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.