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

July 24, 2012

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

Arora

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE

Joint Macro-Industrial Working Group: 

Annual Energy Outlook 2013

Macroeconomic Modeling Plans
Presentation Goals

2

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

• Highlight proposed macroeconomic AEO2013 modeling 

changes 

• Description of Proposed Reference Case

– Highlight short-term vs. long-term growth

– Forecast comparisons

– Highlight macroeconomic concepts that other NEMS modules use

• Briefly describe Macroeconomic Activity Module and its 

components and how it fits into NEMS

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Macroeconomic Modeling Updates Planned 

for AEO2013

• Increased breakout for some energy-intensive industries

– More detail in food processing

– More detail in other chemicals

• Enhanced relationship of feedstock prices for organic 

chemicals

• Examining energy export linkages in macroeconomic model

• Macroeconomic growth simulations included

– Increased flexibility for users by having entire simulation rather than a subset of 

variables reflecting high or low economic growth

3

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Expansion of Industrial Detail

4

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

• Other Chemical 

Manufacturing (3254-9)

– Pharmaceutical and Medicine 

Manufacturing (3254)

– Paint, Coating, and Adhesive 

Manufacturing (3255)

– Soap, Cleaning Compound, and 

Toilet Preparation Manufacturing 

(3256)

– Other Chemical Product and 

Preparation Manufacturing (3259)

• Food Manufacturing (311)

– Grain and Oilseed Milling (3112)

– Dairy Product Manufacturing 

(3115)

– Animal Slaughtering and 

Processing, and Seafood Product 

Preparation and Packaging (3116-

7)

– All remaining 311 categories not 

detailed above (311O)

The expansion of these energy-intensive industries will provide the opportunity for the NEMS 

Industrial Demand Module to project more detailed energy use by industry. 

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Organic Chemical Production & Feedstocks

5

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

• Currently organic chemical production (32511 & 9) is 

dependent on only natural gas price

• Requested additional term to account for feedstock pricing

• Feedstock pricing is one of several metrics that will indicate 

US competitiveness

• First attempt (AEO2013) will use ratio of natural gas price to 

oil price as a proxy for ethane to naphtha price ratio

• Future estimations to include direct pricing for ethane, 

naphtha, and possibly propane and butane

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Preliminary Macroeconomic Forecast for 

AEO2013

• Initial runs use the May 2012 long term forecast, going out to 2041. 

Real GDP growth is similar to AEO2012’s forecast, coming in at 2.6 

percent growth from 2012 to 2040.

• The AEO projections use trend forecasts where there are no 

unplanned shocks; no rapid changes in either fiscal or 

monetary policies; and no major unforeseen changes in 

either productivity or technology besides seen in recent 

trends.

• However, the next 30 years will probably not be similar to the 

last 30 years. Growth in productivity, population, and labor 

force explains most of long-run GDP growth. 

6

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Preliminary AEO2013 Macroeconomic 

Reference Case, cont

Previous 30 Year Growth Forecasted 28 Year Growth

Real GDP 2.8% 2.6%

Consumption 3.1% 2.3%

Investment 3.1% 3.8%

Government 2.1% 0.7%

Exports 5.3% 5.8%

Imports 6.2% 4.0%

7

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Preliminary Macroeconomic Forecast, cont

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

into a long-run growth path.

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038

Ending Year

30 Moving Average Annual Growth

8

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Comparisons with other Projections

• 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; while other forecasts update their long run projections 

quarterly

9

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
10

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
11

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
12

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

Proposed Reference Case Projections that 

other NEMS Models Uses

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
13

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

Most Energy Supply NEMS Modules use Interest Rates, 

Population and Disposable Income
Linkage between NEMS and MAM

National Energy Modeling System

(NEMS)

Macroeconomic Activity Module

(MAM)

NEMS Macro 

Baseline 

Variables

Macroeconomic Submodule runs 

the New Scenario using new Energy 

Inputs

NEMS

Energy 

Variables

Industry Submodule runs the New 

Scenario of values of shipments by 

industry sectors

MAM applies 

the ratios of the 

New Scenario 

values over the 

Baseline values 

onto the Macro 

Baseline 

variables Employment Submodule runs the 

New Scenario of employment by 

sector

Regional Submodule and Commercial 

Floorspace Submodule

MAM variables for use 

as input to NEMS

NEMS

Modules

14

July 24 2012 Joint Macroeconomics 

and Industrial Working Group
National Macroeconomic Model

• Uses Global Insight’s macroeconomic model, whose forecast 

horizon matches NEMS

• Keynesian model capturing short-run cyclical developments 

with long-run equilibrium as specified by production function

• Model of output, prices and financial conditions allows 

depiction of both monetary and fiscal policies.

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

level, income, wealth, expectations 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, technological progress

15

July 24 2012 Joint Macroeconomics 

and Industrial Working Group
Industrial Activity Model

• Manufacturing: Most at 3-digit NAICS (North America Industrial 

Classification) and some at 4-digit NAICS level

• Nonmanufacturing and Services: 3-digit SIC industries or their 

aggregations

• Industrial Energy Demand Module is main consumer; requires 

4-digit NAICS detail and wants even more disaggregation

• No preliminary results available now from the Industrial activity 

model

16

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Commercial Floor Space Model

• Stock-adjustment model solved at a quarterly interval

• Thirteen commercial floor space types in each of nine Census 

divisions

• Explanatory variables include lagged values of floor space, per 

capita real gross domestic product, real per capita 

consumption of goods and services, real private investment in 

commercial buildings, real change in the stock of business 

inventories, employment, interest rates and floor space 

removals

• Forecasts additions to and stock of commercial floor space 

measured in thousands of square feet

• Users: Commercial Module

17

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Employment Model

• Econometric model with behavioral equations for employment 

by sector and for productivity in the manufacturing sector

• Changes in labor-to-output ratio (employment over gross 

output) is related to changes in relative factor prices, 

productivity, capacity utilization rates, cyclical unemployment 

rate, and technological change, represented by a trend 

variable

• There is an alignment process in which the forecasts of the 

manufacturing, nonmanufacturing and service sectors are 

adjusted so that their sum aligns to the total nonfarm 

employment from the macroeconomic model

• The forecasts of the detailed manufacturing sectors are 

adjusted so that their sum aligns to the total manufacturing 

employment

• For coal mining and oil & gas extraction, forecasts are 

replaced by employment forecasts from other NEMS Modules

18

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
Modeling Approach

• We needed one macro model to produce short (up to 2 years) 

and mid-term forecasts.

• The amount of macroeconomic detail needed involves interest 

rates, employment, detailed industrial output and commercial 

floorspace implied that we needed some model to describe 

conditions other than full employment.

• We needed a model to generate a baseline.

19

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE
For more information

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

Manufacturing Energy Consumption Survey | www.eia.gov/emeu/mecs

EIA Information Center

(202) 586-8800 | email: InfoCtr@eia.gov

20

July 24 2012 Joint Macroeconomics 

and Industrial Working Group

WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE