The Mountain State Business Index extended its streak of healthy growth to four months in August, observing gains that point to continued economic growth for West Virginia through the remainder of the year.
The MSBI, which serves as an up-to-date gauge of the state’s business performance, increased 0.3 percent on a month-to-month basis in August, establishing a four-month streak of strong performance. Overall, the index has jumped 2 percent during the past year, but has risen 2.8 percent on an annualized basis in the last six months, which points to the possibility of a pick-up in economic activity over the near term.
“We are very encouraged to see the streak of strong growth in the index that emerged early in the summer continue through August,” said BBER Director John Deskins. “This consistent growth provides us with even more confidence that our state’s economy will at least be stable, and may accelerate, through the latter parts of the year.”
“Chances of a recession in the coming months appear remote,” Deskins said.
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 two percent on an annualized basis over a six-month period and a majority of the individual components also decline over that same time period.
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 August index reflects data that correspond to the month of July.
Four of the seven components made positive contributions to the index during August, with gains in natural gas and coal production providing the largest boost to the MSBI. Initial claims for unemployment insurance declined, adding to the index for the fifth consecutive month. In addition, permits for building new single-family homes improved for the second month in a row. By comparison, stock prices for the state’s major employers, the yield curve and the trade-weighted dollar weighed on the index this month.
“A majority of MSBI components improved this month, but a few indicators have accounted for a significant portion of the index’s gains over the past year,” said Brian Lego, BBER research assistant professor. “While slipping more than 3 percent in the most recent month, the composite of stock prices for the state’s largest publicly-traded employers has increased more than 10 percent in the past year. This reflects a continued positive outlook for the U.S. economy and healthy expectations for many of the state’s largest businesses. Natural gas production continues to skyrocket thanks to consistent gains in exploration and drilling throughout the Marcellus and Utica shale formations, especially in the Northern Panhandle and North Central regions of West Virginia.
“Initial unemployment insurance claims continue to recede and have reached levels on par with those observed prior to the onset of the Great Recession. This suggests further improvements in the state’s labor market are likely,” Lego said.
“Provisional estimates show a continued uptick in coal production over the last several 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. Nonetheless, coal production has generally weighed on the overall index for much of the past few years, and we anticipate an erosion in coal demand over the next several years due to a combination of shifting fuel uses and environmental regulatory changes.”
Technical documentation related to the Mountain State Business Index is available from the WVU Bureau of Business and Economic Research at be.wvu.edu/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
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