustained population declines set it apart from nearly every state in the US. Indeed, because of this population loss the state will see its representation in the US House of Representatives drop from three to two beginning in 2023.

Unlike other states that have lost residents, West Virginia’s population declines have been driven both by net outflows of residents to other states and natural population losses in most years, which occur when deaths exceed births. West Virginia saw a large swing in net migration during 2021 as it recorded its first positive net inflow of residents from other states in nearly a decade. At the same time, the rate of natural population declines in West Virginia accelerated in 2021 as the state saw a significant increase in deaths caused by COVID-19, due in large part to the lingering impacts of the late-2020 surge and subsequent emergence of the Delta and Omicron variants. Indeed, the number of deaths in West Virginia increased nearly 12 percent in 2021 as the state suffered approximately 3,800 covid-related deaths during the calendar year.

According to the US Census Bureau, 12 of the state’s 55 counties are estimated to have gained residents between 2020 and 2021. Kanawha County saw the largest absolute decline in population (-2,100). Nineteen counties recorded an annual percentage loss in population of at least 1 percent during 2021, with McDowell County registering a 2.9 percent decline in resident population – falling to less than 18,400. Berkeley County remained the state’s fastest-growing county in absolute and percentage terms, adding more than 3,400 residents (2.8 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. Due to its higher mortality risk for older residents, the large increase in COVID-19 related deaths in West Virginia caused the state’s median age to decrease slightly to 42.8 years, though it remains 4 years above the national figure. 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-average 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 in number by just a few percent since 2012, deaths among residents in this age group have increased by more than 30 percent and non-drug-related causes of death have shown negligible changes over this same period.

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] At present, the US economy is expected to avoid an outright recession, but aggressive interest rate increases over the course of 2022 by the FOMC to cool broader inflationary pressures are expected to slow growth appreciably over the next year or so. In addition, downside risks such as ongoing war in Ukraine, a continued logjam in supply chains for many goods and questions around further Fed interest rate moves have heightened uncertainty with the near-term economic outlook, increasing the potential for a recession within the next year or so.

Overall, the baseline forecast calls for total employment in West Virginia to increase at a rate of 0.3 annually between 2022 and 2027, which will trail the national average of 0.4 percent during this period. On a positive note, however, we anticipate the state will outperform the national rate of growth during the first half or so of the outlook period thanks to several major economic developments occurring in the state.

Private service-providing sectors are expected to lead the way in new job growth through 2023, especially as those sectors hit hardest by the pandemic (e.g., leisure and hospitality and healthcare) work toward pre-pandemic levels of activity. At the same time, the construction and anticipated opening of several major industrial projects will boost statewide growth during 2023 and 2024. By early-2025, the forecast calls for the state’s economy to stabilize and post slight declines in payrolls during the final two years of the outlook period, as the state’s structural economic deficiencies and underlying demographic challenges return to the forefront and become even greater limiting factors to the state’s growth potential.

INDUSTRIAL PROJECTS The broader economy’s return to more normal conditions, as the impacts of COVID-19 pandemic continue to fade, will remain a key feature of the economic outlook. Nonetheless, an assortment of large-scale developments in the state’s manufacturing sector bodes well for growth both in the near- and long-term. The state’s auto supply chain in the Kanawha and Mid-Ohio valleys is expected to gain an even greater foothold in the region thanks to capacity expansion projects at Toyota’s production facility in Putnam County, one portion of which will include new line capacity to produce transaxles for hybrids and EVs.

This will mark one step in what is expected to be the early stages of development of an emerging clean-tech auto manufacturing network in the state. For example, GreenPower Motor Company announced in early-2022 that it will open a production facility for its Beast line of electric-powered buses in Kanawha County. The company has already started a pilot program with West Virginia’s state government to test the buses and potentially build buses for all counties (if proven feasible), but the plant will produce units for a market that is growing as more states set stricter limits on vehicle emissions.

Another project expected for this emerging industry in West Virginia is the recently announced Sparkz Gigafactory in Taylor County. The plant is slated to produce Cobalt-free batteries for industrial- and commercial-use vehicles initially, such as forklifts and tractors, but is expected to span out to automotive batteries once certification and testing processes have been completed.

Perhaps the most significant link in the chain to enhance West Virginia’s potential with clean-tech manufacturing (auto or non-auto) or manufacturers seeking to reduce their own CO ₂ emissions was the announcement by Berkshire Hathaway Energy (BHE) to develop a renewable energy microgrid to power a 2,000-acre industrial park in Jackson County. One of BHE’s own subsidiary businesses, Precision Castparts Corp., is expected to be the first company to operate at the site and will produce titanium castings for aerospace industry, but other manufacturers do are likely under consideration to locate at the site as recent legislation passed in the summer appears to target prospective industries.

Of course, the most significant project to emerge during the outlook period will be the construction and eventual operation of Nucor’s planned $2.7 billion steel sheet mill facility in Mason County. The site development and construction will be the single-largest project in state history and is expected to generate as many as 2,000 construction sector jobs during the peak construction phases plus an additional 800 production jobs once the mill becomes operational. 

Finally, several other projects across the state increase the prospects for new manufacturing activity in the state going forward. For example, Mountain Top Beverage is expected to begin production at new Morgantown-area facility at the end of 2022 but expand capacity further within the next several years. Moreover, the plant is one piece of a broader plan to expand use of the region’s industrial park and increase infrastructure access. While several manufacturers in the state have a direct connection to the defense and nondefense aerospace industries, West Virginia’s defense-based aerospace industry is expected to grow further within the next few years as Northrop Grumman recently announced it will build a strike missile production facility on its Rocket Center campus by 2024, resulting in the addition of several hundred jobs.

CONSTRUCTION West Virginia’s construction sector appears poised for healthy growth during the outlook period. While the sector’s homebuilding segment will likely be weighed down by the rapid rise in interest rates (in line with national trends), a host of major commercial, industrial and infrastructure projects will be well underway across the during the next few years and should be more than enough to offset weaker residential construction activity. Indeed, projects such as Nucor, BHE’s microgrid/manufacturing development, Sparkz, Greenpower, Mountain Top Beverage and other industrial construction projects will account for several billion dollars of new nonresidential projects over the next two to three years.

