U.S. Energy Information Administration Independent Statistics & Analysis www.eia.gov

July 24, 2014

Macro/Industrial Working Group

Macroeconomic team: Kay Smith, Russ Tarver, Elizabeth Sendich and Vipin 

Arora

Briefing on Macroeconomic Reference Case 

for the Annual Energy Outlook 2015
Macro’s FY2015 AEO initiatives met

2 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• Review incorporation of completed AEO macroeconomic 

initiatives.

– Incorporation of 2009 based GDP 

– Use of 2007 supply matrix and its extension to 2012

– The extension of the supply matrices means the use of an additional 10 years of supply 

chain relationships will inform our industrial projections

• Highlight upcoming initiatives.

– Supply matrices change throughout forecast.

– Remaining macro initiatives focused on IEO

• Short Description of Proposed Reference Case

– Highlight short-term vs. long-term growth

– Forecast comparisons

– Highlight macroeconomic concepts that other NEMS modules use
AEO2015’s GDP growth similar to last year’s projection, 

though GDP components growth show differences

3 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• Real GDP growth is 2.4% from 2013 to 2040, matching AEO2014’s 

forecast, although consumption and import growth is higher and investment 

and export growth lower.

– Most differences occur within first 7 years: GDP growth of emerging markets is lower and U.S. dollar 

appreciates more, driving lower export and higher import growth.

– Consumption of durable goods explain most of increase in consumption, with motor vehicle growth 0.4% 

higher than AEO2014, as disposable income growth is slightly higher

– Growth in consumer prices are slightly lower, reflecting lower import prices, although U.S. producer prices 

show higher growth

• The next 30 years will probably not be similar to the last 30 years. We 

expect slower GDP, disposable income and labor force growth, and higher 

export growth compared to the last 30 years. Projected productivity growth 

is 1.9 percent, about 0.2 percentage points lower than the last 30 year 

growth.

• Growth in productivity, population, and labor force explains most of long-run 

GDP growth. 
Productivity, capital stock and labor explain 

long-run growth

4 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• Uses Global Insight’s macroeconomic model, whose forecast 

horizon matches NEMS

• The level of inflation-adjusted demand is driven by the price level, 

income, wealth, and financial conditions. Supply is keyed to a 

production function combining inputs of labor hours, energy, and 

capital stocks of business equipment, structures and government 

infrastructure. 

• Major drivers: total factor productivity, labor supply, capital stock

• The updates to the macroeconomic model included: 

– 2009 GDP rebasing adding investment categories (R&D and intellectual property);

– and updated supply chains to 2012
Macro provides regional industrial output, 

employment, and commercial floorspace

5 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• Industrial input output model provides 64 gross output for manufacturing, 

service, agricultural, construction and mining sectors. Energy mining and 

utilities come from NEMS. All others uses the input output model whose 

initial baseline comes from IHS. Most industries are at the 3- and 4-digit 

NAICS levels. From the 64 industries, we aggregate it to 52 industrial 

sectors for NEMS use and the industrial energy demand model uses 39 of 

these industries.

• Employment model is based on the industrial model though has slightly 

less detail. For example, agriculture, food processing and chemical 

employment has less detail than its corresponding output in NEMS.

• Commercial floorspace model is a stock adjustment model covering 

thirteen commercial floor space types in each of nine Census divisions. 

• Regional model is a regional share model we estimate by using pooled 

data
Preliminary AEO2015 macroeconomic Reference Case 

shows slower growth compared to history

6 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

Previous 30 Year 

Growth (1983-2013)

AEO 2015 Forecasted 

27 Year Growth (2013-

2040)

AEO2014 Forecasted 

27 Year Growth (2013-

2040

Real GDP 2.8% 2.43% 2.46%

Consumption 3.1% 2.4% 2.2%

Investment 3.5% 3.1% 3.3%

Government 1.7% 0.9% 0.7%

Exports 6.1% 5.0% 5.6%

Imports 6.0% 4.0% 3.9%
More uncertainty in short-term growth

7 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• More uncertainty in short run due to continuing slow recovery 

from 2007-09 recession; uncertainty about duration and 

extent of slow growth prospects in the Eurozone; uncertainty 

about the type and duration of central bank policies; the 

extent and length of the Chinese ‘slowdown’ in growth and 

world political uncertainty impacting economic growth. 

