RECENT ECONOMIC PERFORMANCE OF THE POTOMAC HIGHLANDS REGION

The West Virginia Potomac Highlands Region¹ experienced a significant decline in economic activity during the Great Recession. Between the final three months of 2007 and the first quarter of 2010, total employment in the five-county area fell 6.6 percent, or a cumulative decline of nearly 1,600 jobs. By comparison, the rest of the state experienced a milder recession as employment declined by 3.3 percent. The rate of job losses in the Potomac Highlands Region’s slightly exceeded the national average (-6.2%) during the economic downturn.² Thus far, the region’s labor market recovery has been tepid as employers have only added roughly one-fourth of the jobs that were lost during the recession.

In terms of the five counties that comprise the Potomac Highlands Region, Mineral and Hardy counties are the largest, containing approximately 60 percent of jobs in the area. However, economic trends in these counties have been quite different over the course of the past several years. Hardy County experienced the region’s largest percentage decline in employment during the recession, as payrolls fell 16 percent from their pre-recession peak. The county’s recovery has been weak for the past few years, but payrolls have begun to trend higher in the past year. By comparison, Mineral County experienced a much milder downturn, as payrolls remained mostly unchanged for more than four years.

Hampshire County saw local payroll levels drop 6.7 percent during the recession, but unlike the other counties in the region it has also experienced a fairly healthy recovery in recent years. One likely explanation for the county’s bounce back is due to its connection to the Winchester VA-WV metro area. Approximately 47 percent of Hampshire County’s residents who hold a job commute to another state for work and most of those workers drive into the independent city of Winchester and Frederick County, Virginia. The city of Winchester’s economy has remained sluggish but Frederick County, VA has enjoyed robust growth over the past two years, notching an estimated 7 percent increase in employment during 2013.

Although the public sector accounts for the largest share of employment in the Potomac Highlands region, just as it does for the state as a whole, the region’s industrial composition is measurably different from other parts of West Virginia. The manufacturing sector contains 21 percent of all payrolls in the Potomac Highlands, more than three times the share in the rest of the state, with most of the jobs concentrated in food processing (poultry), defense aerospace and lumber and wood products. The manufacturing sector also accounted for more than 60 percent of the jobs lost in the region during the recession. For example, the steep nationwide contraction in new housing construction had a significant negative impact on wood and furniture producers operating in the region while shifting federal defense spending priorities hurt the local aerospace industry. On a positive note, employment in the sector as a whole has begun to turn moderately higher in the past year, largely reflecting a nascent rebound in new housing demand across much of the nation.

Reflecting the same trends occurring at the state and national level, payroll levels in the education and health services sector in the Potomac Highlands have expanded at a solid pace over the past few years. Mineral County healthcare providers have seen the steadiest gains in employment since the beginning of 2010, but the addition of the new $26 million Hampshire Memorial Hospital facility has also benefited the sector locally. While the region’s trucking and warehousing industries have experienced a modest jump in activity since the end of the Great Recession, the Potomac Highlands’ consumer-based sectors, namely retail trade and leisure and hospitality, have struggled to gain traction as several of the region’s linchpin industries have remained stable or posted only modest increases in employment in the past year.

The region’s construction sector has experienced little sustained job growth since the end of the recession. According to data from McGraw-Hill, the total number of new homes started in the past 12 months in the five-county region remains nearly 77 percent below the peak level observed at the height of the housing boom. Spending on nonbuilding projects has fallen considerably over the past two years, reflecting the completion of a couple of wind power projects and the broader decline in public spending on infrastructure. The overall level of nonresidential construction activity is beginning to improve, however, thanks in part to the construction of the new Franklin Elementary School ($12.6 million) and the $43 million renovation and expansion projects for Moorefield High School and East Hardy High School in Hardy County.

One important portion of the Potomac Highlands economy that is not fully represented in the figures presented above is its farm sector. Some agricultural workers are captured within the natural resources and mining sector, but the majority of the jobs reflected in this category come from Grant County’s coal mining industry. Data from the US Bureau of Economic Analysis show that more than 2,600 people were employed at farms in the Potomac Highlands region during 2012, or 7.2 percent of total employment. This is more than three times the statewide share and nearly five times larger than the national share. Among the counties in the region, Pendleton County contained the highest share of farm employment (16.6 percent) while Mineral County contained the lowest share (4.0 percent).