Federal and state infrastructure spending also promise to buoy the sector over the forecast horizon. For example, projects associated with The Roads to Prosperity program will be a key mechanism in facilitating highway construction activity in several major transportation corridors for the next few years. Federal spending has been and will continue to be extremely supportive of infrastructure and other public sector investment. Indeed, the CARES Act, American Rescue Plan Act, Infrastructure Investment and Jobs Act, as well as the Inflation Reduction Act potentially set forth trillions of dollars nationally in direct federal spending or incentives for highway, transit, broadband, energy (both renewable and fossil fuel), and other types of projects over the next decade. Several of the private sector projects planned or already underway in West Virginia have benefited directly or indirectly from one of these pieces of federal legislation.

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-80/upper-70 million short tons range through 2024. However, the forecast for coal production remains subject to appreciable risk over the next couple of years, namely due to the increased potential for an economic downturn in the US and parts of Europe within the next year as well as the negative global energy supply shock created by Russia’s invasion of Ukraine. High natural gas prices will continue to make coal-fired generation more competitive and boost domestic coal-fired power plant utilization, but the massive declines in generation capacity over the past decade suggest a relatively limited upside impact. Beyond 2024, however, we anticipate a steady decline in coal production as domestic demand for steam coal weakens amid the expected retirement of more coal-fired generation capacity. Global export demand from India, Vietnam, Egypt, and other developing nations will buoy coal production, as these countries need to build significant generating capacity (coal and other sources) to feed their rapidly expanding economies.

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 liquefied natural gas (LNG) demand. NGL production will be buoyed longer term as the Royal Dutch Shell ethane cracker in Beaver County, PA, is slated to enter service imminently, and while longstanding uncertainty remains about the feasibility for PTT Global Chemicals to build an ethane cracker in the Wheeling area, opportunities for downstream use of NGLs is expected to remain strong going forward and facilitate further exploration and development in Marcellus and Utica shale assets.

SERVICES Job growth will remain strong for several private service-providing sectors over the next year or so, as the labor market distortions caused by the COVID-19 pandemic continue to fade and businesses such as hospitals, medical offices, daycare centers, restaurants, and hotels get closer and closer to normal operating conditions. Healthcare services should continue to enjoy growth that exceeds the overall statewide average, as recent moves by WVU Medicine, Charleston Area Medical Center (CAMC), Mon Health and other major networks solidify the sector’s financial conditions and increase capacity within certain areas of patient care for state residents that were underserved or unavailable within the state. 

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 appear to be waning and the combination of high energy and food prices plus rising concerns over an economic downturn will continue to restrain household discretionary spending activity. Beyond the near term, West Virginia’s underlying demographics and the seismic shifts in the retail sector’s shift from brick-and-mortar to online platforms are major limiting factors to hiring by retailers in the state, particularly those outside of the state’s stronger economic regions.

PUBLIC SECTOR Government payrolls are expected to increase at a rate of 0.4 percent annually during the outlook period. State and local governments are expected to account for most of the new jobs added during the forecast as state, county and city governments in West Virginia end hiring freezes that were enacted during the pandemic. Significant levels of direct federal aid helped state and local governments in the state to fray costs that were associated with administering public health programs and other emergency provisions during 2020 and 2021. Tax revenue collections have surpassed expectations in each of the last two budget cycles and through the first 3 months of FY23, revenue is already more than $425 million above target.

Of course, we anticipate most of the hiring at the state and local government levels will occur over the next couple of years, since conditions underlying the long-term budget picture are much less certain. In addition, impending special items in the 2022 election (Amendment 2) could have significant repercussions on not only the way property and inventory taxes are collected but could also dramatically change the overall level of revenue collected. Moreover, municipal governments in several of the state’s economic regions do face appreciable downside risks from a declining base of population and structural declines in their core industries, which will likely weigh on fiscal capacity even further.

UNEMPLOYMENT After reaching 3.5 percent in mid-2022, the baseline forecast calls for West Virginia’s jobless rate to trend higher over the next year or so, reaching the low-5.0-percent range by late-2023/early-2024. Most of this upward movement in the unemployment rate will come from individuals re-entering the labor force, whether due to ‘un-retiring’ individuals, increased in-migration or potential for higher starting wages incentivizing discouraged workers back into the workforce to compete for open jobs. At the same time, the jobless rate could rise much higher and more quickly during the next several quarters not only due to how large these labor force additions might be, but also whether an economic downturn emerges and the extent to which any weakening in the national economy affects the state’s growth potential.

INCOME After increasing more than eight percent in the past two years, real per capita income is expected to contract roughly three percent in 2022. A significant portion of this decline stems from the discontinuation of enhanced unemployment insurance (UI) benefits and other emergency pandemic-related programs plus the end to enhanced federal child tax credit payments; however, a 40-year high in the rate of inflation has added to this loss in purchasing power for many individuals over the past year or so.

Strong labor demand and persistently high rates of job openings in several sectors have boosted wage growth significantly and will push wages and salaries adjusted for inflation higher by more than 4 percent in 2022. As these labor supply issues abate and underlying business labor demand cools over the next several quarters in capacity-constrained sectors such as leisure and hospitality and healthcare, we anticipate real wage and salary growth will average just below two percent in 2023 and 2024 before falling to between 0.5 and 0.6 percent annually over the remainder of the outlook period.

While the jobless rate is expected to rise somewhat in the coming year, the inflation-adjusted value of transfer payments is expected to decline in 2022 and 2023. Longer term, however, the state’s large and growing share of residents 65-and-older and persistent structural weakness in several economic regions will cause federal transfer payments to increase during the remaining years of the forecast horizon. By 2027, federal transfer programs will account for 27 percent of total personal income in West Virginia.

POPULATION Following a decade of losing an average of nearly 8,500 residents a year, West Virginia’s population losses are expected to slow considerably over the next few years. A declining severity to the COVID-19 pandemic suggests the state will see a smaller rate of natural population decline in 2022 and 2023 and the recent transition over to positive net migration inflows will continue. The state’s resident population losses are expected to average roughly 2,000 per year through 2024.

Unfortunately, the underlying structural economic and demographic trends that have prevailed in West Virginia in recent decades will be hard to overcome as the forecast progresses into 2025 and beyond. Economic regions that have experienced steep losses in employment and income will likely continue to do so, as these patterns are very difficult to reverse and require a significant exogenous shock for such a reversal of fortune to occur. In addition, low birth rates, poor health outcomes, and a high share of elderly residents all but guarantee West Virginia will continue to record natural population declines that will only grow larger as the population’s age distribution skews further to older age groups and issues such as the opioid epidemic continue to claim many lives.

