W.Va.'s economy projected to grow
10/02/2013 - The Charleston Daily Mail. By Jared Hunt.
CHARLESTON - West Virginia's economy will grow steadily over the next few years, according to the latest forecast from West Virginia University's College of Business and Economics.
However, future population trends - including the loss of younger workers to other states and a growing number of retirees - could serve to undermine long-term growth.
The business school's Bureau for Business and Economic Research unveiled its 2014 West Virginia Economic Outlook during the school's annual Economic Outlook Conference in Charleston Tuesday morning.
The report warned that the loss of younger workers and a jump in retirees could affect the state's potential growth in the future.
"If you have a shrinking labor force, that presents big challenges to the economy," said John Deskins, director of the Bureau for Business and Economic Research.
In the last year, West Virginia's economy fared better than the nation's as a whole.
Between mid-2012 and mid-2013, West Virginia added about 3,000 new jobs, and its unemployment rate and growth in GDP and per capita income all outpaced the national averages.
"We have a lot of things to be happy about here in West Virginia," Deskins said. "Overall, our state's economy continues to improve."
One of the state's biggest economic improvements in the last decade has been its growth in exports. In 2000, exports accounted for about 5 percent of the state's total economic output. Last year, that figure hit 16 percent.
"The importance of exports to the West Virginia economy has more than tripled just in the last 12 years," Deskins said.
He said much of that could be attributed to an explosion in coal exports, which have grown from 9 percent of total exports in 2000 to 65 percent in 2012.
While he didn't expect that kind of explosive growth over the next decade, Deskins said the state's export market should continue to grow at a healthy pace over time.
To evaluate future economic conditions, Bureau of Business and Economic Research economists used a statistical model that accounts for about 50 state-specific variables. Over the next year, the bureau's models predict the state will continue to experience modest growth.
"The big picture here: more good news," Deskins said. "However we do expect growth will probably be a bit slower than U.S. rate going forward."
He said that had to do less with a slowing in West Virginia growth, and more to do with acceleration in the overall U.S. economy, which has lagged significantly in recent years.
The bureau forecasts state employment will increase roughly 1 percent per year over the next five years. That compares with a national growth rate of 1.6 percent.
The professional and business services sector is expected to see the fastest growth, followed by construction and education and health services. The utilities sector is the only sector that will see losses, according to the forecast.
Despite recent troubles in the coal sector, the bureau expects coal mining employment to remain relatively flat in the coming years, while natural gas jobs will grow at about a 2 percent annual rate.
The bureau expects state incomes will rise by about 2 percent annually over the next five years.
While the state's unemployment rate has stayed about one percentage point below the national rate, a trend that is expected to continue over the next few years, Deskins said that rate is somewhat misleading.
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The key problem, he said, is that the unemployment rate does not count the people who are not participating in the labor force, either because they're retired or have given up on finding work. The smaller labor force can make the state's unemployment rate appear lower than it is.
"We cannot talk about the unemployment rate in West Virginia without talking about the labor force participation rate ... what share of our population is ready, willing and able to work," Deskins said.
The national rate has fallen precipitously since 2009, and was around 63 percent during the last year. West Virginia's rate, however, was in the 54 percent range - the lowest of any state in the nation.
Deskins said part of that was due to older population, which WVU demographers believe will continue to shift the wrong way in coming years.
Officials expect the state's population will decline slightly over the next five years. Much of the decline will be concentrated in the younger population.
The 17 and younger and 18-44 age categories will both see annual declines of about 0.2 to 0.3 percent over the next five years. The 45-64 age group will decline by about 1.2 percent each year during the same time.
The only population growth forecast in the next five years will come in the 65 and over group, which will see annual growth of nearly 2.5 percent over the next five years, according to the report.
Jose Sartarelli, dean of the WVU College of Business and Economics, said the report shows the state has incredible potential, if it can be developed properly in the coming years.
Sartarelli said many countries that developed significant economies following World War II did so by growing exports, and he said the state appears to be on that path.
Regarding the other challenges the state faces, such as demographics, Sartarelli said the state could turn those trends around through sustained economic development.
"There's no pathway to future prosperity that's faster than economic development," Sartarelli said.
He said to achieve true economic development, you need five things: a good supply of natural resources, the ability to train and develop a strong work force, the ability to attract capital investment, growth in technology and science and good policies.
Sartarelli said the state needs to improve its policy environment, which he described as "over-regulated" when it comes to business.
He said reducing that regulatory burden could stimulate business growth.
"There's no reason for a state with the natural resources like (West Virginia) has, that it can't be a powerhouse for economic development," Sartarelli said.
He told the lawmakers in the room - which included House of Delegates Finance Chairman Brent Boggs, D-Braxton, and Delegates Kevin Craig, D-Cabell, and Eric Nelson, R-Kanawha - that the Legislature should begin performing economic cost-benefit analyses for all legislation.
"Every bill should be checked for its economic impact - will it help create jobs and advance the economic interest of the state," Sartarelli said. "And if it does not, it shouldn't be considered."