WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

JULY 24, 2017

MEMORANDUM FOR: Ian Mead

Assistant Administrator for Energy Analysis

FROM: Lynn Westfall

Director, Office of Energy Markets & Financial Analysis

SUBJECT: Summary of AEO2018 Macroeconomic Working Group held on July 20, 

2017

This memorandum provides an overview of the presentation given for the only Macroeconomic Working 

Group meeting that will be held for AEO2018 and a summary of the resulting discussion that took place. 

The presentation materials are available in a separate document.

Model updates

The meeting began with EIA staff providing an overview of Macroeconomic Module (MAM) and the

currently anticipated changes for AEO2018. The material covered both macroeconomic growth and 

industrial output and focused on the following highlights:

 Preliminary results include a newly aggregated employment model (to higher-level NAICS 

designations), an improved regional estimation model, and a data update (historical industry 

and employment information).

 Planned model updates include adding 70 energy-related variables to the overall model, a new 

industrial feedback model, and a new technology side case model.

 In preliminary AEO2018 runs, real GDP is projected to grow 2.1%/year on average from 2017-

2050. This rate is similar to similar that in AEO2017 and the current forecasts of many others.

 The importance of consumption in the demand mix fades over the projection period as nonresidential investment becomes more important.

 In preliminary AEO2018 runs, manufacturing output is projected to grow 2.2%/year on average 

from 2017-40. Nonmanufacturing output is expected to grow 1.5%/year on average over the 

same period. These results are similar to those from AEO2017.

 Employment growth is projected to become more concentrated in service and construction

industries.

Discussion

The discussion began by focusing on the preliminary results before turning to modeling techniques.

Preliminary results

Participants asked how significant additional changes to GDP may be when assumptions are updated. 

EIA staff explained that the further changes in GDP would be a result of interaction with other modules 

in NEMS. However, staff does evaluate the change in GDP to determine if it is in line with our intuition 

about direction and magnitude given assumptions.
WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

Participants also asked what explains the difference in consumption and non-residential investment 

from 2040 to 2050 between the two AEOs. EIA staff explained that long-term trends in expenditures are 

primarily determined by changes in real permanent income, demographic conditions, and relative 

prices. Consumption in services rises mainly because of rising health care expenditures. This increase is 

only partially offset by declines in the consumption of goods. In addition, solid growth in demand and 

low interest rates keep investment healthy over the projection period.

An inquiry was made as to when new OASDI (social security) data would become available in 2017. EIA 

staff responded that the 2017 Annual Report of the Board of Trustees of the Federal Old-Age and 

Survivors Insurance and Federal Disability Insurance Trust Funds was released in spring.

The discussion then turned to employment sectors shares. Even though output shares were presented 

during the meeting, employment growth could only be seen as level additions from the base year. In 

2017, manufacturing is estimated to be 59% of industrial sector employment, with construction being 

33%. Yet the manufacturing share drops to 46% of industrial sector employment and construction 

employment rises to 47%. In other words, the growth rates for employment did not appear to be fully 

consistent with the growth of output, reflecting changes in how labor is used in various industries. EIA 

staff indicated they will further investigate this issue and make corrections where necessary.

Modeling techniques

Participants inquired about the inclusion of hydrocarbon trade in the projections and how to improve 

the investment portion of the NEMS Macro model. EIA staff clarified that NEMS includes detailed 

energy trade from other modules but only a single aggregate category was used in the IHS Markit US 

model until this year. Changes to model structure are also done only by IHS Markit. EIA use the same 

model that’s available to all clients, and we are actively working with them on to try to improve the 

investment portion of the model.

More information about the new technology side case work in the macro model was requested. EIA staff 

explained that the new design includes an input breakout to allow incremental technical change for 

many sectors. The model then translates these increments into changes in economy-wide total factor 

productivity, which is then fed back to the U.S. model.

A few participants expressed concern about a mechanism for conceptual consistency in technology for 

Industrial Demand Module and MAM in NEMS. EIA staff expressed their long-term hope that future 

work would automate this process to ensure absolute consistency between the modules.

A discussion arose related to whether certain modules in MAM can be turned off to see impacts of 

individual series since the combined results can be hard to decipher for policy changes. EIA staff 

explained that is possible to exclude endogenous variables, which is currently done by EIA to checking 

the robustness of results during review. However, removing model sectors is not done because the IHS 

Markit US model is highly simultaneous. Removing a sector, such the finance, would impact the model’s 

ability to find a stable solution.

Additional issues

Participants were informed that the slides on will soon become available the AEO Working Group 

webpage. An email notifying all attendees on the invitation list will also be sent once they are posed.
WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

Attendees

Guests (in person)

Bob Hershey Private consultant

Andre Barbe International Trade Commission

Keith Jamison Energetics, Inc.

Aaron Bergman DOE

Guests (WebEx/phone)

Alexis Cherry

Bill Morrow Lawrence Berkeley National Laboratory

Brett Smith American Iron and Steel Institute

Neal Elliott American Council for an Energy-Efficient Economy

Anmol Soni Georgia Tech University

Allen Fawcett Environmental Protection Agency

Whitney Herndon Rhodium Group

Martha Moore American Chemistry Council

Keri Heerman USDA Economic Research Service

Francis Wood On Location, Inc.

Sharon Showalter On Location, Inc.

Bruce Lung DOE

Shashank Mohan Rhodium Group

EIA attendees (in person)

Tom Lorenz EIA

Huma Seth EIA

Allen McDonald EIA

David Daniels EIA

Ian Mead EIA

Christopher Dickerson EIA

Jacob Walloga EIA
WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES ONLY.

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE.

Kelly Perl EIA

Paul Otis EIA

EIA attendees (WebEx/phone)

N/A