An Economy On the Ropes

We can start with a look at some very basic industrial statistics. The Tristate Area port is the largest inland port in the nation.

This may surprise you. But it’s worth noting one reason for this designation is that the Tristate Area port designates almost 200 miles of waterway access, bumped up from 14 miles in 1999. I am not sure how many other inland ports are designated at a similar scale, but it does mean you should understand that this “inland port” is actually a whole series of ports including Ashland, Huntington, and all the way up to Portsmouth, Ohio, which isn’t even part of the Huntington-Ashland metro area. All the same, here’s the tonnage data:

Ignore the huge jump in 2000; as I said, that’s due to a change in classification. In all likelihood, shipping volume rose in the early 90s, declined in the late 90s, was stable through the early 2000s, and has declined since. The Tristate Area has gone from being the nation’s 4th biggest port in 2005, to its 16th in 2014. Yowza. That 37.5 million tons of lost cargo traffic represents lost jobs: for miners, for equipment technicians who support mines, for mine managers, for steel workers, for steel equipment suppliers, for longshoremen, for port managers, for tons of people.

Now, it may also be that changes in rail/water economics have caused more freight to move out by way of rail. I don’t have great data on that, but I wouldn’t be surprised. But even so, this data speaks to a key symbolic truth: the Tristate Area has been suffering.

The data above bear this out. In 2007, before recent declines began, Huntington already had one of the lowest hours-worked-to-population ratios in West Virginia. Since 2007, it has gotten worse, falling by 6%. Meanwhile, Wheeling, Morgantown, and, to a lesser extent, Parkersburg have seen improvements.

It’s not just hours worked, however. Wages in West Virginia are persistently low, but the Tristate Area has also seen slower growth in hourly earnings. While West Virginia on the whole has seen a 22% increase in nominal hourly earnings since 2007, the Tristate Area has seen just a 14% increase, the lowest of any metro area except Beckley. Wheeling saw 22%, Parkersburg saw 46%. Now, in fairness, growth rates in Illinois, Indiana, Ohio, and Virginia all ranged from 12% to 16%, but they start from higher bases as well. In no year since 2007 have the Tristate area’s hourly earnings been even equal to, let alone higher than, hourly earnings in Indiana, Ohio, Illinois, or Virginia.

Likewise, it’s worth digressing for a moment to look at coal production in Kentucky and West Virginia, which drives much economic activity in the region.

Mine labor hours, a good measure of actual labor demanded, rose from 2003 to 2011, but have since fallen dramatically. Meanwhile, production flatlined until about 2008, and has since declined. The result of all this is that the the amount of coal produced per labor-hour has declined dramatically; in other words, the average productivity of labor in KY and WV coal mines has fallen off steeply. However, it seems to have reached a bottom now. By 2011 or 2012, productivity per labor-hour had stabilized, and it is now climbing some.

I don’t know what’s behind these statistics. Certainly many of the easiest-to-mine areas have been tapped out. Increased regulations could also cause more labor-time spent on activities that aren’t directly productive. Unionization could also have forced companies to consume excess labor, which is now undergoing a “hard reset” of bankruptcy and unemployment, when it could have been a “soft reset” if labor was more flexible 15 years ago. It could also be that high energy prices in the 2000s allowed unproductive firms to operate, while falling prices recently have skimmed off the least productive mines. Or it could be something else altogether. Whatever the case, the only real hope for mining employment in central Appalachia in the future is that the key productivity metric, coal produced per labor hour consumed, continues to rise. If it rises, firms may see greater benefit to hiring more workers, or giving current workers more hours. But if that statistics remains low, so will coal employment.

Now, I should say, I make it sound like coal is the only extractive industry, but it’s not. Kentucky and West Virginia both produce small amounts of oil. West Virginia’s oil production has tripled since 2012, though remains under 8,000 barrels per year. Natural gas production has also expanded such that West Virginia now produces as much natural gas as the entire Gulf of Mexico offshore operations, which, granted, is still just 4% of production, but it’s a 5-fold increase from 2010. Kentucky also produces a marginal amount of natural gas.

There’s also, of course, the timber sector. In Kentucky, coal mining employs about 8,700 people. All other mining and logging employs about 5,500. Non-coal mining and logging has been pretty much stable since 1990, while coal mining has been in steep decline (coal mining employed nearly 30,000 Kentuckians in 1990). I unfortunately don’t have data splitting out West Virginia due to BLS privacy-suppression and sample size issues, but it’s likely a similar story.

Now, of course, the real money, especially for a metro area rather than the rural countryside, is in value-add, and on that front, the metal-and-coal sector is actually doing better than the wood-and-paper sector. Kentucky’s metal-and-coal manufacturing is still well below its late-1990s peak employment of over 60,000, but, at over 50,000, is well above is 2010 trough around 43,000 steel and refining workers. Wood and paper products manufacturing, meanwhile, at about 29,000 workers, is near historic lows, down from 41,000 around 2000.

But what does all this have to do with the Tristate Area, or Ashland? Remember when I said that a 1955 city history called the arrival of Armco, later AK Steel, the most important event in Ashland’s history? Well, the main Ashland Works that employed 800 people were temporarily idled last Christmas, with over 600 employees laid off. Now, in a town of 21,000 people, that’s not just a large impact, that’s the ground falling out of the economy. That’s something like 5% of the entire employment base going away. Since then, Kentucky has offered AK Steel generous tax exemptions to restart its Ashland facility, but it hasn’t worked thus far. Declining steel shipments have caused layoffs as far away as Toledo, Ohio in logistics industries like railroads, and undoubtedly have caused layoffs in similar sectors around Ashland.

One last thing. Many of these unemployed people will get other jobs in the area. Some will move elsewhere. But some will neither move no find new formal employment, and seek various means of supporting themselves outside of their paycheck. One such means is public support.

Since 1969, personal current transfers, which are cash- and cash-like transfers from the government, have risen from about 12% of the Tristate area’s personal income to over 27%. Digest that: over a quarter of all the income in the Tristate area comes from government transfers of some kind. As you can see, this trend continues to rise, and is well above the average for US metro areas.

Declining coal output and productivity, layoffs in the manufacturing sector, a smaller logistics sector than in the past, declining population…this is bad news. There’s more bad news, of course: the biggest employer, a hospital, has been hit by a large-scale fraud case against one of its most recognized surgeons. The county school system attendance rolls have fallen by more than 100 students in just 3 years, meaning that educational jobs will likely fall.

Times are tough in the Tristate area. The result is predictable: people are leaving.