MSBI: Mountain State Business Index stalls in November

November 30, 2014

The Mountain State Business Index, which serves as an up-to-date gauge of the state’s business performance, remained essentially unchanged during November, snapping seven months of uninterrupted gains. Despite the pause, the index still suggests West Virginia’s economy should remain on track for continued economic growth into the early spring months of 2015.

The index is produced by West Virginia University’s Bureau of Business and Economic Research, which operates within the College of Business and Economics.

“Although the Mountain State Business Index has paused, the outlook for the West Virginia economy remains positive,” said BBER Director John Deskins. “The overall trend for the index has been strong, and several months of broad and consistent weakness in the index are needed for a significant change in the near-term outlook.”

“Chances of a recession in the coming months appear unlikely,” Deskins said.

The MSBI was flat on a month-to-month basis in November, but remains 2.2 percent above its year-ago level and has increased 3.3 percent on an annualized basis during the last six months. These healthy rates of growth suggest the state’s economy should remain on a path of solid economic progress over the course of the next several months.



The MSBI combines several leading economic indicators into a single index 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 over that same time period.

The index is comprised of 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 November index reflects data that correspond to the month of October.

For the first time since early 2014, a majority of components made negative contributions to the MSBI this month. Natural gas output provided the largest positive contribution to the topline index, while stock prices for the state’s largest employers and building permits for new single-family homes also boosted the MSBI in November. By contrast, coal production, initial claims for unemployment insurance and the state trade-weighted dollar weighed on the index by similar magnitudes. The yield curve also made a negative contribution to the index this month.



“Although a majority of MSBI components failed to improve this month, the index has notched strong gains over much of 2014 thanks to a few key indicators,” said Brian Lego, BBER research assistant professor. “The composite of stock prices for the state’s largest publicly-traded employers surged three percent and remains 12 percent ahead of its year-ago level. This reflects continued optimism for the national economic outlook and healthy expectations for many of the state’s largest businesses. Natural gas output has also contributed significantly to the index for the past 2+ years, with production increasing at rates well into the double digits. Highly productive Marcellus Shale wells in the Northern Panhandle and North Central regions of West Virginia have been driving this growth, but newer exploration in the Utica Shale has also begun to boost production.

“Initial unemployment insurance claims increased on a seasonally-adjusted basis for just the first time since February, but are still down nearly 20 percent in the past year. In addition, claims are still close to levels observed during the mid-2000s economic expansion. While the increase bears watching, the current level of unemployment insurance suggest some improvement in state labor market conditions going forward,” Lego said.

“On the downside, even though overall coal production for the state has picked up this year compared to 2013, growth has been driven entirely by increased output from mines in West Virginia’s northern coalfields. Moving forward, we anticipate this surge in northern coal production to slow and the long-term decline in the state’s southern coalfields to continue, thereby weighing on the overall index. Coal demand is expected to weaken over the next several years due to a combination of shifting fuel uses for electricity generation and environmental regulatory changes.”