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Forecast: Despite coal's decline, W.Va. economy will grow

CHARLESTON, W.Va. -- Job losses in West Virginia's energy sector will continue over the next five years, but gains in other industries will make up for them, according to a forecast by the West Virginia University College of Business and Economics.

The economic forecast, along with a national and global forecast, was presented Thursday at the university's annual Economic Outlook Conference at the Charleston Civic Center.

The state's overall employment level is expected to rise by an average of 1.2 percent each year between 2012 and 2017, pushing the unemployment rate down to 5.7 percent by 2017, according to the 2013 West Virginia Economic Outlook, released Thursday.

The state added 12,600 jobs between 2010 and 2011, an increase of 1.7 percent. The unemployment rate slid from 8.4 percent to 8 percent by the end of 2011 and continued to fall through the first quarter of 2012, according to the forecast.

The coal industry, however, saw a downturn.

"A mild winter sent coal stockpiles at power plants higher, and mines cut back production to compensate," the forecast states. "Natural gas took a larger share of power generation this year as power plants switched from coal to gas when gas prices fell."

Jeff Herholdt, director of the West Virginia Division of Energy, said the competition between natural gas and coal was, in part, because of the reopening of closed gas plants.

"It's not because new gas is coming online," Herholdt said. "It's because gas plants that were shuttered around 2000 are now being brought back into service."

Herholdt said the state's coal-based economy will have issues related to EPA regulations.

"We do have significant issues," Herholdt said. "We're a coal state, we want to continue being a coal state. Roughly 30 states have coal as at least 30 percent of their electrical base. We provide coal from Michigan to Florida."

Coal mining jobs fell significantly in the second and third quarters of 2012. The gross state product in the mining sector will fall through 2017, the forecast projects.

Job losses in the energy industry will continue through the beginning of next year and then level off, according to the forecast.

Gains in other industries, though, are expected to outweigh the losses in the mining industry.

The state's construction sector will recover from the latest recession because of the increasing demand for residential housing.

 

Health care

The health-care industry will see gains in employment because of increased demand for health services for the state's aging population.

Tom Jones, president and chief financial officer of West Virginia United Healthcare System, said the health-care industry faces several challenges, including the implementation of the Affordable Care Act, uncompensated care and underpayments from Medicaid and PEIA.

"I will tell you that much of this cost is shifted to commercial insurers, making it a tax on business," Jones said, "which makes you all less competitive."

Officials say the Summit Bechtel Family National Scout Reserve, a Boy Scout camp in Fayette and Raleigh counties, will bring short-term employment gains to the West Virginia's leisure and hospitality sector.

Steven McGowan of the Boy Scouts of America said The Summit would not compete with adventure businesses in the New River Gorge area.

"Our target is Boy Scouts and their families," McGowan said.

The facility will be open to the public to some extent, but adventure activities such as zip lining and canopy tours will not be open to the general public.

During next year's Boy Scout Jamboree, about 40,000 people are expected at The Summit, McGowan said. Then, in 2014, The Summit will be used for a Boy Scouts summer program that's expected to draw in 5,000 Scouts, he said.

McGowan said showing off the state to thousands of Boy Scouts is one of the biggest benefits of having The Summit here.

"When you welcome those Scouts," he said, "you're welcoming those who have the opportunity to speak [for], and hopefully relocate to, West Virginia."

 

Overview

The wholesale and retail sectors should be positively affected by the new Macy's distribution center in Martinsburg and the new Cabela's store in Charleston.

Employment in the energy sector is expected to decrease by 1.5 percent each year through 2017. However, construction jobs are expected to increase by 5.1 percent each year.

The professional and business services sector is expected to add 15,000 jobs over the next five years and employment in the health-care industry is expected to grow.

Despite the short-term employment gains from the Boy Scouts camp, jobs in the leisure and hospitality sector will decrease by a fraction of 1 percent each year through 2017, according to the forecast.

As far as the national forecast, the recession hit bottom at the end of the second quarter of 2009, but since then, economic expansion has been disappointing, said Jeffrey Lacker, president of the Federal Reserve Bank of Richmond.

"Real gross domestic product, for example, has risen at an average annual rate of 2.16 percent during this recovery," Lacker said. "Labor market conditions have been especially disheartening. We lost over 8 million jobs in the recession and its immediate aftermath.

"Since bottoming out in early 2010, we've added 4.5 million new jobs," he said, "which leaves us far from a complete recovery."

Lacker said more houses were built than were necessary by the end of the housing boom, which is one factor that's stopped the United States from recovering more quickly. That led to a large and persistent decline in new residential investment, Lacker said.

"It now looks as if the worst is behind us and new construction activity is gradually improving," Lacker said. "Moreover, home prices in many markets have bottomed out and [have] begun to increase."

A shift in economic activity away from residential construction, housing finance and related supply industries is another factor in the country's slow rebound from the recession, he said.

The rapid loss of jobs in these industries, and other factors, contributed to the ranks of the unemployed, and "it has taken considerable time to whittle down the unemployment rate," Lacker said.

Many consumers are cautious and unwilling to spend money because of the recession, which is another reason for the slow rebound, he said.

"Consumers have become more apprehensive about their future income prospects," he said. "So, while consumer spending has grown during this recovery, the tempered pace of that growth has limited the overall pace of the expansion, relative to previous recoveries."

Lacker warned that if Congress does not act on the pending "fiscal cliff" -- a combination of spending cuts and tax increases that will go into effect next year -- the economy is likely to go into another recession.

An imbalance in taxes and spending also will affect the national economy, he said.

"At some point, Congress will have to bring taxes and spending into closer alignment," he said. ". . . Until a fiscal plan is adopted that is sustainable over the longer run, consumers and businesses will make decisions under a cloud of uncertainty."

Reach Lori Kersey at lori.kersey@wvgazette.com or 304-348-1240.


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