Recent positive economic news such as Nucor, BHE and other developments could provide a shot in the arm to the state’s long-run growth prospects and lift the potential for larger positive migration flows into West Virginia from other states. Furthermore, enhanced broadband capabilities could allow some localities to become increasingly attractive to remote workers, which underpins the idea behind the Ascend West Virginia program. A $12,000 / worker incentive payment to workers and free complementary access to outdoor recreation areas and equipment rentals has helped the state attract out-of-state residents to move to a few pilot cities (Lewisburg, Morgantown, and Shepherdstown) and several others have been added for the second cohort of Ascend participants.

[1] For a more extensive discussion of recent trends in the state’s coal and natural gas industries, see the Energy section of Chapter 3 in this report.

[2] All forecast estimates for this document are derived from the West Virginia University Bureau of Business & Economic Research Econometric Model, unless otherwise noted. The model is based on an analysis of more than 100 variables that characterize the West Virginia economy.

Chapter III: West Virginia’s Economy: Industry Focus

Energy Sector Performance

West Virginia’s energy sector has experienced considerable volatility over the past two years during the sector’s recovery from the COVID-19 pandemic. Coal and electricity production fell sharply during 2020 but are set to recover somewhat over the next five years. Meanwhile natural gas experienced a runup in prices brought on by the curtailment of gas supplies to Europe following that country’s invasion of Ukraine. Higher prices are likely to provide incentives for additional production from the state’s gas wells over the near term. The state’s energy sector also faces uncertainty from new federal energy policies designed to reduce carbon emissions.

Coal

West Virginia coal production recovered considerably in 2021, after the downturn from the COVID-19 pandemic began to subside. The rise in coal demand is due largely to a return of industrial and commercial electricity requirements as economic activity recovered from the pandemic recession. West Virginia also experienced increases in overseas demand for coal, as exports rose to meet demand for electricity and steel production abroad.

WEST VIRGINIA SUMMARY: Total coal production came to nearly 81 million short tons in 2021, a gain of more than 16 percent over 2020 levels. However, production has not yet returned to pre-pandemic levels, which totaled nearly 98 million tons in 2019. Production so far in 2022 is on track to exceed 2021, reaching almost 84 million tons if present production levels continue

Despite production increases in 2021, coal employment was relatively flat when compared with 2020 levels. Total employment in 2021 was approximately 11,700 jobs, compared with about 11,650 workers in 2020. These levels are down considerably from 2019, when employment was nearly 14,500 jobs. Employment has picked up a bit in the first half of 2022. Preliminary data show that average coal employment in the second quarter was about 1,200 jobs higher than in the same period in 2021, a gain of about 11 percent.

REGIONAL TRENDS: Coal production in southern West Virginia continues to underperform relative to the northern part of the state The drop in coal production in the southern half of the state was particularly pronounced during the pandemic, as production declined from approximately on par with northern production—at about 10 to 11 million tons per quarter at the end of 2019—to less than 7 million tons in the second quarter of 2020, a 17-percent decline. Though production has recovered in 2022, it remains well below 2019 levels, coming in just under 9 million tons in the second quarter of 2022.

Coal mining employment also continues to be suppressed in the southern counties relative to pre-pandemic levels. Average employment in 2019 was approximately 9,700 workers, but averaged about 7,400 workers in 2021, a decline of nearly a quarter. Employment has started to recover in the southern part of the state in the first half of 2022, which experienced an increase of nearly 900 jobs through the second quarter. Southern West Virginia did experience a mild improvement in worker productivity in 2021, but those gains have turned negative in the first half of 2022.

Production in the northern part of the state has largely recovered from the pandemic slowdown, reaching a total production of about 44 million tons in 2021, down a little more than 6 percent from 2019 levels. The current rate of production in the northern part of the state in on track to exceed 2021 levels by about 1 million tons.

While coal mining employment in northern West Virginia fell sharply during the 2020 pandemic recession, it had partially recovered by the end of 2020 as demand for electricity rebounded. As of the second quarter 2022, northern West Virginia coal mining employment was approximately 4,450, down about 6 percent from the 2019 average.

EXPORTS: Overseas coal exports from West Virginia bottomed out at nearly the lowest levels in a decade during the pandemic recession but have recovered significantly in the last two years. Coal export volume topped $1 billion in the second quarter of 2022, a more than 200 percent increase over the $350 million exported in the same quarter in 2020. If current growth rates continue, coal volumes would top the recent 2018 peak of approximately $1.2 billion per quarter.

Natural Gas

Natural gas has experienced a volatile year, as supplies of the fuel to Europe from Russia were curtailed and ultimately cut off following Russia’s invasion of Ukraine in February 2022. Since the invasion, the price of natural gas in the United States has nearly doubled as this country began to export large amounts of liquified natural gas to Europe to meet demand overseas. Despite the additional demand for natural gas globally, production in West Virginia has been relatively flat when compared with 2021, though there are signs that exploration for new drilling sites is on the rise in the state, which could trigger additional production growth soon.

PRICES: Natural gas prices have fluctuated considerably over the last two years. In the second quarter of 2020 the Henry Hub spot price fell to $1.90 per million British thermal units (MMBtu), which in inflation-adjusted terms was the lowest level since 1997, the oldest data available. Since Russia invaded Ukraine, however, the price of natural gas increased from $4.79 per MMBtu in the first quarter of 2022 to $8.08 per MMBtu in the third quarter, a gain of 69 percent.

PRODUCTION: As shown in Figure 3.5, natural gas production in West Virginia totaled 2.8 trillion cubic feet (Tcf) in 2021, up about 6 percent from the previous year’s total of 2.6 Tcf. This production level was more than nine times higher than the beginning of the natural gas boom in 2010, when the state had about 265 Bcf of production. The increase in 2021 was slower than in 2020, which rose more than 20 percent over 2019 levels despite the pandemic recession. So far in 2022, production levels are on pace to be relatively flat compared with 2021 totals, to an annualized total of 2.8 Tcf, though this activity could increase as new wells are brought online to respond to high gas prices.

