Section III: West Virginia Economic Outlook

West Virginia Outlook

EMPLOYMENT GROWTH Expectations for the US economy will directly influence West Virginia’s economic performance during the outlook period.^{^[1]} At present, the US economy is expected to avoid an outright recession, but aggressive interest rate increases over the course of 2022 and 2023 by the Federal Reserve to cool broader inflationary pressures are expected to slow growth to nearly zero over the outlook period.

Overall, the baseline forecast calls for total employment in West Virginia to increase at a rate of almost exactly zero between 2023 and 2028, which will trail the national average annual rate of 0.3 percent during this period. We do expect some continued growth early in the outlook period – late-2023 and early-2024 – to be followed by some modest losses in employment. Generally, this pattern is true for the state and for the nation.

Figure 1.25 illustrates expected employment growth on a quarterly basis for the US and West Virginia for the coming five years.

EMPLOYMENT GROWTH BY SECTOR As illustrated in Figure 1.26, most of the major industrial super sectors in the state are expected to move by small rates over the forecast period, in line with the small movement that is expected in total employment. One exception to this is the energy sector, which has experienced the largest swings, by far, in employment over time. The sector has lost jobs (mainly in coal) at by far the highest rate of all the sectors over the past decade. However, the sector is expected to see the fastest rate of growth in the coming five years. However, this forecast is subject to considerable uncertainty due to various issues with the global economy, ranging from energy-related shocks connected to Russia’s invasion of Ukraine to various issues associated with natural gas production.

Figure 1.26 illustrates expected employment growth on an average annual basis for the major industrial super sectors for West Virginia for the coming five years.

SERVICES Job growth is expected to come in relatively strong for several private service-providing sectors over the forecast period, 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 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.

CONSTRUCTION The construction sector’s homebuilding segment will likely be weighed down by the rise in interest rates (in line with national trends), thus leading to an overall small expected loss in construction employment. However, a host of major commercial, industrial and infrastructure projects will be underway across the state during the next few years and should mostly 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 one to two years. Federal and state infrastructure spending also promise to buoy the sector over the forecast horizon.

RETAIL TRADE Among the state’s major service-providing sectors, retail trade is expected to face the most downward pressure on payrolls during the forecast horizon (categorized in the figure under Trade, Transportation & Utilities). Pent-up consumer demand and strong income growth that was buoyed by federal aid have waned and the combination of inflation 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.

UNEMPLOYMENT After standing below four percent for most of 2022 and 2023, the forecast calls for West Virginia’s jobless rate to rise over the next couple of years or so, returning to the low-5-percent range by some point in 2025. Much of this upward movement in the unemployment rate will come from individuals re-entering the labor force, due to factors such as ‘un-retiring’ individuals or higher starting wages incentivizing discouraged workers back into the workforce to compete for open jobs. At the same time, the jobless rate could rise more significantly over the next year or two if the national interest rate increases discussed above ultimately exert more downward pressure on the national and state economies than expected.

Figure 1.27 illustrates the expected unemployment rate for the US and West Virginia on a quarterly basis for the coming five years.

INCOME Personal income is expected to grow at an average annual rate of just over 1.6 percent over the forecast period, after accounting for inflation, as illustrated in Figure 1.28. This is slightly lower than expected growth at the national level, which comes in at just over two percent (not shown). The fastest growing component of personal income in the forecast period is transfer payments, stemming from programs such as Social Security or unemployment insurance. This pattern does imply that West Virginia is becoming more reliant on transfer payments over time as a share of total income in the state. However, the degree to which growth in transfer payments is expected to surpass other components of income – such as labor income or investment income – is significantly lower than has been in the case in recent years. Overall, we expect transfer payments to make up 30.4 percent of total income in the state by 2028, which will likely place West Virginia highest among the states in terms of reliance on transfer income.

Figure 1.28 illustrates the expected rate of growth for the major components of personal income for West Virginia on an average annual basis for the coming five years.

POPULATION Following a decade of losing an average of over 8,200 residents a year (a cumulative loss of 4.5 percent of the total 2012 population), West Virginia’s population losses are expected to slow over the next five years. Overall, we expect a cumulative 1.7 percent population loss from 2023 through 2028. This continued (albeit slower) population loss is primarily driven by a continuation of the natural population loss - a situation in which deaths exceed births - that has been observed in the state for several years now.

Unfortunately, the underlying structural economic and demographic trends that have prevailed in West Virginia in recent decades will be difficult to overcome as the forecast progresses. As such, the state is expected to further age, as the only age group with growing numbers is those aged 65 and older, as illustrated. The “under age 25” segment of the population is expected to suffer the highest rate of population loss.

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, offsetting some natural population decline. 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 and other programs to attract remote workers.

Figure 1.29 illustrates the expected rate of population growth for the major age groupings for West Virginia for the coming five years.

[1] All forecast estimates for this document are provided by S&P Global, Inc.