Despite holding its own for the last two months of the year, West Virginia’s business performance declined during 2015, as reflected by the latest Mountain State Business Index.
December’s MSBI was unchanged from November’s slight improvement, leaving 2015 down 1.1 percent from 2014.
Overall, the MSBI registered weak performance during 2015, with a particularly notable decline over the first several months of the year. The index continued to trend lower over much of the second half of the year, but appears to have at least stabilized over the past few months. Indeed, the MSBI’s critical six-month annualized change metric, though still negative, sits at -0.6 percent compared to as low as -2.3 percent during mid-2015.
“The West Virginia economy continues to struggle to gain traction as evidenced by a lack of growth in the Mountain State Business Index,” said John Deskins, director of West Virginia University’s Bureau of Business and Economic Research, which operates within the College of Business and Economics and produces the MSBI. The index serves as an up-to-date gauge of West Virginia’s expected economic performance over the very near term. This month’s result for the MSBI points to the potential for sluggish economic growth for the state as a whole into the spring of 2016.
The MSBI combines several leading economic indicators into a single index number 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 by a statistically large enough rate over that same 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 December MSBI reflects data that correspond to the month of November.
While six components made positive contributions to the overall index in December, building permits made the largest positive impact with nearly a three percent gain from October 2015. Nonetheless, the positive MSBI components made modest impacts at best as these slight gains were offset completely by a 1.8 percent drop-off in natural gas production.
“Even with the MSBI’s relatively solid performance over the past two months, the index highlighted West Virginia’s economic struggles during 2015. However, the MSBI never saw large or sustained enough declines to suggest the state’s economy was decidedly in an economic downturn or that one was ever clearly imminent,” said Brian Lego, BBER research assistant professor. “Instead, a large part of the state’s weak economic performance was due in large part to rapidly-declining coal production, which also helped to fuel the surge in initial unemployment insurance claims that also served to drive the index sharply lower in the first half of the year.
“The state’s real trade-weighted dollar edged lower this month, but remains a risk to growth over the near term. Exports account for an above-average share of economic output in West Virginia and the strong upward movement in the dollar has made many goods and commodities produced in the state less competitive globally. Should the dollar re-appreciate or simply remain at current valuations against other major currencies, it will likely weigh on demand for metallurgical coal and other goods produced in the state that are destined primarily for export.”
“While coal production in West Virginia has certainly trended lower in recent years and will continue to do so for at least the next year, the natural gas industry provided a nice offset thanks to strong output growth. Unfortunately, gains in production were generally hit-and-miss over much of 2015, but has more recently begun to decline. Concerns remain about the persistence of the current extremely low price environment seen for the entire fossil fuel energy complex and how production is ultimately affected over the longer term. Rig counts, capital investment plans and exploration activity have already been cut, so persistently weak natural gas prices will likely lead to appreciable losses in future production activity for the Marcellus and Utica Shale plays as legacy well production declines overwhelm productivity growth,” Lego said.
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, follow B&E on Twitter at @wvucobe or visit be.wvu.edu.
CONTACT: John Deskins; WVU College of Business and Economics
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