The slowdown in production growth in 2021 and the early part of 2022 was the result of a decline in new drilling activity during the pandemic recession. As shown in Figure 3.6, data from Baker-Hughes indicates the number of active drilling rigs in the state fell from an average of 18 wells in 2019 to 6 wells by the third quarter of 2020, a 64 percent decline. In response to increased demand and higher prices, drilling activity has started to recover in the first half of 2022. As of the second quarter 2022, the state had 14 active drilling rigs, which is likely to boost production in the latter part of the year and into 2023.

REGIONAL TRENDS: Natural gas production continues to be found primarily in the North-Central region of West Virginia where the Marcellus and Utica shale formations underlie the state. Tyler County had the largest amount of natural gas production in 2021, with nearly 711 billion cubic feet (Bcf) of production (See Figure 3.7). Marshall County had the second-largest production at 464 Bcf, followed by Doddridge (329 Bcf), Harrison (208 Bcf), and Wetzel (203 Bcf) rounding out the top five producing counties in the state.

PIPELINES: The last of the state’s major pipeline projects, the Mountain Valley Pipeline (MVP), has reached 94 percent completion so far in 2022 (Thomas 2022). However, the 303-mile pipeline that connects the natural gas producing regions of West Virginia with larger population centers in Virginia, continues to face court challenges that have put the pipeline on hold at various points since its construction started in 2018.

As part of negotiations over the federal Inflation Reduction Act, the Biden administration agreed to advance a separate bill that would speed environmental review of energy-related projects, including the MVP (Stein and Romm 2022). Recently, the bill was advanced as part of the emergency funding necessary to avoid a government shutdown but was taken out due to uncertainty over its success of passage. Senator Manchin expects to re-introduce the bill in the future, and should it pass through both chambers, it could mean the pipeline will be completed, thus opening up new demand for West Virginia natural gas.

Utilities

Power generation from West Virginia’s utilities recovered in 2021 from the 2020 recession, with total generation reaching pre-pandemic levels of output. However, utilities are reaching this level of output with fewer workers than in 2019, as employment has failed to recover as quickly as generation.

As shown in Figure 3.8, power generation from WV generating plants totaled 131 million megawatt hours (MWh) in 2021, up nearly 16 percent from 2020 levels. Total power generation in 2021 was about 3 percent higher than in 2019, when generation was 128 million MWh. Coal-fired power generation made up about 91 percent of total power generation, followed by renewable generation (includes hydro-electric, solar, and wind) at 5 percent and natural gas at 4 percent.

Despite the recovery in power generation in 2021, West Virginia has experienced a long-term decline in total power generation. This has led to a decline in the utilization of the state’s coal-fired power plants. As shown in Figure 3.9, the capacity factor ^[1] of the state’s coal plants fell from 69 percent in 2016 to less than 49 percent in 2020, before recovering in 2021 to 56 percent. Low capacity factors are a warning sign that a coal plant may shut down if it is no longer profitable to continue to run a plant at a low level.

Employment in the state’s electric utilities fell by about 200 workers during the 2020 recession to a little over five thousand workers. Employment in the industry remained essentially flat in 2021, rising by a fraction of a percent to just under 5,100 jobs.

Forecast

West Virginia’s economy faces considerable uncertainty over the near future. The war in Ukraine has created upward price pressure on natural gas supplies in the United States, which increases the value of the state’s natural gas reserves and is likely to continue to provide incentives for additional natural gas production. High gas prices may also cause the region’s electric power producers to switch from natural gas to the now relatively inexpensive coal, thus increasing demand for coal output.

In August, the US Congress passed the Inflation Reduction Act (IRA), which contains about $383 billion in spending aimed at reducing carbon output in the country. To the extent that these measures reduce the demand for coal and natural gas, the IRA could potentially suppress production and employment in the state’s fossil fuel industries. However, the IRA also provides incentives for electrification of both cars and buildings, thus increasing demand for electric power generation, which in West Virginia is largely provided by coal-fired power plants.

PRODUCTION: We forecast that coal production in the state will return to its long-run downward trend over the next five years (see Figure 3.10). Coal production in West Virginia is expected to fall from about 81 million tons in 2022, to approximately 69 million tons by the end of 2027, a decline of nearly 15 percent. Demand for the state’s coal faces headwinds from federal policy, as well as the ongoing switch to renewable energy in the nation’s power grid.

We forecast that natural gas production will return to a growth path between 2022 and 2027, as higher prices provide incentives for producers to restart gas exploration and drilling. Natural gas production is forecast to rise from about 2.9 trillion cubic feet (Tcf) in 2022 to 3.8 Tcf in 2027, a 5 percent increase per year on average during this period.

EMPLOYMENT: We forecast that coal employment will reach pre-pandemic levels by 2023, then begin to follow production downward through the end of our forecast in 2027 (see Figure 3.11). Coal employment is expected to end up essentially flat by the end of our five-year forecast window with an increase of less than 100 jobs, or a fraction of a percent over 2022 levels. Natural gas employment is expected to follow production increases, rising from about 5,000 in 2022 to about 6,500 workers by 2027, a gain of 5 percent per year on average. However, risks to the employment growth for the state’s natural gas industry are biased to the downside and thus could come in much weaker than anticipated. Specifically, as strong gains in productivity (via innovative drilling practices and increasingly efficient machinery) have reduced labor demand within the industry over time and this could continue to occur.

Despite state government efforts to support the Pleasants Power Station in Pleasants County, owner Energy Harbor announced in March that the company plans to shut down the coal-fired power plant by June 2023 (Tony 2022). The closure of this plant could adversely affect utilities employment in the state over the next five years. We forecast that utilities employment is expected to decline by approximately 90 jobs between 2022 and 2027, a decline of a fraction of a percent per year on average.

Manufacturing in West Virginia

West Virginia’s manufacturing sector has faced significant volatility over the past couple of years. After the initial phase of the COVID-19 pandemic caused an extraordinary collapsed in global economic activity for nearly two quarters in 2020, the sector has experienced an unparalleled disruption of global supply chains for nearly the past two years. While the sector overall has payrolls and output recover to be roughly on par with pre-pandemic levels, many portions of the manufacturing face significant lag times in production schedules due to ongoing shortages of key inputs as well as insufficient labor supplies and rail/seaborne transportation delays.

