How West Virginia got
3% Growth, by Reid Wilson, 8/4/17, The Hill
President Trump is
thrilled with West Virginia. At a boisterous campaign-style
rally Thursday, Trump extolled the state’s strong first quarter economic
growth — growth he said few expected.
“We had 3 percent growth
in West Virginia. I wonder how that happened,” Trump told cheering supporters.
“Three percent growth. West Virginia is leading the average. When was the last
time we heard that?”
And indeed, after years of
economic stagnation, West Virginia has strung together two positive quarters in
a row: In the last quarter of 2016, the state’s economy expanded at a 1.9
percent annual rate. In the first quarter of 2017, the gross domestic product
grew at a 3 percent annual rate, according to the Bureau of Economic Analysis.
At the same time, West
Virginia’s unemployment rate has tumbled, from 6 percent last June to 4.6
percent this June, according to the Bureau of Labor Statistics. Only two states
— Wyoming and Indiana — have experienced a faster decline in their unemployment
rates.
Economists always warn
about the dangers of reading too much into data from a single quarter or even
consecutive quarters. And many say West Virginia still faces long-term
challenges as the national and global economy evolves.
But three factors are
working in West Virginia’s favor right now: a global infrastructure boom,
the rising price of natural gas, and the legacy of a recession that hit the
Mountaineer State harder than most.
While most industries
struggled during the recession, the energy sector actually performed relatively
well. States like West Virginia, Texas, North Dakota and Oklahoma experienced
revenue booms as hydraulic fracturing boosted the supply of oil and natural gas.
And while other industries
bled jobs at a furious pace, West Virginia actually added mining jobs through
even the depths of the recession: 35,300 West Virginians were employed in the
mining and logging industry — the broad sector measured by the Bureau of Labor
Statistics — at its recent peak, in December 2011.
But West Virginia’s silver
lining soon turned to a dark cloud, and as global commodity prices — including
coal — fell, so did the state’s critical mining sector. The number of mining
and logging jobs in West Virginia fell by almost half, to 18,700
in September, before rebounding slightly to 22,000 today.
In other words, while
other states hit economic bottom in 2010 or 2011, West Virginia didn’t
experience its own nadir until much later. Between 2012 and 2016, the state
experienced an almost entirely flat economy, when accounting for
inflation.
“We have not seen growth
in GDP for the last five years,” said John Deskins, director of the Bureau of
Business and Economic Research at West Virginia University. “We’re starting
from a small base. The fact that we haven’t grown in five years means
the base is small.”
Any economic growth is
going to be exaggerated, some economists said, because the state was starting
from such a low point. The same growth in a state where the economy was already more
robust would lead to a smaller overall GDP increase.
The global infrastructure
boom has helped build on that base, especially in recent months. The average
price of a ton of metallurgical coal — a product used in making steel — has
more than doubled, from a low of $68.36 in the first quarter of 2016 to $152.96
today. At the same time, coal production in West Virginia has jumped 31 percent
over just the last year, and coal employment is up 10 percent.
That means West Virginia
is producing more of a product at a time the price is rising, and employing
more people to do so — all ingredients necessary for a growing GDP.
“We’re seeing a more
robust economy. We felt that our economy was probably going to bottom out in
the 2015, 2016 period. It did,” said Steve Roberts, president of the West
Virginia Chamber of Commerce.
It’s not just coal that’s
helping boost West Virginia’s economy, Deskins said. The price of natural gas
exports has also risen in recent months, from a low of $2.04 per thousand cubic
feet in March 2016 to $3.57 per thousand cubic feet in May, according to the
U.S. Energy Information Administration.
Those prices are rising as
other countries turn from oil and coal to natural gas to fuel their electric
grids. The U.S. exports about half its natural gas to Mexico, about a quarter
to Canada and another quarter to other nations around the world.
And that helps West
Virginia in two ways: First, the state produces about 5 percent of the nation’s
natural gas, which means the higher price helps West Virginia more than most
other states. Only eight other states — Texas, Alaska, Colorado, Louisiana, Ohio,
Oklahoma, Pennsylvania and Wyoming — produce more natural gas than does West
Virginia.
Second, higher prices for
natural gas makes coal more attractive, and more competitive on the global
market, Deskins said. Where lower natural gas prices once hurt the coal
industry, higher prices are now helping. “As energy has improved, West Virginia
has improved,” Deskins said.
Other states heavily
reliant on energy production also experienced strong economic growth in the
first quarter, after years in which falling commodity prices took their toll on
state budgets.
Among the
strongest-performing states in Trump’s first quarter as president: Texas, which
grew at an annual rate of 3.9 percent; New Mexico, which notched a 2.8 percent
GDP boost; and Alaska and North Dakota, which both came in with an annual
growth rate of nearly 2 percent, after years of decline.
“This reflects a
discernible bump in mining,” said Mark Muro, a senior fellow at the Brookings
Institution’s Metropolitan Policy Project. “There has been a modest ‘Trump
bump’ on this front.”
Roberts, who heads the
West Virginia Chamber of Commerce, gave credit for part of the state’s
comeback to the Trump administration. “At least part of this is an
administration that is emphasizing things that are good for West
Virginia — energy production, manufacturing,” he said. Roberts also
said the Trump administration’s focus on cutting regulatory red tape has
given energy companies incentive
to grow more.
But the main driver of West Virginia’s
growth, rising global prices, is entirely out of Trump’s control. No president
is powerful enough to impact the cost of a ton of metallurgical coal or a cubic
foot of natural gas on the international market.
Despite its strong
quarter, West Virginia still faces steeper demographic and economic challenges.
The median age of a West Virginia resident is 42.2 years old, older than all
but three New England states; an older population both works less and relies on
social services like healthcare more. More than one
in six state residents live below the poverty line, higher than all but seven
states.
And so much of West
Virginia’s economy is dependent on coal and gas mining that economists worry
that another commodity slump would send the state right back down to the depths
of a new recession.
“No matter what happens to
coal, West Virginia desperately needs industrial diversification,” Deskins
said. “We desperately need to see greater strength in tourism, or
manufacturing, or other sectors.”
Norb Leahy, Dunwoody
GA Tea Party Leader
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