WHEELING – As 38 counties in West Virginia see decreases in average annual employment growth, West Virginia University economist John Deskins cites expanding the state’s manufacturing industry as one way to “spark” economic development in these counties.
Deskins serves as the assistant dean and director of the Bureau of Business and Economic Research within the College of Business and Economics at WVU. He presented this solution to the economic downturn in West Virginia counties as one of the featured speakers during the West Virginia Manufacturers Association’s Manufacturing & Energy Growth Summit, which was held at Oglebay’s Wilson Lodge.
Before discussing West Virginia’s current economic outlook, the economist zoomed out to put West Virginia in context with the nation’s economic outlook. Deskins first displayed a graph of U.S. inflation rates, noting that the summer of 2022 was the “highest they had ever been in 40 years” at 7.7%.
“We made great progress in our battle with inflation, but it turns out that this last stretch of fighting inflation is kind of proving the hardest,” said Deskins. “We want inflation to be at 2%, but right now, inflation is down to 3%.”
While inflation rates were in the last stretch of recovery from 2022, Deskins noted U.S. interest rates were in a “cycle of increases.”
The last time the Federal Reserve increased interest rates “almost as aggressively” was in the early 1980s, a phenomenon Deskins noted resulted in a severe recession. Though uncertainty loomed because of the interest rate increase, Deskins said things did not appear to be heading in the same direction.
“Things seem to be different this time as we’ve gotten inflation from 7.7% down to 3%, and so far, we’ve maintained a healthy economy,” he explained. “We’ve maintained a healthy economy, and we haven’t gone too far with interest rates to tip the economy into recession.”
Zooming in on West Virginia’s current economic outlook, Deskins noted that the state has “fully recovered” from the COVID-19 pandemic by adding 5,000 private sector jobs. This marks a 0.8% growth in jobs from before the pandemic.
The unemployment rate for the state is also heading in a positive direction, with Deskins adding the current West Virginia unemployment rate of about 4% “looks fantastic.” He noted the state reached a record low employment rate “about a year and a half ago” that has increased “slightly” since then.
West Virginia was in the “red” in terms of per capita personal income compared to other states, with an average annual salary of just over $50,000.
Deskins then broke down the average annual salary by sector in the state. The utilities sector, including the coal and gas industries, topped the list with an annual average wage of over $150,000. The leisure and hospitality sector was at the bottom of the list, with an average salary of just over $20,000.
Deskins noted that the manufacturing sector fell “well above average,” with an average annual salary of about $66,000.
“There is tremendous, tremendous variation across those industrial supersectors where manufacturing is well above average, but the incomes in that sector are certainly modest compared to coal and gas in the utilities sector,” noted Deskins.
Moving onto gross domestic product growth in the state, Deskins noted West Virginia had a “long stretch of underperforming” compared to the national GDP growth. However, he added that 2023 had “proven to be a turnaround year” with West Virginia experiencing just over a 4% GDP increase in comparison to the national rate of about 2% GDP growth.
However, once the contributions of the mining and oil & gas industries to West Virginia’s GDP are removed, Deskins noted there has been “not that much growth” in the state’s GDP. Deskins explained that this reflects the state’s falling into a “vicious cycle” regarding economic development.
With the lack of industrial diversification brought by many counties’ reliance on the mining and oil and gas industries, Deskins outlined that any challenge to these dominant industries can cause jobs to disappear, leading to out-migration from the state.
“In our case, coal jobs began to disappear,” explained Deskins. “We’ve lost 80% of our coal jobs over the long run either due to mechanization or simply losses in output.”
Outmigration due to job losses entails the loss of younger, healthier and better-educated working-age people leaving West Virginia.
Those left behind in West Virginia are faced with a lack of economic opportunity that may cause them to fall into drug abuse, which makes the state less attractive to new development. This leads to “the vicious cycle” Deskins described, as conditions further worsen in the state as no new development is attracted.
“This is what you must address when you think about development in many parts of our state,” said Deskins. “The traditional tools for economic development are suited to taking an area that’s growing and accelerating that growth. It’s much easier for us to take an area growing economically and invest in traditional ways to get that growth to accelerate than taking an area that’s in this downward spiral and trying to turn that spiral into growth.”
Ohio County, along with 20 other counties across the state, is in the “dark red,” which means it is exhibiting an equal to or greater than 1% decrease in annual employment growth.
For these countries experiencing a downward momentum in employment growth, Deskins explained they need to find a “spark” to generate growth in the area. He suggested new industries, such as downstream chemical manufacturing or extraction of rare earths from the soil, along with attracting remote workers through tourism in outdoor recreation, as future solutions to create positive average annual employment growth in these counties.
Moving away from individual county solutions, Deskins emphasized that West Virginia “needs to find further ways to further diversity the economy.” With only 10 counties in the state experiencing equal to or higher than a 0.6% average annual employment growth rate, Deskins finds the need to spread growth across the state pertinent.
“We have 10 wins across the state, but we have to do more to make that growth picture look even more even,” noted Deskins. “Investment in manufacturing is a key way to help bring about industrial diversification and broad-based growth by sector and geography.”
Deskins expanded on his proposed solution, explaining that there are about 46,000 manufacturing jobs in the state currently, which is at “almost the same level” of available jobs in the industry as about six or seven years ago. He added that there is an “expected growth” in the manufacturing industry in addition to the jobs already in the state.
According to data from S&P Global, Deskins outlined that other industries in West Virginia have “fallen fairly flat” in output compared to manufacturing.
“We do have a lot of enhancements in the pipeline that are going to grow manufacturing healthily over the next few years,” noted Deskins. “Many operations like Nucor [steel production company], for example, are under construction, so they’re not showing in output numbers yet.”