After two stagnant months, the Mountain State Business Index released today (Jan. 29) indicates West Virginia’s business performance grew 0.2 percent in December, returning the state to growth territory.

“The outlook for the West Virginia economy continues to be positive, as evidenced by a return to growth in the Mountain State Business Index,” said John Deskins, director of West Virginia University’s Bureau of Business and Economic Research within the College of Business and Economics. “Signs point to continued growth in the state’s economy through the second quarter of 2015.”

“Chances of a recession in the coming months appear slim,” Deskins said.

The MSBI, which serves as an up-to-date gauge of the state’s business performance, has been at least 2 percent above its year-ago level since last fall and, thanks to its latest increase, is 2.4 percent higher on an annualized basis during the last six months. These rates of growth suggest the state’s economy should experience solid increases in activity over the course of the next four to six 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 January index reflects data that correspond to the month of December.

A majority of index components made negative contributions to the MSBI, but only the real trade-weighted dollar and yield curve actually made impacts large enough to weigh noticeably on the index compared to December 2014. Stock prices for the state’s largest employers provided the largest positive contribution to the index, while the two forms of energy production (coal and natural gas) also boosted the MSBI in January.

“While four of the seven indicators that comprise the index slumped last month, the index still managed to post a modest gain thanks to what have been consistently strong contributions from stock prices and natural gas production,” said Brian Lego, BBER research assistant professor. “Indeed, as can be seen from broader measures of equity markets, the composite of stock prices for the state’s largest publicly-traded employers gained nearly another 1.6 percent in December and is almost 21 percent above the reading from one year earlier.

“This reflects continued optimism for the broader U.S. economic outlook as well as healthy expectations for many of the state’s largest businesses,” Lego said. “Natural gas output has also contributed significantly to the index for a few years, with production increasing at rates well into the double digits. Highly productive Marcellus Shale wells in northern portions of West Virginia have been driving this growth, but newer exploration in the Utica Shale has also begun to boost production.

“Initial unemployment insurance claims increased on a seasonally-adjusted basis for the third consecutive month, but the increases have been small and remain more than 20 percent lower compared to the same time last year. Also, the number of claims remains low by historical standards and nearly on par with levels observed during the mid-2000s economic expansion. Although these recent upward movements in claims will be closely monitored, the current level of initial unemployment insurance claimants do not point to any appreciable deterioration in statewide labor market conditions over the near term,” Lego said.

“On the downside, even though overall coal production for the state finished 2014 roughly even with the previous year, growth has been driven entirely by increased output from mines in West Virginia’s northern coalfields. Moving forward, we anticipate this surge in northern coal production to slow and the long-term decline in the state’s southern coalfields to continue, though at smaller rates than what has occurred since 2012. 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 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.

No MSBI report will be issued during February as components of the index undergo annual benchmark revisions. The next MSBI report will be released in late March.

-WVU-

pg/01/29/15

CONTACT: John Deskins; WVU College of Business and Economics
304.293.7876, John.Deskins@mail.wvu.edu

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