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WORKING GROUP PRESENTATION FOR DISCUSSION PURPOSES

DO NOT QUOTE OR CITE AS RESULTS ARE SUBJECT TO CHANGE

JULY 28, 2016

MEMORANDUM FOR: IAN MEAD

ASSISTANT ADMINISTRATOR FOR ENERGY ANALYSIS

PAUL HOLTBERG

TEAM LEADER

ANALYSIS INTEGRATION TEAM

LYNN WESTFALL

DIRECTOR

OFFICE OF ENERGY MARKETS & FINANCIAL ANALYSIS

FROM: VIPIN ARORA

TEAM LEADER

MACROECONOMIC ANALYSIS TEAM

SUBJECT: SUMMARY OF THE AEO2017 MACROECONOMIC 

WORKING GROUP MEETING

REGISTERED ATTENDEES: Andre Barbe (in-person)

Bob Hershey (in-person)

Nate Aden

Jim Barrett

Chris Doleman

Kevin Dubina

Francis Wood

Keith Jamison

Bruce Lung

Michael Nadew

Neeharika Naik-Dhungel

Ron Gecan

Shellee Simmons

Skip Laitner

Bill Morrow

PRESENTERS: VIPIN ARORA 

ELIZABETH SENDICH

RUSSELL TARVER
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The presenters outlined preliminary macroeconomic and industrial sector economic activity 

results for AEO2017. The key points included:

• There are historical baseline changes to GDP, gross output (for some industries), and 

physical-to-dollar values for goods and services as compared with AEO2016.

• Assumptions about future US productivity growth are lower than AEO2016.

• Real GDP growth will average 2.2% per year in 2015-40, similar to AEO2016, and inline with other projections/forecasts.

• Consumption’s importance in the demand mix fades over the projection as nonresidential investment becomes more important.

• Total industrial sector growth is similar to AEO2016, although the composition is slightly 

different.

• Nonmetallic minerals and bulk chemicals lead early industrial sector growth, giving way 

to rapid growth in metal-based durable goods and their suppliers in primary metals.

During the course of the presentation several comments and questions came up, including:

• Q: Had EIA done sensitivity analysis on the CPI variable in the macro model? A: No.

• Q: How is non-residential investment linked to exports and imports? A: They are not 

directly related in terms of the modeling, but such investment will affect the capability to 

export and import.

• Q: What is the assumed rate of population growth? A: 0.7% per year from 2015-2040.

• Q: What drives the changing share of each industry with regards to the total over time? 

A: Each industry has a suite of drivers, many were addressed in the presentation during 

the discussion of detailed results by industry.

• Q: What is the difference between industrial supplies and capital goods? A: These 

categories are based on the BEA trade accounts, which can be found 

at http://bea.gov/international/index.htm.

• Comment: There was a concern expressed about the projection for growth in consumer 

goods. The commenter believes the market in developing countries may be saturated.

• Q: What effect does self-sufficiency have on consumer goods exports? A: While our 

baseline only includes broad assumptions about international growth, exchange rate 

trends against major trading partners show that U.S. competitiveness improves. This is 
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true for consumer goods exports from the U.S. as well, and may ameliorate the impact of 

self-sufficiency in other countries.

• Q: Are you showing value-added or gross output for the industrial portion of the brief. 

A: Gross output.

• Q: Why such large revisions in historical data for industrial sectors. A: BEA—our

primary source—incorporated the 2012 Economic Census and made historical revisions 

after AEO2016.

• Q: Why is GDP growth similar to AEO2016 even though total shipments are growing 

noticeably faster? A: The ratio of services gross output to GDP is higher this year than 

last, indicating that the value of inputs is higher in the current projection. Input costs are 

higher, particularly in services, because productivity growth is lower, resulting in greater 

labor expenses. Higher commodity and energy prices and a depreciating exchange rate 

also contribute to input cost differences.

• Q: Why is fixed residential investment growing nearly nine times faster than over the last 

25 years? A: Because the recession of 2008/2009 led to such a large reduction in 

residential investment that the 25-year average is skewed downward.