By Lawrence Messina
West Virginia’s economy will continue to improve in the next five years, despite ongoing struggles in its mining sector.
That was the forecast offered Thursday at the latest West Virginia Economic Outlook Conference.
Forecasters said West Virginia’s economic output and per-capita income should both grow steadily, with unemployment dropping to 5.6 percent by 2017, as gains in such areas as construction and business services outpace continuing declines in mining.
Paul Speaker, a professor at West Virginia University, pegged the annual increases for income and state gross product at 2.2 percent. While that income growth should outpace the national rate, the increase of West Virginia’s economic output should fall behind the U.S. growth rate after leading it for several years, Speaker said.
“We’re going to grow, but not fast enough. West Virginia will grow a little bit slower than the national economy,” Speaker told an audience of business leaders, public officials and others at the Charleston Civic Center.
Speaker said his team at WVU’s College of Business and Economists forecast that construction jobs will grow by an average of 5.1 percent annually over the next five years, while the professional and business services sector will expand by 4.4 percent. Education and health services jobs should increase by 2.1 percent. But while incomes in the mining and natural resources sector will grow by just under 1 percent, job losses in that area will continue at a rate averaging 1.7 percent annually between now and 2017.
Lower natural gas prices and a mild winter are among the reasons for the recent drop in West Virginia coal production. State Deputy Revenue Secretary Mark Muchow, another conference speaker, noted that six coal-fired power plants that provide 14 percent of the state’s electricity are scheduled for shutdown. But Muchow also said that while coal production is down 7 percent for the year, natural gas production is up by 15 percent as developers tap the Marcellus shale reserve.
Under the forecast offered Thursday, unemployment is expected to average 7 percent this year. While a 5.6 percent rate would mark a significant improvement from that, and from the recession high of 8.5 percent in 2010, it’s still higher than the pre-recession rate of 5 percent in November 2008.
Even the economy’s bright spots also have downsides. Construction, for instance, is rebounding after annual job losses averaging 3.6 percent since 2006, Speaker said. West Virginia’s hospitals will face increasing pressure to consolidate because of more federal regulations, eroding cash reserves and uncompensated care that totaled $742 million in 2010, said Thomas Jones, president and chief executive of West Virginia United Healthcare System.
Nationally, the economy should grow by 2.2 percent next year, said Jeffrey Lacker, president of the Federal Reserve Bank of Richmond and the conference’s featured speaker. That rate could increase if there’s “meaningful progress” on the federal budget and the national debt. Lacker expects such actions in the wake of the general election.
“Until we get a fiscal plan that’s sustainable, consumers and businesses are going to be making decisions under this immense cloud of uncertainty,” Lacker said. He added, “We’re going to have to see convincing progress.”
Lacker has repeatedly objected at recent Federal Reserve meetings that its continuing policy steps could lead to higher inflation. Those steps include low short-term interest rates and the buying of mortgage bonds to push long-term interest rates lower and make home buying more affordable. Lacker on Thursday said that monetary policy can do only so much to spur economic growth. He said the time has come to increase interest rates and reduce the supply of bank reserves.
“Accordingly, I have opposed additional easing steps at (Federal Open Market Committee) meetings this year,” Lacker said. He added, “We have the tools that we need to withdraw monetary stimulus soon enough and rapidly enough that we keep inflation on target.”