The Mountain State Business Index (MSBI) has dropped 0.4 percent over the past six months, providing little optimism for West Virginia’s economy in the near term.
The MSBI held steady in January 2016, but the initial estimate was revised downward slightly for December 2015 to show a small decline versus November. And while the index has remained relatively steady over the past several months, economists are calling the state economy “flat.”
“The Mountain State Business Index is failing to provide much hope for the West Virginia economy in the near team,” 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. “While we are encouraged that we have not seen substantial declines in the index for some time, our economy is flat and this month’s MSBI points to the potential for sluggish economic growth for the state as a whole into the spring of 2016.”
The MSBI serves as an up-to-date gauge of West Virginia’s expected economic performance over the very near term, and 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 record statistically significant negative contributions during that same time frame.
Seven economic indicators that were determined to lead expansions or contractions in the West Virginia economy were selected as inputs to the MSBI. 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 MSBI reflects data that correspond to the month of December. There will be no MSBI release for February since several underlying data series will not be available.
Three components made positive contributions to the overall index in January, led by a 2.2 percent month-to-month increase in building permits. By contrast, four indicators made a negative contribution to the index, though coal production caused the only appreciable downward pull on the MSBI, with a 0.8 percent drop in mine output during December.
“Even with the MSBI’s relatively improved performance in recent months, the index continues to highlight the struggles faced by West Virginia’s economy that stretched across much of 2015. Although the MSBI did not meet the necessary criteria to suggest an economic downturn was on the horizon, the index did provide plenty of evidence that key portions of the economy were a significant drag to the state’s performance,” said Brian Lego, BBER research assistant professor. “Indeed, the sharp downturn in coal production, particularly from Southern West Virginia mines, also helped to fuel the surge in unemployment insurance claims seen during portions of 2015.
“Moreover, a weakening global economy and a strong dollar have directly hurt the state’s economy further by prompting a significant drop-off in exports, particularly metallurgical coal. At the same time, while the boom in tight gas production allowed the natural gas industry to offset some of coal’s weakness in recent years, that boost has waned. A protracted period of extremely low prices has caused most oil and gas companies operating in West Virginia to idle rigs, slash capital investment plans and delay new exploration activity in the Marcellus and Utica Shale plays. Initially, these pullbacks prompted job losses, but more recently have led to outright declines in gas production as output from new wells is not available to offset the normal drop-offs in legacy well production,” 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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