In addition to the problems created by the pandemic itself, the sector also experienced a couple of high-profile plant closures in the last year or so. Indeed, after a sustained period of operational problems and layoff events, Viatris decided to shutter its Mylan Pharmaceuticals plant in Morgantown, eliminating approximately 1,400 jobs. Mountain State Carbon closed its metallurgical coke plant in Follansbee earlier this year after deciding to change its steelmaking process to utilize scrap instead of coking coal, prompting the loss of 300 jobs.

Despite these recent challenges, and the broader structural changes that have affected the sector over the last few decades, manufacturing remains a key part of the state’s economy and appears to be poised to make some major advancements going forward thanks to some key developments and announcements that will be discussed later in this section. In terms of the present, however, 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 that play an integral role in global supply chains and domestic product markets. Secondly, though the manufacturing sector accounts for 7 percent of statewide employment and 10 percent of economic output in West Virginia, economic regions such as the Potomac Highlands and portions of the Kanawha and Ohio river valleys still possess a notable manufacturing presence. At the same time, other areas (such as the Eastern Panhandle) that traditionally have had smaller manufacturing footprints have seen major increases in activity in recent years thanks to new facilities coming online.

CHEMICALS While the Mylan production facility’s closure led to the loss of a significant number of jobs from West Virginia’s chemicals manufacturing base and essentially eliminated the state’s only pharmaceuticals industry presence, chemicals manufacturing continues to represent the single-largest manufacturing subsector. Indeed, roughly 20 percent of manufacturing jobs in the state and a two-fold larger share of output are found within across a range of chemicals manufacturing firms. 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.

Another type of chemicals manufacturing activity that has seen particularly strong growth over the past five years or so in West Virginia is the production of soaps and other cleaning. Indeed, 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 who handle product packaging and transportation.

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 production has added jobs at a rate of more than 6 percent annually since 2011. Of course, most of this growth has been connected to Toyota’s ongoing investments at its powertrain manufacturing facility in Putnam County, where the company’s initial payroll has gone from 200 at its beginning to more than 2,000 workers. Other developments of note for the subsector include the construction of Hino Motors Manufacturing’s truck assembly plant in the Parkersburg Area and its subsequent expansion, as well as erstwhile investments by companies such as NGK Spark Plugs and Allevard Sogefi, all of which have given West Virginia a key position in the US auto manufacturing supply chain.

At the same time, major supply chain disruptions have had lingering impacts on the entire automotive industry since the pandemic started in early-2020. Chief among these disruptions has been a sustained global shortage of semiconductors, which has affected a range of manufacturers, including auto production. Since these chips are used in an assortment of electronic components found in cars and trucks and the equipment necessary to operate production lines, production at Toyota, Hino and other manufacturers have faced significant output reductions and delays. Consensus reports suggest the effects of the chip shortage will continue to affect auto manufacturers and expectations are for continued industrywide reductions in auto output well into 2023, and perhaps even into early-2024.

The state’s aerospace industry has managed to add jobs in recent years after somewhat of an uneven performance in the early-2010s. In fact, both the defense and civilian portions of West Virginia’s aerospace subsector has managed to record growth in employment and output. For example, the collection of aviation services and aircraft manufacturing firms in North Central West Virginia have enjoyed solid growth in recent years, benefiting in part to increased investment in civilian aerospace facilities and new education & training programs at regional educational institutions. Defense-related aerospace manufacturing has been a boost to the sector overall, particularly as Northrop Grumman’s Applied Ballistics Laboratory (ABL) campus in Mineral County has benefited from new contract awards for building and testing advanced rocketry. In addition, Northrop Grumman recently announced that it will construct a new integration facility that will have the capacity to produce a wide range of strike missiles. The project is expected to be complete by 2024.

WOOD PRODUCTS West Virginia’s wood products and furniture manufacturers have also experienced a great deal of volatility over the past few years and will likely see even more turmoil during the next year or so. Previous disputes with Canada over the softwood lumber agreement have had an appreciable impact on the entire North American lumber supply chain even before the start of the pandemic. Unfortunately, the onset of the pandemic only worsened supply chain issues for these subsectors, particularly since housing construction increased at a rapid pace. During the last two years, framing lumber, plywood, flooring, and other wood-based products needed to build have seen historically high prices and supply chain snarls as harvesting schedules have yet to be fully resynchronized with market demand, particularly in the Southern US. These supply chain issues are expected to be worked out over the next year or so, but this shrinking order backlog comes at the cost of weakening lumber demand. Single-family housing starts have declined rapidly in recent months as the FOMC’s aggressive interest rate hikes to quell inflation have caused mortgage rates to rise sharply since the beginning of 2022.

Sector Outlook

The forecast calls for West Virginia’s manufacturing sector to enjoy job growth of nearly 0.8 percent annually between 2022 and 2027, easily outpacing overall statewide gains in employment over the next five years. As with the broader US and statewide economic outlook, the manufacturing sector’s performance over the next year or so will be subject to considerable downside risk. First, rising interest rates have increased the cost of capital and liquidity concerns have only added further pressure to debt markets in recent weeks, factors that could make capacity expansion plans for manufacturers increasingly difficult. Secondly, while the forecast assumes a slower rate of economic growth over the next several quarters, an outright recession would likely have a stronger negative impact on the state’s manufacturers, particularly those that tend to be more sensitive to downward swings in the national business cycle.

With that said, however, the longer-term prospects for the sector have become increasingly positive as recent announcements of several large new manufacturing plants are expected to not only give a shot in the arm to industries that had faced long-term challenges but also enable West Virginia’s manufacturing base to make inroads into emerging industries. The forecast calls for primary metals, miscellaneous durable goods (led by electrical equipment), motor vehicles and parts, and food and beverage to lead the way in terms of manufacturing sector job growth over the next five years.

METALS OUTLOOK Having shed more than 10,000 jobs since 1990, the primary metals industry has been perhaps one of the hardest-hit major manufacturing subsectors in West Virginia over the past several decades. While returning to that size of an economic footprint is all but impossible given structural changes in the US economy itself as well as increased competition from imported steel, aluminum and other metals, the subsector is expected to grow at an average annual rate of 4.2 percent during the forecast horizon (~1,000 jobs) and potential exists for metals manufacturers to open new plant capacity in the state over the longer term.

