West Virginia’s economy grew for the fifth consecutive month in August, with strong gains pointing to continued growth into early 2015, according to the latest Mountain State Business Index, released Thursday.

“Overall the outlook for the West Virginia economy appears positive, as evidenced by healthy and consistent growth in the Mountain State Business Index,” said John Deskins, director of the Bureau of Business and Economic Research, part of the College of Business and Economics at West Virginia University.

“We are becoming increasingly confident that the economy will continue to grow at a healthy pace this fall through early 2015,” he said. “Chances of a recession in the coming months appear remote.”

The BBER’s monthly MSBI serves as an up-to-date gauge of the state’s business performance, and has increased rapidly over the past five months.

Thursday’s index, which reflects economic activity in August, increased 0.5 percent on a month-to-month basis, marking its fifth consecutive month of strong growth. Overall, the index rose 2.3 percent compared to the same period last year, but has risen 4.7 percent on an annualized basis in just the last six months, suggesting the possibility that economic activity could accelerate over the near term.

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 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.

Six of the seven components made positive contributions to the index this month, with natural gas production providing the largest positive contribution to the MSBI. Initial claims for unemployment insurance declined for the sixth consecutive month, also adding to the index. Building permits for new single-family homes are estimated to have increased for the third month in a row and also made their largest positive contribution to the index in more than a year. Coal production and stock prices for the state’s major employers also edged higher this month, while the yield curve weighed on the index for the third month in a row.

“A majority of MSBI components improved this month, but a significant portion of the index’s gains over the past year have been driven by only a few indicators,” said Brian Lego, BBER research assistant professor. “The composite of stock prices for the state’s largest publicly-traded employers more than recouped its decline from last month and has climbed more than 18 percent since last 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 output continues to surge thanks to highly productive Marcellus Shale wells in the Northern Panhandle and North-Central regions of West Virginia.

“Initial unemployment insurance claims continue to fall and the most recent level marked the lowest level observed since October 2007. This suggests further improvements in the state’s labor market are likely,” Lego said.

“Preliminary data show coal production has improved by nearly 24 percent since the beginning of the year, but growth has slowed down over the past few months as the uptick in production related to power plants replenishing lean stockpiles of coal is beginning to wind down. 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 for electricity generation and environmental regulatory changes.”

Technical documentation related to the Mountain State Business Index and other BBER publications are available for free download in PDF format 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
304.293.7876, John.Deskins@mail.wvu.edu

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