The Mountain State Business Index, which serves as an up-to-date gauge of the state’s business performance, posted its seventh consecutive month of growth, pointing to continued economic growth for West Virginia well into the first quarter of 2015.
“The outlook for the West Virginia economy continues to be positive, as evidenced by healthy growth in the Mountain State Business Index,” said Bureau of Business and Economic Research Director John Deskins. “We are becoming increasingly confident that the economy will continue to grow at a healthy pace through early 2015.”
“Chances of a recession in the coming months appear remote,” Deskins said.
The Mountain State Business Index increased 0.2 percent on a month-to-month basis in October. Overall, the index is up 2.1 percent in comparison to October 2013, but has shown strong growth in the past six months having jumped 4.5 percent on an annualized basis since April. This strong increase suggests that an improvement in the rate of economic growth could occur within 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 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. 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 October index reflects data that correspond to the month of September.
Four of the seven components made positive contributions to the index this month, with building permits for new single-family homes providing the largest positive contribution to the MSBI. Initial claims for unemployment insurance contributed positively to the index, having declined for the seventh consecutive month. Natural gas production and the yield curve also added to the October index. By contrast, stock prices for the state’s largest employers, coal production and the trade-weighted value of the dollar weighed on the overall index this month.
“A majority of MSBI components improved this month, but much of the index’s gains over the past 12 months has been driven by a few indicators,” said Brian Lego, BBER research assistant professor. “Despite seeing a decline in its most recent monthly average, the composite of stock prices for the state’s largest publicly-traded employers remains 13 percent ahead of its year-ago level. 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 has climbed at rates well into the double digits in the past year, 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 seasonally-adjusted reading marked the lowest level for this indicator since mid-2006. This suggests further improvements in the state’s labor market are likely,” Lego said.
“Preliminary data show coal production has improved by nearly 15 percent since the early spring, but growth has slowed markedly in recent months and even slightly declined on a month-to-month basis in September. The uptick in production related to power plants replenishing lean stockpiles of coal has generally waned and we anticipate coal production will weigh on the overall index just as it typically has for most of the past few years. Coal demand is expected to weaken 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 is 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
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