What Electricity Consumption Tells Us About The State Of The US Economy - An Update

Tyler Durden's picture

Submitted by Erico Matias Tavares via Sinclar & Co (co-authored with DegreeDays.net),

A year ago we wrote about how electricity consumption could provide clues to the performance of the US economy, which generated a lot of interest and comments.

A relationship between the two variables makes sense, but needs to be framed in the proper context. Genuine economic (and population) growth should translate into more electricity consumption, as we have more activity and transactions taking place throughout the economy.

However, factors such as energy efficiency and the weather can muddle this relationship:

  • An increase in efficiency means that the same output can be obtained with less inputs. Therefore, a small-ish reduction in electricity consumption versus a prior period may not necessarily be indicative of a sluggish economy over that time. And we know that this efficiency has been on the rise in recent years (just look at the power rating of your new appliances).
  • Likewise, a warmer winter versus the prior year may also cause a drop in electricity consumption, simply due to home heaters not being used as hard, not necessarily because the economy is doing badly.

So can we adjust electricity consumption to take these factors into consideration and get a better measure of its relationship with economic growth?

We developed an indicator to do just that together with DegreeDays.net, an energy systems data company. We provide a brief technical explanation of our proposed methodology below (for a much better overview please visit this supporting article). Bear with us, the analysis is quite interesting!

To account for weather variations, we regressed the weekly electricity consumption data against US-population-weighted heating degree days (“HDD”) and cooling degree days (“CDD”) that we calculated for matching weekly periods:

  • Degree days are a specialist type of data derived from detailed temperature readings and used for analysis of heating and cooling energy consumption. This is exactly what we need to normalize the effects of changes in the weather on electricity consumption.
  • Energy required to heat a building over a period is proportional to the HDD over that period; energy required to cool a building over a period is proportional to the CDD over that period. Calculating this is pretty straightforward for one building in a specific location.
  • But in order to account for the millions of different buildings and variations in weather patterns across the country we calculated population-weighted HDD and CDD using census per city and weather data (again, this is much better explained in that article).

Accounting for energy efficiency is a bit trickier. We did not find any recent data (and which is updated regularly) that could measure this effect. So we decided to run those regressions over much shorter time frames. The rationale being that longer periods could lead to an apples and oranges comparison since the installed power demand base changed. For instance, a new refrigerator consumes much less electricity than a decade ago.

So at the start of each calendar year we ran the regression over the prior 12 months. We then estimated electrical consumption using the regression coefficients and the updated population-weighted HDD and CDD variables, compared it to the actual electricity consumption each week and voilà, we came up with an adjusted indicator based on the percentage differential between the two.

If actual electricity consumption is higher than the one predicted by our regression, which as we have seen should be adjusted for weather changes and some efficiencies, this is a sign that the economy should be doing well. If it is considerably lower then the economy may not be doing so great (or everyone is buying those new refrigerators). 

OK! Let’s look at the actual results.

First, some context. Here’s the actual electricity consumption in the US without any adjustments since 1995:

Weekly US Electricity Consumption (MM kw hrs): Jan 95 - Present

Source: EEI.

As we pointed out last year, this is not exactly a picture of economic dynamism. Since then electricity consumption across the US has pretty much remained in the doldrums:

  • The red line shows the weekly historical peak, reached all the way back in the summer of 2006. Notice how far we have been from it in recent years, despite all the GDP and population growth that has occurred since then.
  • The black line, which is the smoothed consumption data over time (the longer-term trend if you prefer), has recently turned negative.

It is curious to note that financial commentators regularly gauge China’s economic performance by looking at its electricity consumption, but this is not done for the US. Perhaps there is something there that does not fit with the prevailing narrative. Sure, China remains a manufacturing economy while the US is largely a services economy; but as far as we know restaurants, insurance companies, hospitals and IT service providers still use electricity.

In fact, growth in data has been so significant – requiring ever more power-hungry data centers – that IT now consumes some 10% of world electricity production. All the iPhones, clouds, tablets, chats, likes and whatever else have materially increased our demand for electricity, both on the front- and the back-end. So it is surprising that electricity consumption statistics haven’t been a bit perkier in the US, given all the IT development there.

