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

July 30 2013

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

Vipin Arora

Briefing on Macroeconomic Reference Case 

for the Annual Energy Outlook 2014

Macroeconomic/Industrial Working Group 

Meeting
Presentation Goals

• The Reference Case presented is the GI May Long-term 

Trend forecast. Due to the comprehensive revision of the 

GDP accounts, released at the end of July, we will not update 

the macro projection to an August baseline in order to keep 

on the AEO2014 schedule. The GI August monthly 

simulation probably will be released at the end of August, 

with the long-term simulation by the end of September.

• Short Description of Proposed Reference Case

– Highlight short-term vs. long-term growth

– Forecast comparisons

– Highlight macroeconomic concepts that other NEMS modules use

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 2
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, 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

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 3
Four Components of MAM

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

service, agricultural, construction and mining sectors. Mining and utilities 

come from NEMS. All other uses the input output model whose initial 

baseline comes from Global Insight. Most industries are at the 3 and 4 

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

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 4
Preliminary Macroeconomic Forecast for 

AEO2014

• Initial runs use the May 2013 long term forecast, going out to 2040 (GI baseline goes 

out to 2043). Real GDP growth is 0.1 percent per year slower than AEO2013’s 

forecast, coming in at 2.4 percent growth from 2012 to 2040.

• This forecast incorporates the Census Bureau’s new long-term population 

projections released in December 2012. Lower immigration, lower projected births 

and a smaller population in 2010 contributes to a lower growth in population and 

labor force. Population 16 and over is about 5 percent lower in 2040 compared to 

AEO2013 projection.

• 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 1.8 percent, about 

0.3 percentage points lower than the last 30 year growth.

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

growth. 

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 5
Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

6
More Uncertainty in Short Run Growth

• 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 AEO2014 macroeconomic Reference Case will be 

similar to the simulation used in the September STEO. We 

expect that the first macro forecast that uses the revised GDP 

data will be released in mid-August—too late for the 

September STEO to incorporate the revision. As a result, the 

September STEO will use a July forecast, the same 

simulation that the August STEO will use.

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 7
Preliminary AEO2014 Macroeconomic 

Reference Case, cont

Previous 30 Year Growth Forecasted 28 Year Growth

Real GDP 2.8% 2.4%

Consumption 3.1% 2.2%

Investment 3.1% 3.4%

Government 2.1% 0.6%

Exports 5.3% 5.4%

Imports 6.2% 3.7%

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 8
Initial Half of Projection Growth driven by Investment 

and Exports; Latter Half More Even Contribution from 

all GDP Components

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 9
Average growth rates of net exports by category for different projection 

periods shows strong export impacts from industrial supplies and consumer 

goods

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2012-

2040

2012-

2015

2015-

2020

2020-

2025

2025-

2030

2030-

2035

2035- 

2040

all goods Industrial Supplies Capital Goods Consumer Goods Services

Overall 

projection

Net annual average growth rate

Source: ref2014/d062113a

10
Moving 30-Year Average vs Annual GDP 

Growth

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

into a long-run growth path.

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 11
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, the OASDI forecast is updated annually, and other 

forecasts update their long run projections quarterly

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 12
Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 13
Long-run Growth has been declining over past several AEO forecasts

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 14
Proposed Reference Case Projections that 

other NEMS Models Use

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 15
Most Energy Supply NEMS Modules use Interest Rates, 

Population and Disposable Income

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 16
Industrial Economic Model Changes

• We have combined textiles, apparel and leather into one 

industrial category in a model simplifying attempt.

• We plan to introduce a relative price term of naphtha and 

ethane in the equations for resins and organic chemicals.

• We have the initial industrial forecast from Global Insight 

which shows slightly lower gross output growth compared to 

last year’s Global Insight forecast, although manufacturing 

growth is higher. Basic chemicals, primary metals and 

fabricated metals, all related to increased production of shale 

oil and gas, show higher growth. Services show slower 

growth, especially retail trade and finance.

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 17
Initial AEO2014 Runs consistent with new 

macro simulation

• Overall gross output growth is about 0.1 percent lower in 

initial AEO2014 runs, similar to the differential in GDP growth 

compared to the AEO2013 projection.

• Composition of industrial growth shifts, with manufacturing 

gaining share of gross output. By 2040, manufacturing is 

about 17 percent of gross output; in AEO2013 manufacturing 

share reached 16 percent.

• Consistent with slower growth in consumption, services 

growth is lower, especially retail trade and financial services.

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 18
Preliminary Industrial (includes Services) Output Projections

19

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

Billion 2005 dollar

Source: ref2014.d072313a

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000 GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013
Industrial sub-sector outputs

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

1250

1500

1750

2000

2250

2500

Energy Intensive Industries*

GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

3000

4000

5000

6000

7000

8000

9000

Manufacturing

GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

Source: ref2014.d072313a, * includes refining

Billion 2005 dollar Billion 2005 dollar

20
Bulk chemicals output reflects greater investment and action 

from shale

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

Billion 2005 dollar

Source: ref2014.d072313a

200

250

300

350

400

450

500 GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

21
Primary metals output reflects prolonged effect of shale and 

changing product demands

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

Billion 2005 dollar

Source: ref2014.d072313a

100

150

200

250

300

350 GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

22
Non-metallic minerals output also reflects prolonged effect of 

shale and changing product demands

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

Billion 2005 dollar

Source: ref2014.d072313a

60

80

100

120

140

160 GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

23
Plant-based (food, wood, and paper) output reflects changing 

product demands

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

Billion 2005 dollar

Source: ref2014.d072313a

600

800

1,000

1,200

1,400 GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

24
Metal-based durables output begins to reflect effect of shale and 

changing consumer product demands

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

Billion 2005 dollar

Source: ref2014.d072313a

1,000

1,500

2,000

2,500

3,000

3,500

4,000 GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

25
Non-manufacturing output reflects new mining and construction 

modeling approaches*

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite

1,200

1,500

1,800

2,100

2,400

2,700

3,000 GI Baseline for AEO2013 GI Baseline for AEO2014

AEO2014 Prelim AEO2013

Billion 2005 dollar

Source: ref2014.d072313a, * mining output is modeled in a separate part of NEMS, which will host its own Working 

Group meetings

26
For more information

Kay Smith, Macroeconomic /Industrial Working Group Meeting, July 30, 2013 

Preliminary Results: Do not Distribute or Cite 27

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International Energy Outlook | www.eia.gov/ieo

Monthly Energy Review | www.eia.gov/mer

Today in Energy | www.eia.gov/todayinenergy