Macroeconomic Activity Module
The Macroeconomic Activity Module (MAM) represents the interaction between
the U.S. economy as a whole and energy markets. The rate of growth
of the economy, measured by the growth in gross domestic product
(GDP) is a key determinant of the growth in demand for energy. Associated
economic factors, such as interest rates and disposable income, strongly
influence various elements of the supply and demand for energy. At the
same time, reactions to energy markets by the aggregate economy, such as
a slowdown in economic growth resulting from increasing energy prices,
are also reflected in this module. A detailed description of the MAM
is provided in the EIA publication, Model Documentation Report:
Macroeconomic Activity Module (MAM) of the National Energy Modeling System,
DOE/EIA-M065(2008), (Washington, DC, January 2008).
Key Assumptions
The output of the U.S. economy, measured by GDP, is expected to increase
by 2.5 percent between 2007 and 2030 in the reference case. Two key factors
help explain the growth in GDP: the growth rate of nonfarm employment
and the rate of productivity change associated with employment. As Table
2.1 indicates, real GDP growth slows during the first three years of the
forecast, reflecting the current economic recession, shows higher growth
for the first ten years as the economy recovers, and then returns to its
long-run growth path. In the reference case, real GPD grows by 0.7 percent
for the first three years, 2.8 percent for the recovery period and 2.6
percent for the final ten years. Both the high and low macroeconomic growth
cases show similar patterns of early lower growth, recovery and settling
back into their respective long-run growth trends. In the near term from
2007 through 2010, the growth in nonfarm employment is low at -0.4 percent
compared with 2.4 percent in the second half of the 1990s, while the economy
is expected to experience productivity growth of 1.8 percent. Over the
projection period, nonfarm employment is expected to grow by 0.9 percent
per year. Nonfarm employment, a measure of demand for nonfarm labor, is
generally more volatile than the labor force, a measure of labor supply.
The latter depends upon the projection of population and labor force participation
rate. The Census Bureau’s middle series population projection is used
as a basis for population growth for the AEO2009. Total population
is expected to grow by 0.9 percent per year between 2007 and 2030, and
the share of population over 65 is expected to increase over time. However,
the share of the labor force in the population over 65 is also projected
to increase in the projection period.
To achieve the reference case’s long-run 2.5 percent economic growth, there
is an anticipated steady growth in labor productivity. The improvement
in labor productivity reflects the positive effects of a growing capital
stock as well as technological change over time. Nonfarm labor productivity
is expected to remain between 1.9 and 2.0 percent for the remainder of
the projection period from 2007 through 2030. Business fixed investment
as a share of nominal GDP is expected to grow over the last 10 years of
the projection. The resulting growth in the capital stock and the technology
base of that capital stock helps to sustain productivity growth of 2.0
percent from the 2007 to 2030.
To reflect the uncertainty in projection of economic growth, the AEO2009 uses high and low economic growth cases along with the reference case
to project the possible impacts on energy markets. The high economic growth
case incorporates higher population, labor force and productivity growth
rates than the reference case. Due to the higher productivity gains, inflation
and interest rates are lower compared to the reference case. Investment,
disposable income, and industrial production are increased. Economic output
is projected to increase by 3.0 percent per year between 2007 and 2030.
The low economic growth case assumes lower population, labor force, and
productivity gains, with resulting higher prices and interest rates and
lower industrial output growth. In the low economic growth case, economic
output is expected to increase by 1.8 percent per year over the projection
horizon. |