And here’s the evolution of annual electrical generation in the world’s leading economies/blocks since 2006:

Annual Electrical Generation Index (‘06=100): ’06-‘14

Source: BP World Energy Review.

The US (dotted line) has pretty much underperformed everyone in the group in terms of growth (except in 2014 when OECD ex-US, Canada dropped below it). Even Canada, its northern neighbor, has done better. What does this tell you about the US “decoupling and leading global growth"? That Americans must have much more efficient refrigerators and data centers than everyone else? Or maybe there is more to this story.

With that in mind, let’s finally put our “energy indicator” to use. We aggregated weekly data into quarters because as you can imagine we are dealing with quite a noisy data series. Here are the results, compared to year-on-year (“y-o-y”) Real GDP growth (red line):

Quarterly Real GDP y-o-y Growth and the Energy Indicator: 1Q’01 – 1Q’15

Source: EEI, BEA, degreedays.net.

The graph brings out some interesting points:

  • Overall, the percentage differential between actual and predicted (by our methodology) electricity consumption reflects the ebbs and flows of the GDP cycle.
  • At time the energy indicator precedes GDP turns, although it may take some quarters for this to become evident (again, we are dealing with noisy, unsmoothed data, unlike quarterly GDP which has a host of seasonal adjustments). Notice the jump in 3Q’02, before GDP growth recovered in earnest. And in the run up to the Great Recession in 2008, we had the biggest drop in the indicator in the series while official GDP statistics were still showing economic growth.
  • An advantage of our methodology is that we can update the indicator on a weekly basis, and so at the end of each quarter we can have a sense of how the economy performed almost in real-time. The last (red) bar is the accumulated reading to date for 2Q’15, which being positive suggests also a positive y-o-y Real GDP growth in 2Q.
  • However, a divergence has formed since early 2013: the trend in the energy indicator is going down, while y-o-y GDP growth seems to be moving higher (notice the two arrows).

OK, so what accounts for that divergence? We can’t say for sure, but back in 2013 the Bureau of Economic Analysis “modernized” its GDP accounting methodology, to include things like R&D, copyrights and pension deficits. As a result total GDP increased by 3%. Presumably the series was updated as far back as 1929 but we can certainly debate whether such variables reflect actual transactions and human activity, which is what our indicator picks up.

Other countries have been even more creative in GDP accounting revisions, adding estimates for illegal activities such as prostitution and drug consumption. Ah, but we already have these covered, as presumably they also consume electricity (even if under very dim lights).

You can take your pick as to which measure you would like to focus on to gauge real economic performance. 

But just looking at electricity consumption, adjusted or otherwise, things are definitely looking very sluggish in the US economy right now.

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pods's picture

Lightbulb ban, you're welcome.

-You're ever loving Government.

Headbanger's picture

Must be all those solar panels Obama made.

Creepy A. Cracker's picture

Using less electricity.  Utility companies (gubmint regulated) are going to have to drastically increase rates to keep up their high pay and pensions...

msmith9962's picture

Are my kids finally turning the lights off when they leave a room?

dlmaniac's picture

Make sure HFTs always get priority energy supply.

SWRichmond's picture

GPD "growth" is entirely due to Fed-induced inflation.

If you were to chart the COST of electricity usage, instead of actual KW-Hrs used, over the same period, what a different chart that would be.

nink's picture

It's because we all went out and purchased a Tesla home battery

Son of Loki's picture

You guys have electricity 24/7?! Braggards!

knukles's picture

It's all the electric cars saving on electricity, silly boys!

Out here in the Great People's Republic of Rainbow Colored Unicorn Skittles, we now have PG&E declaring select days as Save the Unicorns (or something) where between the hours of 2 and 7 pm you're supposed to curtail your electricity consumption.

It's called Soft Rationing.

kaiserhoff's picture

Mom's basement doesn't need much A/C.

Manthong's picture

Well heck, it’s not like we need a lot electricity for aluminum and for all the guard rails, on the highways and the high tension wires that do not conduct commerce anymore because it all has been happening in Germany and China.

BlowsAgainsttheEmpire's picture

Two words . . .

Distributed generation

kaiserhoff's picture

Yup.  Most new construction has some form of cogeneration.

  The rest are idiots.

Majestic12's picture

"What Electricity Comnsumption Tells Us about...The US Economy"

This article tells us nothing (dick), just like Wall Street wants.