In early-2022, metals manufacturer Nucor announced it would invest $2.7 billion to construct a new steel sheet mill in Mason County, which represents the single-largest private capital investment in West Virginia’s history and the largest ever for the company. The plant’s construction is expected to take approximately two years to complete (late-2024/early-2025) and is expected to require a construction workforce of as many as 2,000 at peak development. Once in operation, the plant is expected to employ 800 production workers and produce up to 3 million tons of steel sheet per year. Nucor also has optioned a site in another part of West Virginia where it is considering building a transloading and processing center to provide logistical support to its Northeast and Midwest markets.

Another major metals industry project is expected in the Mid-Ohio River Valley as Berkshire Hathaway’s Precision Castparts Corp intends to build a titanium forging plant that will manufacture parts for the commercial and defense aerospace industries. A key factor for the titanium manufacturing facility is that will be the first production facility built at a new $500 million renewable-energy microgrid development at the former Century Aluminum site in Jackson County. Recent legislation facilitated the creation of the renewable energy project and creates the opportunity to attract other manufacturers seeking to lower their carbon emissions.

AUTO MANUFACTURING GROWTH West Virginia’s auto manufacturing sector is expected to continue its strong pace of growth during the outlook period, expanding at roughly 2 percent per year through 2027. Major expansion projects at Toyota’s Putnam County plant will account for a portion of these gains. Approximately $450 million in capital spending has been committed to separate projects that: 1) upgrade engine production lines and 2) develops a transaxle production line for hybrids and EVs. The latter capital investment represents a potential step in West Virginia’s ability to develop a link in the expanding base of clean-tech manufacturing industries in the US.

In addition to Toyota expanding its powertrain production into hybrids and EVs, other recent developments could boost West Virginia’s clean-tech manufacturing capacity. GreenPower Motor Co. intends to build a production facility for its electric-powered BEAST line of buses. West Virginia school districts are expected to be included in the list of customers for the buses, but other states and localities in the US are likely to enter the market in the coming years as states such as California, Massachusetts, and New York have passed legislation to cut emissions from their transit systems by a significant amount. Finally, battery manufacturer Sparkz recently announced its plans to build a Gigafactory in Taylor County, where it will manufacture Cobalt-free Lithium-Ion batteries for electric vehicles. Initially, the company plans to produce the batteries for commercial- and industrial-use equipment such as forklifts and tractors but has also begun the process of developing testing programs to meet certification requirements for EV cars. The facility is expected to employ up to 300 workers once production is fully on-line. 

OTHER SUBSECTORS Food and beverage manufacturing payrolls are expected to increase at a rate of nearly 1 percent annually through 2027. Most of this growth will come from the Mountain Top Beverage facility in Monongalia County, but continued emphasis on craft beer and food-based tourism options are expected to provide a boost in certain parts of the state. The nonmetallic minerals subsector is expected to see limited amounts of job growth over the entirety of the five-year outlook period. However, the forecast does call for healthy increases in employment and output during the 2023 to 2025 period as demand for concrete, aggregate and cement rise due to the large-scale commercial projects discussed above. In addition, major highway construction projects funded by the Roads to Prosperity program will be another source of demand going forward. Moreover, spending on highway and transit infrastructure will get another boost during the outlook period from the Infrastructure Investment and Jobs Act. The chemicals subsector will lag broader manufacturing sector growth slightly, but it still has upside potential depending on the extent to which continued development of natural gas and NGL resources foster downstream manufacturing industrial growth in the tri-state area.

PRODUCTIVITY Given the emergence of several major manufacturing investments in West Virginia, real manufacturing output is expected to increase by more than 2.7 percent per year between 2022 and 2027. The average level of productivity is expected to increase at a healthy pace between 2023 and 2025 as several of these planned manufacturing sites enter production. We anticipate the inflation-adjusted level of manufacturing output per worker will decline outright in 2022, largely reflecting the fact that many manufacturing firms will be filling open positions to get production lines running at higher rates of utilization and to chip away at order backlogs.

MANUFACTURING EXPORTS The inflation-adjusted value of exports from West Virginia’s largest manufacturing subsectors have generally trended lower each year since 2019. Some of the recent declines in manufacturing exports can be connected to congestion at major ports throughout the US, Europe, and Asia. Products from the chemicals subsector remain the manufacturing sector export from the state, but shipments have trended lower over the past few years, due in part to the pandemic slowing global demand but also the same supply chain bottlenecks and labor shortages that have affected other industries worldwide. Aside from chemicals, exports from West Virginia’s other major manufacturing subsectors totaled $1.3 billion in 2021, a 30 percent cumulative decline in real exports since 2019.

Industrial machinery and transportation equipment (chiefly car engines, aircraft parts) comprise a significant share of the goods exported by West Virginia companies. Exports of machinery slumped to less than $145 million during 2021, but preliminary data for 2022 suggest global shipments will recover to some extent, as data through the first 7 months of the year indicate export shipments for the year will reach $260 million.

Construction in West Virginia

West Virginia’s construction sector saw activity rebound in 2021, with particularly strong gains during the second half of the year. Moreover, construction was one of the state’s first major sectors to surpass pre-pandemic levels of activity and has continued to post healthy growth during the first half of 2022. The sector has faced many of the same issues as others over the past two years or so in that supply chain issues have fueled persistent shortages and dramatic price hikes for key inputs. Also, openings for construction jobs have remained high, especially in the residential segment, thus slowing progress on many projects even further over the course of the pandemic as construction crews deal with workforce shortages and order backlogs for building materials.

Residential Construction

According to data from McGraw-Hill, more than 3,200 single-family homes were started during 2021 in West Virginia – marking the strongest pace of homebuilding in the state since 2008. Housing demand surged during the second half of 2020 and continued to climb throughout 2021. Consumers sought to take advantage of historically low mortgage rates and a buildup of savings that was created in part by an aggressive federal fiscal response to the pandemic. Moreover, pent-up demand was fostered to some extent by shelter-in-place orders and reduced spending on services, causing many households to deploy their savings windfalls on big-ticket items such as new homes or remodeling projects, both of which created significant demand for construction sector services.

The pace of new single-family home construction has slipped during the first two quarters of 2022 as borrowing costs have increased sharply since the beginning of the year due to a series of large interest rate hikes by the Federal Reserve. Housing affordability was already becoming an issue over the course of 2021 for many homebuyers due to rapid house price growth, but rates were low enough to allow most buyers to stretch their budgets; however, the added impact of higher borrowing costs has caused more potential buyers to be priced out of the market and prompted a dramatic rise in purchase contract cancellations during 2022 as interest rate locks expire and reset to levels that exceed the buyer’s borrowing potential.

