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.