It tells us nothing about the breakout of Consumer v. Industrial, the actual "cost" of generation, the cost of nuclear power plant retirement, Smart Meter overcharging, and not a goddam thing about subsides and tarifs.

As well, we should all ask why, if the US is so "efficient" does eslectricty cost more in the US per KW than in China (where its cheap and ubiquitous)?

More useless propaganda.

astoriajoe's picture

Sadly, you're correct, as most utilities in conjunction with their state regulatory authorities have implemented rules which adjust rates to maintain regulated returns on equity in the face of declining usage, either because of personal conservation or weather. 

Almost amusingly, California Water Resources (CWT) stock price has been ridiculously stable during the worst drought in state history.

We are truly sources of economic energy for big business, to be drained over time. Welcome to the matrix.

froze25's picture

That leaves only one option, get off the grid.  Leave one little light on the grid but take the rest of the house off of it, same for water.

Government needs you to pay taxes's picture

There's a .gov scam for well water, too!  Not only is it soon-to-be EPA controlled, but in some municipalities (including Long Island NY), the town charges an outrageous $500 annual 'well-water testing fee'.  You know, to make sure it's safe.  And try to tell them the only use for the well is irrigation.

Creepy A. Cracker's picture

"Leave one little light on the grid but take the rest of the house off of it, same for water."

Good plan.  Except for... that monthly "bill maintenance charge" of $12.78.  To go up to $378.37 as more people cut back.  The only way is to be completely off.

Incubus's picture

Correction: the only way is to tear the leeches off.

 

Some ways are more elegant and subtle than others.  You don't take on more powerful adversaries with might.  You out-think them. 

Publicus's picture

Less energy usage due to the arrival of the Ice Age leading to less AC use.

Antifaschistische's picture

due to the 1%'ers, in the 77024 zipcode (courtesy of excessive FED induced leverage, speculation and stock buybacks)....there is a race to see how many 10,000+ square foot homes can be built.  This is not an exageration and you can google earth it....with some homes topping 20,000.   These are homes with utility bills doubling the average annual household income of most Americans.  So, as the rest of the economy gets squashed.....the 1%'er line up to soak up the excesses.

msmith9962's picture

I was having beers with some coworkers and we discussed winning the lottery.  One who I relate to more said he would go off grid.   The other who is a bit of a playboy said he wanted more grid.

Solio's picture

Want more grid

Just look up in the sky, there is so much grid (chemtrail grid!) that it looks like a pot-holder woven by you when in second grade.

TheRedScourge's picture

Actually, AC is cheaper than heating. Because AC is not a closed  system, it is about 300-400% efficient, whereas heating can only ever be 100% efficient at most, because heating is mostly a closed system, unless you have an HRV unit perhaps.

Publicus's picture

Or you can just wear thicker/more clothing like the North Koreans.

Cruel Aid's picture

Are you nuts? Havent you been following the jetset warmers. Its clearly getting warmer! Decaprio wouldnt lie, he's smart.

Right after this cold front gets here tomorrow. No shit. Cold front in july.

Kidding, you win.

Mike Honcho's picture

Directions for broken swirly Mercury laden bulbs:

Break 1: Open all windows, air out 20 minutes or more, secure broken pieces into multi-layered bags, dispose at toxic waste dump.

Break 3 or more: call Hazmat.

 

So special.

 

Link for the downvoter: http://www2.epa.gov/cfl/cleaning-broken-cfl, also see Google.

cheech_wizard's picture

Drop broken pieces in Washington D.C.'s water supply.

Standard Disclaimer: What difference does Korsakoff's dementia makes? 

 

 

yogibear's picture

"What difference does Korsakoff's dementia makes? "

Monkeys would be cheaper than the jokers we have in DC. They sit in the seats pushing  buttons you could provide  them bananas while the lobbyist are in the back rooms re-writing the bills. 


nuubee's picture

You can actually still buy incandescent light bulbs at Frys for some reason. I guess they classify it as some kind of "electronics part"

Hype Alert's picture

They keep delaying the ban much like all the proposed cost savings in medicaid.  I think the use of incandescent bulbs is now insignificent and a ban would do more harm than good.

pods's picture

The funny thing is I had some globe incandescent lights in my bathroom "Hollywood lights" when we bought our house. They burned a lot of juice and warmed up the room.

