Aug. 02--Last month's flooding that devastated portions of southern and central West Virginia could send the state's precarious economy back into a recession, according to the latest Mountain State Business Index.
The revised monthly business index suggests economic indicators point that out West Virginia's recession ended sometime during the second fiscal quarter, but the flooding that caused widespread destruction to businesses, homes and infrastructure could cause the economy to constrict, returning it to a recession.
"We still have very guarded optimism given uncertainty surrounding the recent flooding and persistent long-term trends that point to very slow growth moving forward," said John Deskins, director of WVU's Bureau of Business and Economic Research.
However, economists at WVU "are gaining confidence that our recession is now over and that our economy is stabilizing, based on recent readings of the Mountain State Business Index," he said
The economic impact of the flash floods is still unknown. The late June flooding hit a number of counties, including Greenbrier, Nicholas and Summers hard, wiping out thousands of homes and businesses.
Data over the next few months should begin to provide some basis for the flooding's economic impact.
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The MSBI serves as an up-to-date gauge of West Virginia's expected economic performance over the very near term by combining 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 on the economy can be identified if the index declines by at least 2 percent on an annualized basis over a six-month period and a consistent majority of the individual components also record statistically significant negative contributions during that same time period.
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 output. The July 2016 MSBI reflects data that corresponds to the month of June.
For July, four components made positive contributions to the overall index, with roughly equal contributions coming from stock prices for the state's largest publicly-traded employers, natural gas and coal production, followed by a small improvement in initial unemployment insurance claims. Rate spreads on the three-month Treasury note (short term) rate and the 10-year Treasury note (long term) rate, and permits for new single-family homes weighed on the index accounted for the largest negative contributions to the MSBI, while a slight increase in the state trade-weighted dollar also pulled the index lower.
The natural disaster isn't the only problem with the state's economy. Declining coal continues to be a drag on West Virginia's finances.
"Even as the rebuilding process begins, the state's overall growth potential remains limited as the coal industry continues to see significant struggles. Indeed, preliminary data indicate coal output from the state's mines fell to incredibly low levels during the first half of 2016, as domestic use of thermal coal continued to fall and overcapacity in global steel markets led to further drop-offs in metallurgical coal demand. Without any appreciable improvements in domestic or export demand during the second half of the year, total coal tonnage from West Virginia mines in 2016 will likely fall to the lowest (non-strike influenced) level seen in many decade," said Brian Lego, a BBER research assistant professor.
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