• The final AEO2015 macroeconomic Reference Case will be 

similar to the simulation used in the September STEO. 
Initial half of projection growth driven by investment 

and exports; latter half more even contribution from all 

GDP components

Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE 8
Average growth rates of net exports by category for different 

projection periods shows strong net export growth in “waves”

9 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

Net annual average growth rate

Source: ref2015/defaults/FSFix/d071814a
Moving 30-year average versus annual GDP 

growth

10 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

The Reference Case is a trend forecast; thus the annual GDP forecast settles 

into a long-run growth path.
Comparisons with other projections

11 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• More similarity in long run growth across projections 

compared to short run forecasts

• Relatively fewer long-run growth comparisons available

• The administration and CBO forecasts are updated twice 

yearly, the OASDI forecast is updated annually, and other 

forecasts update their long run projections quarterly
12 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE
Long-run growth has been declining slightly over past several 

AEO forecasts

13 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE
Proposed Reference Case projections that other 

NEMS models use

14 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE
Most energy supply NEMS modules use interest rates 

and employment rate

15 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE
Industrial economic model changes

16 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• We have updated our base year from 2002 to 2007.

• We introduced a dynamic IO to bring the 2007 base year 

input up to 2012 for model estimation.

• We have the initial industrial forecast from IHS which shows 

slightly lower gross output growth compared to last year’s 

IHS forecast. Bulk chemicals, related to further account of 

shale effects, show slightly higher growth. Agriculture and 

services, especially trade services, show slower growth.
Initial AEO2015 runs consistent with new 

macro simulation

17 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

• Overall gross output growth is unchanged compared to the 

AEO2014 projection.

• Overall composition nearly unchanged, with same 

manufacturing share of gross output (17 percent).

• Consistent with increased growth in consumption offset by 

reduced exports.
Preliminary industrial output projections (includes services) 

similar to last year

18 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Billion X dollar

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $

2013-2040 AAGR

GI14: 2.1%

AEO14: 2.0%

GI15: 2.0%

AEO15: 2.0%
Industrial sub-sector outputs

19 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

Energy Intensive Industries*

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Manufacturing*

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $; *includes refining

Billion X dollar Billion X dollar

2013-2040 AAGR

GI14: 2.3%

AEO14: 2.3%

GI15: 2.2%

AEO15: 2.2%

2013-2040 AAGR

GI14: 1.3%

AEO14: 1.3%

GI15: 1.3%

AEO15: 1.3%
Bulk chemicals output reflects greater trade and consumption 

impacts, specific categories important

20 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

200

250

300

350

400

450

500

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Billion X dollar

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $

2013-2040 AAGR

GI14: 1.4%

AEO14: 1.6%

GI15: 1.8%

AEO15: 1.8%
Primary metals output reflects changed investment and trade 

impacts, consumption influences long-term

21 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

100

150

200

250

300

350

400

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Billion X dollar

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $

2013-2040 AAGR

GI14: 1.2%

AEO14: 1.2%

GI15: 1.6%

AEO15: 1.7%
Non-metallic minerals output slightly lower as trade influence 

slightly outweighs consumption effects

22 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

0

20

40

60

80

100

120

140

160

180

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Billion X dollar

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $

2013-2040 AAGR

GI14: 2.0%

AEO14: 2.1%

GI15: 1.7%

AEO15: 1.8%
Plant-based (food, wood, and paper) output reflects decreased 

investment impacts, changed trade and consumption categories

23 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

600

800

1,000

1,200

1,400

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Billion X dollar

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $

2013-2040 AAGR

GI14: 1.8%

AEO14: 1.7%

GI15: 1.7%

AEO15: 1.6%
Metal-based durables output down slightly due to trade effects, 

technological progress visible

24 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Billion X dollar

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $

2013-2040 AAGR

GI14: 2.9%

AEO14: 2.9%

GI15: 2.7%

AEO15: 2.7%
Non-manufacturing output reflects structural changes, lower 

agricultural expectations, and mining production*

25 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

1,200

1,500

1,800

2,100

2,400

2,700

3,000

GI Baseline for AEO2014 AEO2014

GI Baseline for AEO2015 AEO2015 Prelim

Billion X dollar

Prelim source: ref2015.defaults.FSFix.d071814a; X 2014 runs are 2005 $, 2015 runs are 2009 $; * mining output is 

modeled in a separate part of NEMS, which will host its own Working Group meetings

2013-2040 AAGR

GI14: 1.6%

AEO14: 1.5%

GI15: 1.5%

AEO15: 1.4%
Questions

26 Kay Smith, AEO2015 Macroeconomic/Industrial Working Group 

July 24, 2014 PLEASE DO NOT CITE OR DISTRIBUTE

U.S. Energy Information Administration home page | www.eia.gov

Short-Term Energy Outlook | www.eia.gov/steo

Annual Energy Outlook | www.eia.gov/aeo

International Energy Outlook | www.eia.gov/ieo

Monthly Energy Review | www.eia.gov/mer

Today in Energy | www.eia.gov/todayinenergy

Kay Smith | (202) 586-1132 kay.smith@eia.gov

Elizabeth Sendich | (202) 586-7145 elizabeth.sendich@eia.gov