I tried buying CFLs to reduce the cost. But they kept burning out.  Then I would replace with the old bulb I had left.

Now, I just still have the old bulbs in there. Been over 12 years. 

pods

Hype Alert's picture

CFLs suck in frequent on/off situations and may have an issue with high humidity in a bathroom.

El Vaquero's picture

I actually put a 100w incandescent bulb into my pump house in the winter to keep pipes from freezing.  They're useful. 

Seer's picture

I can get by with a lot lower in mine: It's small pump house, I think it's like 32 ft sq; rebuilt it and insulated it pretty good.

I use incandescents for brooders/brooding as well.  Those city folk are going to get real hungry if my incandescents go away...

BTW - In the heating season incandescents don't waste heat- that head (as El Vaq notes for pump houses, and I for brooding) is useful to um, heat things, even spaces where humans occupy!  Now, in the cooling season they're wasting, but then again one doesn't tend to use lights as much, so, really, any waste likely isn't all that much.  For those that live more toward the equator your choice is a bit more difficult.

BTW2 - I recall comparing light output and energy consumption between CFLs and LEDs and saw that the CFLs were actually more energy efficient.  Don't know what the latest is.  I wonder what sort of hidden consequence is lurking with LEDs...

TheRedScourge's picture

No real drawbacks to LED, other than the cost. It's a pretty straightforward production process, just requires a wee bit of electronics.

msmith9962's picture

LEDS are made with kittens.

messymerry's picture

Kitten etouffee.  Not bad when you get the roux right... 

;-D

The Carbonator's picture

LEDs have 1 great benefit.  They do not attract mosquitoes because they emit no UV light.

If you change anything, change the lights on your deck.  Those were the first I changed, then I realized the mosquitoes were gone and looked it up.  No UV light.  

 

CFL emite UV light and the white coating glows from the UV light, that is how they work.  Bug magnets.

 

Incandescents emit TONS of light we don't see, heat in the infra red and UV that buggies love.

Deathrips's picture

I work with LEDs. They are the future. You can isolate individual spectrum to your liking and they will be 4x more efficient in the next 8 years.Theres some really cool things coming out. Buy them online and put them together..its cheaper than paying 5x the cost at Home depot for a package.

 

RIPS

 

 

Hype Alert's picture

++.  My brother does that in his pump house.  It's hard to beat such cheap heaters!  And as a bonus, they come with an on/off indicator light built in!  :)

sleigher's picture

Can you get 100W bulbs?  Aren't only 60W and lower available?

Fukushima Fricassee's picture
Fukushima Fricassee (not verified) sleigher Jun 26, 2015 2:09 PM

I have a box of 100s, how many would you like to purchase?

Hype Alert's picture

Ban light bulbs and subsidize plug in cars.  Brilliant.  LED bulbs do save considerable energy although they can stick the ban.  The battery cars aren't happening.  It may be that SCOTUScare/Robertscare is draining pocketbooks across the country and people are adjusting spending in other areas.  Personally, there are too many variables to worry about electricity consumption.

Seer's picture

"LED bulbs do save considerable energy"

But, is that really true?  What's the total embedded energy in LEDs vs. incandescents as divided by average life expectancy? (and somewhere one has to factor in end-price; I'm thinking that true costs for LEDs aren't necessarily being realized owing to subsidies  and such)

Hype Alert's picture

I've replaced certain lights with LEDs like motion lights that CFL would suck at and Incandescent would burn out with the constant on/off.  So far, they've saved me replacing burnouts many times over, so I'm good there.   I've put LEDs in places where incandescent heat would be an issue or constant running makes the efficiency of cost/lumen worth while.  I still use incandescent where heat isn't a problem or the heat is a plus.  It all boils down to the consumer's choice for the consumer's needs.

rejected's picture

Where's the double seasonal adjustments?

nuubee's picture

Notice there haven't been as many rolling blackouts in California since pre-financial crisis? Less use and hence less producting is the way we're going.

There is a power plant in the coastal california city I live in that only gets turned on for about 1-2 days a year, simply to excercise the system to keep it functional. Outside of those days, it sits there in "mothballs"