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