Permits authorizations for new single-family homes in West Virginia recorded during the first half of 2022 suggest new home construction will average roughly 2,800 to 3,000 units through the end of the year. However, evidence suggests that momentum has clearly weakened due to higher borrowing costs and intense concerns over high rates of inflation plus slower economic growth going forward. National surveys indicate builders and developers have already lowered their construction targets and will be less likely to option permits into starts due to a vanishing pool of potential creditworthy homebuyers.

Nonbuilding Projects

Prior to the pandemic, essentially all the construction sector’s growth was driven by a handful of major nonbuilding projects. These nonbuilding developments were connected to the massive buildout of natural gas pipelines to increase takeaway and throughput capacity for the Appalachian Shale Basin. Indeed, following the addition of more than 10 Bcf per day in takeaway capacity between 2014 and 2019, capacity additions averaged fewer than 1 Bcf/day in 2020 and 2021. After Rover II, Mountaineer Xpress, and several other pipeline projects were built out between 2017 and 2019, the two other primary projects underway at that time (the Atlantic Coast and PennEast pipelines) were eventually canceled due to a combination of cost overruns, protracted legal challenges, and/or regulatory reviews. The Mountain Valley Pipeline project remains halted due to legal fights in multiple states as well as problems securing specific permits in Virginia. While the project has not been canceled, it effectively remains in limbo as the numerous legal and regulatory challenges could take years before they conclude. Recent attempts at streamlining the permitting process going forward for the Mountain Valley Pipeline and other multi-state energy infrastructure projects via federal legislation have been unsuccessful thus far, including a recent proposal by Senator Manchin that was withdrawn due to concerns over meeting a deadline necessary to avoid a federal government shutdown.

House Prices

In most housing market cycles, West Virginia’s housing market tends to see much less volatility when compared to other states in the US. For example, the state did see house prices deflate in response to the bursting housing bubble, but outside of a few regional submarkets, house price declines were more muted compared to most US states. Indeed, the overall peak-to-trough decline in home prices in West Virginia was less than one-half the rate of decline observed nationally (-7 percent vs. -18 percent for the US. ^[2] Just as the declines were smaller, house price appreciation has also been noticeably weaker over the past several years. Prices for existing single-family homes in West Virginia have increased nearly 47 percent compared to a 99 percent gain for the nation since mid-2012.

Of course, changes in house prices have varied quite dramatically in recent years for the state’s different regions, reflecting local supply conditions and underlying demand for homes. After experiencing a dramatic run-up in prices during the bubble years, West Virginia counties that were part of the Hagerstown (Berkeley and Morgan counties), Winchester (Hampshire County) and Washington, DC (which includes Jefferson County) metro areas saw prices plunge by as much as 36 percent. The rate of price declines registered in the state’s other counties that lie within metro areas was significantly smaller in the aftermath of the housing market’s collapse, ranging from a 2 percent drop in the Morgantown metro area to a 10 percent loss in the Weirton MSA.

Similarly, house price appreciation for the state’s major housing markets has followed different tracks over the past several years. According to data from the Federal Housing Finance Agency (FHFA), Charleston and Beckley registered practically no growth in house prices between mid-2016 and mid-2019, as both regional housing markets had significantly more available supply due to population losses and notable weakness in their respective economies in prior years.

By contrast, West Virginia counties tied to metro areas in faster-growth regions such as suburban DC-area markets in Northern Virginia and Maryland registered double-digit growth in prices over this period. Over the past three years, house prices have increased by at least 20 percent on a cumulative basis in all metro area housing markets in West Virginia, reflecting the rapid increase in housing demand and rising construction costs seen nationally over the course of the pandemic. Once again, counties attached to high-cost markets in Northern VA and the Maryland suburbs of the Greater DC-area have tended to see the fastest rates of house-price appreciation since mid-2019.

Sector Outlook

The forecast calls for the construction sector to see job growth of 1.1 percent per year through the end of 2027. Near-term growth does face some downside risks, however. Although the forecast already assumes rising interest rates, broader inflationary pressures and a general slowdown in economic growth will squeeze consumer and business borrowing capacity to some extent, a deeper contraction in US economic activity or some emerging liquidity crisis could lead to a much weaker construction activity.

Longer term, however, stronger construction activity appears to be much more likely and explains the upgrade in the sector’s outlook compared to the previous forecast vintage. For example, several industrial projects are currently in the development pipeline, which combined will add several thousand construction sector jobs between 2023 and 2025 (or later depending on permit timetables). These projects include Nucor’s planned $2.7 billion steel sheet mill, a $500 million microgrid/manufacturing development by Berkshire Hathaway Energy, as well as new facilities for GreenPower Motors and Sparkz to manufacture electric buses and cobalt-free batteries for EVs, respectively. 

Utility sector investment is also expected to provide a boost to construction activity beyond the microgrid development by BHE in Jackson County. In addition, power plant construction activity has the potential to increase further over the longer term thanks to provisions created in the Inflation Reduction Act, which was recently signed into law by the Biden Administration. While several natural gas power plant construction proposals have either been canceled or face uncertain futures, Longview Power’s proposed 1.2GW combined-cycle natural gas plant appears to be on track for construction. The company has received the necessary air quality permits for construction from state and local authorities, but the project cannot begin until PJM Interconnection approves the project request, as the RTO must assess whether the new generation capacity is needed for the wholesale market. 

Another potential utility sector project that could emerge during the latter part of the outlook period is Competitive Power Ventures selection of West Virginia for a proposed 1.8GW natural gas power plant that would use carbon capture and sequestration to zero out the plant’s emissions. The project became feasible due to expanded federal tax credits for clean energy projects in the Inflation Reduction Act, as well as state legislation approved by the Justice Administration. The power plant would need to pass regulatory review and receive approval from PJM Interconnection before construction begins.

Public infrastructure investment will buoy the sector over the next few years, as the Roads to Prosperity program will back ongoing major new roadway construction and expansion projects, including crucial portions of Corridor H, extensive I-70 bridge repairs in the Northern Panhandle. Expanded highway and interchange capacity is also expected in the I-79/I-68 corridor, including a new I-79 exit in Monongalia County that could foster further investment in a regional industrial park over time.