The 2012 Census of Agriculture indicated that the fivecounty region contained over 2,700 farm operations, and totaled more than $400 million in direct sales of agricultural products. Broilers and layers represent the single-largest source of farm activity in the area, particularly in Hardy County, which accounted for approximately 40 percent of all broilers sold and a similar share of layer inventory.

After falling to just below 4 percent before the onset of the Great Recession, the deteriorating labor market in the Potomac Highlands and the surrounding region caused the jobless rate to rise rapidly, reaching a peak of 9.7 percent by the first quarter of 2010. This exceeded the peak observed for the rest of the state by nearly 1.5 percentage points, but still remained slightly what was measured nationally. Since that point, however, the region’s unemployment rate has trended mostly lower and finished the first quarter of 2014 with an average of 6.2 percent, just above the state average of 6 percent.

Among the individual counties in the region, Grant County saw its unemployment rate peak at 12.1 percent at the height of the recession, while Hardy and Hampshire counties both surpassed 10 percent in late 2009 and early 2010. The unemployment rate has fallen appreciably for all five counties, but as of the first quarter of 2014, Grant County’s unemployment rate remains the highest in the region at 8.7 percent while Pendleton County’s is the lowest at 4.7 percent, down from a peak of 9.2 percent during the first quarter of 2010. The downward trend in the unemployment rate is positive news and strong economic growth in neighboring portions of Virginia does point to an improvement in the broader regional labor market. Some of this drop in the unemployment rate can be attributed to a decline in the number of people participating in the labor force during the past few years. All five counties saw the size of their labor forces shrink at least slightly since the beginning of 2010. Even with these declines, however, labor force participation rates in the Potomac Highlands generally exceed that of the rest of the state, where less than 54 percent of the 16 years and older population was in the labor force.

Per capita personal income for the Potomac Highlands Region was estimated at approximately $31,500 during calendar year 2013, without adjusting for inflation, which marked a 3 percent rate of growth over the previous year. For the state as a whole, per capita personal income came in at just above $35,600 during 2013, increasing 1.5 percent from the previous year. In addition, the five-county region enjoyed gains of nominal per capita income over the duration of the economic downturn, averaging an increase of 3.5 percent per year since 2008. This rate of income growth exceeded that of the rest of the state (2.8 percent) and is more than double the rate of growth that was observed nationally (1.7 percent per year).

Mineral County residents have the highest per capita income levels of the five counties that make up the metro area at an estimated level of more than $34,700 in 2013. The county’s industrial mix, namely the presence of Alliant Techsystems, WVU-Potomac State and IBM, helps to support income levels in the area. While all counties in the region tend to lag the statewide average in terms of overall wage and per capita income levels, growth over the past five years has been above average in every county except for Grant, which still recorded a 2.4 percent average annual increase in per capita income since 2008. Local income growth has also been supported by the large share of local residents who commute into relatively stronger labor markets in Virginia and Maryland for work.

Until recently, the Potomac Highlands had experienced fairly robust population growth. Between 1990 and 2010, the region saw the total number of residents increase by more than 13,000. Over the past three years, however, the region’s population has lost approximately 1,500 residents, as all five counties saw the number of residents decline since 2010. The underlying demographic trends of the Potomac Highlands Region are similar to that of the rest of West Virginia but there are notable differences that are worth mentioning. Just like the state as a whole, the region experienced an upturn in net migration during the 2000s that has since reversed course and turned negative over the past three years. While the region has roughly the same under 18 population share compared to the state, the region has a larger population share in the over age 65 category compared to state and national norms, with 19 percent of residents over the age of 65. The median age in the region is estimated at 44.2 years, compared to 41.7 for the state. Finally, educational attainment levels also tend to be lower in the Potomac Highlands Region as slightly less than 11 percent of residents aged 25 and older possess at least a bachelor’s degree.