The West Virginia University Bureau of Business and Economic Research today (May 28) introduced a new, monthly index of leading economic indicators for the state. The initial Mountain State Business Index forecasts that the West Virginia economy should continue to expand at a stable pace into the fall.
“It is often difficult to process the large and diverse volume of macroeconomic data that is produced regularly today,” said BBER Director John Deskins. “This index will serve to consolidate the data that we read in the news into one simple and easy-to-follow statistic that will point to where our state’s economy is likely heading over the next several months.”
The MSBI combines several leading economic indicators into a single index that provides a convenient way to gauge the likelihood of swings in economic activity over the next four to six months. Signals of a coming contraction in the state’s economy can be identified if the index declines by at least 2 percent on an annualized basis over a six-month period and a majority of the individual components also decline over that same time period.
Deskins noted that applying the MSBI calculations historically, the monthly increase of 0.5 percent in May compared to the previous month would have been the largest month-to-month gain since late 2006. Although the Index would have reflected only modest increases since mid-2013, the reading for May puts the index 1.4 percent above its year-ago level and indicates the West Virginia economy should continue to expand.
“We remain upbeat by the growth we have seen in the Mountain State Business Index in the past year,” Deskins said. “These improvements suggest that the state’s economy should remain on solid footing and continue to expand through this summer and into the fall.”
The index comprises seven economic indicators that were determined to lead expansions or contractions in the West Virginia economy by approximately four to six months. Each indicator will make positive, negative or no contribution on a monthly basis to the overall index. The seven indicators are related to the following factors: building permits; unemployment insurance claims; the value of the U.S. dollar; stock prices related to West Virginia employers; interest rates; coal production; and natural gas production. The May index reflects data that correspond to the month of April.
Initial unemployment insurance claims provided the largest positive contribution to the MSBI in May, as the number of new claims fell 6.5 percent on a seasonally-adjusted basis and have also fallen by more than 20 percent on an annualized basis over the last six months. By contrast, new building permit numbers continue to place downward pressure on the index after declining for a third consecutive month.
“Several of the indicators that compose the Mountain State Business Index have registered solid growth and improvement over the past year,” said Brian Lego, BBER research assistant professor. “The West Virginia Stock Index has increased more than 16 percent, reflecting the general sense of economic optimism seen in capital markets and healthy outlook for many of the state’s largest publicly-traded employers. Despite the slight recorded drop in production during April, strong well productivity from wells in the Marcellus Shale play has pushed natural gas output sharply higher in many parts of the state over the past year, providing a boost to jobs and overall economic output.”
“Furthermore, the level of initial unemployment insurance claims has trended lower in recent months, and they are closing in on the low levels observed during the mid-2000s economic expansion.”
“By comparison, the coal industry has weighed on the index for much of the past two years. Production for 2013 fell by 6.0 percent from the previous year and has contracted 28 percent since 2008. On a positive note, preliminary data show an increase in statewide coal production over the past two months thanks to modest gains in output from the state’s northern mines and stabilizing production coming from the southern coalfields. These gains should continue over the very near term as coal-fired power plants replenish depleted stockpiles of coal after drawing them down due to what was an exceptionally cold winter in many parts of the country.”
Technical documentation related to the Mountain State Business Index is available from the WVU Bureau of Business and Economic Research for free download in PDF format at be.wvu.edu/bber. Visit be.wvu.edu/bber/publications.aspx to view the report and other publications by the BBER. For further information about the WVU College of Business and Economics, visit be.wvu.edu.
CONTACT: John Deskins, Ph.D., WVU College of Business and Economics
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