Federal infrastructure investment also appears poised to lift the level of construction activity in West Virginia, though the final amount and how it will be spent remains to be determined. The Infrastructure Investment and Jobs Act will expand total infrastructure spending by $1 trillion nationally over the next decade and would enhance federal outlays a range of traditional physical infrastructure items (highways, bridges, rail, water, and sewer) as well as other areas such as broadband and charging stations for electric vehicles. As mentioned above, the Inflation Reduction Act has specific incentive programs that will also enhance the potential for renewable energy infrastructure and clean-tech manufacturing, including several projects that have already been mentioned in this report. 

In terms of residential construction activity, the forecast calls for single-family starts to average between 2,800-3,000 (annualized) during the second half of 2022 before declining to roughly 2,500 in 2023. Housing market conditions will be demonstrably weaker over the remainder of the outlook period due to the state’s underlying demographic trends and comparatively slower rates of economic growth. House price appreciation is expected to slow measurably from the rapid pace observed in 2021 and 2022 and will lag the national average as home prices (not adjusted for inflation) in West Virginia are expected to remain relatively stable between 2023 and 2027.

[1] Capacity factor is measured as total generation from each plant as a share of potential generation in a year.

[2] The measure for house prices used in this section is the Federal Housing Finance Agency’s All-Transactions Index, which is available at the state level and for all metropolitan statistical areas. Alternative measures of house prices are available and to see differences that might exist between them, readers can visit https://www.fhfa.gov/Media/PublicAffairs/Pages/Housing-Price-Index-Frequently-Asked-Questions.aspx

Chapter IV: Government in West Virginia

As reported in previous sections, government is the largest employer in West Virginia, accounting for more than one-fifth of all jobs in the state. [1] Further, total state and local government spending in the state is equivalent to more than 25 percent of West Virginia’s total personal income, and the U.S. 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 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 U.S. states in terms of the size of overall state and local government when measured as total spending on a per capita basis. Twenty-one states have smaller state and local governments when measured by this metric. [2] 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 more than 25 percent of state personal income, compared to the U.S. average of less than 22 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 29 percent of their overall spending to this category, compared with a national average of 27 percent. West Virginia devotes 28 percent of its overall government resources to education services, above the national average of 27 percent. West Virginia governments direct 10 percent of their funds to insurance trust expenditures for public employees, which is slightly below the national average of 11 percent. Further, governments in the state focus relatively heavily on transportation spending. In West Virginia nine percent of total spending goes to transportation-related projects, compared to a national average of just under 6 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 around $6,000 in total spending per capita in 1990 to over $11,000 by 2020, 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 both the 2021 and 2022 fiscal years.

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 (3 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 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 U.S. Federal Government. Overall, 34 percent of total revenue received by West Virginia governments was a federal transfer for 2020, which was significantly higher than the national average of more than 21 percent. However, 2020 was an anomalous year due to federal support associated with the COVID-19 pandemic. In the prior year, 27 percent of the revenue received by West Virginia governments was a federal transfer. However, West Virginia was still highest among the 50 states by this metric. The national average for federal transfers was 19 percent in 2019.

West Virginia governments are in alignment with most states in terms of their reliance on sales taxation: West Virginia governments derive just under 15 percent of their total revenues from sales taxation, which is comparable to the national average of more than 15 percent. Similarly, West Virginia governments derive under 10 percent of their total revenues from individual income taxation, about the same as 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 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.

Total transfer payments made in West Virginia in 2021 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-19 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 2021. Indeed, the 34 percent figure placed West Virginia highest among the 50 states in 2021 in terms of reliance on transfer payments.

In Figure 4.10 we consider the composition of transfer payments for West Virginia and the U.S. As illustrated, both West Virginia and the U.S. have a very similar pattern with regards to the composition of transfer payments. Social Security is by far the largest individual program in 2020, accounting for 31 percent of total transfer payments made in West Virginia, well above the U.S. average of around 26 percent. Medicare and Medicaid came in second and third. The two programs combined accounts for around 38 percent of total transfer payments in West Virginia, compared to around 36 percent nationally. All other transfer programs pale in comparison to these three when represented as a share of total expenditures in the category.

Spending on unemployment insurance came in as the fourth highest category in 2020, accounting for 7 percent in West Virginia, well below the national share of more than 13 percent. However, both figures are typically much lower than what was observed in 2020. Unemployment insurance spending in 2020 in the U.S. overall was greatly increased due to the COVID-19 pandemic. The Supplemental Nutrition Assistance Program (SNAP) in the state comes in a distant fifth in terms of its spending share, accounting for just under two percent of total transfers.

Figures 4.11 and 4.12 illustrate the size of specific public assistance programs in West Virginia. In Figure 4.11, we report the number of individuals who receive benefits from specific public assistance programs in West Virginia. In Figure 4.12 we report the share of the population receiving benefits from each program, and we offer a comparison to the national share. With 479 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 just under 20 percent, largely due to the state’s older population.

The SNAP program has the second highest number of recipients at 306 thousand, or around 17 percent of the state’s population. This figure is also higher than the national figure of around 12 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 69 thousand West Virginians participating in a typical month in 2020.

Figures 4.13 and 4.14 examine the receipt of unemployment insurance benefits in West Virginia. As illustrated in Figure 4.13, the duration of unemployment insurance benefits fell significantly between 2010 and 2012, and again since 2017. For 2020, driven by many people entering the unemployment rolls due to the COVID-19 pandemic, the average duration of the unemployment insurance benefits received was at a historical low of between 12 and 13 weeks, which is almost identical to the U.S. average. Duration figures rose substantially for 2021 as workers left the unemployment rolls and as the unemployment rate fell to near historic lows. As such, many of the men and women who remain on unemployment are long term cases.

In Figure 4.14 we illustrate the average weekly unemployment insurance benefit amount. As illustrated, benefits have generally risen in nominal terms since 2000. However, the figure fell significantly for 2021 as the economy recovered from the COVID pandemic. Overall, the typical West Virginian who received unemployment insurance benefits during 2021 received around $277 per week, compared to around $352 per week nationally.

[1] This percentage includes federal government employment in West Virginia, in addition to state and local government employment.

[2] Census data on state government finances are for the 2020 fiscal year. Data for the 2021 fiscal year are not scheduled for release by the U.S. Census Bureau until late-Fall 2022.

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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