After only modest increases at best during the past year, the Mountain State Business Index, a monthly gauge of the state’s business performance, has grown at an accelerated rate in the last two months. This points to continued expansion in economic activity through the fall. The index is produced by West Virginia University’s Bureau of Business and Economic Research.
“The improvement that we see over the past two months points to continued growth through the summer, with a possible acceleration in economic growth in the fall,” said Bureau of Business and Economics Research Director John Deskins. “Chances of a recession this summer and fall appear remote,” he said.
The Mountain State Business Index increased 0.3 percent on a month-to-month basis in June, essentially matching the strong gain observed last month. Overall, the index has increased 1.2 percent from its year-ago level and points to a continued expansion in economic activity through the fall.
The Bureau of Business and Economics Research is a part of WVU’s College of Business and Economics.
The Mountain State Business Index 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.
Overall, four components of the index’s seven components made positive contributions while the remaining three components put modest downward pressure on the index this month.
Falling initial claims for unemployment insurance and modest estimated increases in coal production provided the largest boosts to the index in June and each has trended higher for the past few months. Single-family building permits provided the largest negative contribution to the Mountain State Business Index in June, as the estimated number of homes authorized for construction in the state declined 6.4 percent on a seasonally adjusted basis.
The index comprises of 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 June index reflects data that correspond to the month of May.
“Several of the indicators that make up the Mountain State Business Index have registered solid growth over the past year,” said Brian Lego, Bureau of Business and Economics Research research assistant professor. “Although the stock price index registered a slight decline for June index, it has jumped more than 18 percent in the past year thanks to a generally positive U.S. economic outlook and healthy expectations for growth for many of the state’s largest publicly traded employers. Strong productivity from wells in the Marcellus Shale play continues to boost natural gas output, particularly in the north-central region of West Virginia.
“In addition, initial unemployment insurance claims continue to fall and are now only slightly higher than the levels recorded prior to the onset of the Great Recession, suggesting improvements in the state’s labor market,” Lego said.
“Preliminary estimates have pointed to a modest increase in coal production over the past few months, and we anticipate a similar level of improvement to remain in place over the very near term. A colder-than-normal winter heating season in several parts of the country left many coal-fired power plants with depleted stockpiles of coal, which utilities need to replenish during the spring and summer months. Even with these improvements, however, coal production has generally weighed on the overall index for much of the past few years, as evidenced by a 28 percent cumulative drop in output since 2008.”
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, please visit be.wvu.edu.
CONTACT: John Deskins, WVU College of Business and Economics
Follow @WVUToday on Twitter.