As we enter the final quarter of 2024, a number of economic indicators show West Virginia’s economy both slowing down and lagging behind the rest of the country. Growth in gross domestic product (GDP), personal income, wages and salaries, and employment have all shown signs of slowing, while business tax revenue collections are below that of the last two fiscal years.
West Virginia experienced GDP growth of 3.1 percent on an annualized rate in the first quarter of 2024, however that growth dropped to 2.1 percent in the second quarter of the year, below the national average of 3.0 percent. West Virginia’s GDP growth in the second quarter of 2024 ranked 41st among the 50 states and D.C.
Personal income indicated signs of an even bigger slowdown. Personal income in West Virginia grew at an annualized rate of 9.0 percent in the first quarter of 2024, before falling to just 3.9 percent in the second quarter of the year. West Virginia’s growth rate was below the national average of 5.3 percent and ranked 49th among the 50 states and D.C.
Wages and salaries, a major component of personal income, performed better than other economic indicators, but the state still experienced a slowdown so far in 2024. After growing at an annualized rate of 9.2 percent in the first quarter of 2024, growth fell to 5.8 percent in the second quarter of the year, below the national average of 6.2 percent. West Virginia’s second quarter growth ranked 34th among the 50 states and D.C.
While GDP, personal income, and wages and salaries grew at relatively slow rates, West Virginia was losing jobs. Total nonfarm employment fell by 1,600, or -0.2 percent from January 2024 to August 2024. West Virginia was one of only four states to lose jobs so far in 2024, and was well below the national growth rate of .9 percent.
Compared to pre-pandemic job levels, West Virginia’s total nonfarm employment has increased by 1.7 percent, compared to the national increase of 6.5 percent. Among the 50 states and D.C. West Virginia ranks 38th in job growth compared to pre-pandemic levels.
Diving deeper into West Virginia’s employment growth numbers reveals that not all industries are losing jobs. The health care industry appears to be boosting West Virginia’s economy, adding 3,100 jobs, while manufacturing and public sector jobs had the most losses, losing 1,500 jobs each.
Finally, business tax collections have fallen sharply in FY 2025 compared to this point in the fiscal year the past two years. While personal income tax collections have fallen in the past year due to ill-advised tax cuts, corporate net income tax rates have not been cut. Instead, their collections provide a real-time glimpse of the state of the economy, and they too reflect an economy that is slowing down. After collecting $125.9 million in the first quarter of FY 2024, West Virginia corporate net income tax collections in the first quarter of FY 2025 were only $80.1 million, a drop of $45.8 million, or 36.4 percent.
One possible explanation for declining corporate net income tax revenue in FY 2025 compared to FY 2024 is businesses switching their filing status to an S corporation, which would allow their income to “pass through” and be assessed at the shareholder’s individual income tax rates, taking advantage of the personal income tax cuts. However, it is unclear how many, if any, businesses are doing so, and collections are five percent below the estimate for the first quarter of FY 2025. What’s more, corporate net income tax collections for the first quarter of FY 2025 were even below the first quarter collections of FY 2023 by $22.8 million, suggesting little growth in business activity, even with the potential diversion from corporate income tax collections to personal income tax collections.
As we enter the final quarter of calendar year 2024, the slowdown of economic indicators across the board should raise alarm bells for policymakers. With several pressing budgetary needs, and the full impact of personal income tax cuts still yet to effect revenue collections, West Virginia needs strong economic growth in order for other revenues to offset the already steep decline in personal income tax collections. And while personal income tax cuts were promised to provide that growth, that promise has yet to pan out after nearly two years.
