Annual Energy Outlook 2013

Economic Trends

Productivity and investment offset slow growth in labor force

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Growth in the output of the U.S. economy depends on increases in the labor force, the growth of capital stock, and improvements in productivity. In the Annual Energy Outlook 2013 (AEO2013) Reference case, U.S. labor force growth slows over the projection period as the baby boom generation starts to retire, but projected growth in business fixed investment and spending on research and development offsets the slowdown in labor force growth. Annual real gross domestic product (GDP) growth averages 2.5 percent per year from 2011 to 2040 in the Reference case (Figure 44), which is 0.2 percentage point slower than the growth rate over the past 30 years. Slow long-run increases in the labor force indicate more moderate long-run employment growth, with total civilian employment rising by an average of 1.0 percent per year from 2011 to 2040, from 131 million in 2011 to 174 million in 2040. The manufacturing share of total employment continues to decline over the projection period, falling from 9 percent in 2011 to 6 percent in 2040.

Real consumption growth averages 2.2 percent per year in the Reference case. The share of GDP accounted for by personal consumption expenditures varies between 66 percent and 71 percent of GDP from 2011 to 2040, with the share spent on services rising mainly as a result of increasing expenditures on health care. The share of GDP devoted to business fixed investment ranges from 10 percent to 17 percent of GDP through 2040.

Issues such as financial market reform, fiscal policies, and financial problems in Europe, among others, affect both short-run and long-run growth, adding uncertainty to the projections.

Slow consumption growth, rapid investment growth, and an increasing trade surplus

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AEO2013 presents three economic growth cases: Reference, High, and Low. The High Economic Growth case assumes high growth and low inflation. The Low Economic Growth case assumes low growth and high inflation. The short-term outlook (5 years) in each case represents current thinking about economic activity in the United States and the rest of the world, about the impacts of fiscal and monetary policies, and about potential risks to economic activity. The long-term outlook includes smooth economic growth, assuming no shocks to the economy.

Differences among the Reference, High, and Low Economic Growth cases reflect different expectations for growth in population (specifically, net immigration), labor force, capital stock, and productivity, which are above trend in the High Economic Growth case and below trend in the Low Economic Growth case. The average annual growth rate for real GDP from 2011 to 2040 in the Reference case is 2.5 percent, as compared with 2.9 percent in the High Economic Growth case and 2.0 percent in the Low Economic Growth case

Figure 45 compares the average annual growth rates for output and its major components in each of the three cases. Compared with the 1985-2011 period, investment growth from 2011 to 2040 is faster in all three cases, whereas consumption, government expenditures, imports, and exports grow more slowly in all three cases. Opportunities for trade are assumed to expand in all three cases, resulting in real trade surpluses that continue to grow throughout the projection period.

Energy-intensive industries show strong early growth in output

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In recent decades, industrial sector shipments expanded more slowly than the overall economy, with imports meeting a large share of demand for goods and the service sector growing rapidly [124]. In the Reference case, real GDP grows at an average annual rate of 2.5 percent from 2011 to 2040, while the industrial sector increases by 2.0 percent per year (Figure 46).

Industrial sector output goes through two distinct growth periods in the AEO2013 Reference case, with energy-intensive industries displaying the sharpest contrast between the periods. Recovery from the recession in the U.S. industrial sector has been relatively slow, with only mining, aluminum, machinery, and transportation equipment industries recovering to 2008 levels in 2011. However, as the recovery continues and increased oil and natural gas production from shale resources begins to affect U.S. competitiveness, growth in U.S. manufacturing output accelerates through 2022.

After 2020, manufacturing output slows because of increased foreign competition and rising energy prices, which weigh most heavily on the energy-intensive industries. The energy-intensive industries grow at a rate of 1.8 percent per year from 2011 to 2020 and 0.6 percent per year from 2020 to 2040. Growth rates within the sector vary by industry, ranging from an annual average of 0.6 percent for bulk chemicals to 2.8 percent for the cement industry.

Export expansion is an important factor for industrial production growth, along with consumer demand and investment. A decline in U.S. dollar exchange rates, combined with modest escalation in unit labor costs, stimulates U.S. exports in the projection. From 2011 to 2040, real exports of goods and services increase by an average of 5.5 percent per year, while real imports of goods and services grow by an average of 3.8 percent per year.

Energy expenditures decline relative to gross domestic product and gross output

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Total U.S. energy expenditures decline relative to GDP [125] in the AEO2013 Reference case (Figure 47). The projected ratio of energy expenditures to GDP averages 6.8 percent from 2011 to 2040, which is below the historical average of 8.8 percent from 1970 to 2010.

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Figure 48 shows nominal energy expenditures relative to U.S. gross output, which roughly correspond to sales in the U.S. economy. Thus, the figure gives an approximation of total energy expenditures relative to total sales. Energy expenditures as a share of gross output show nearly the same pattern as their share of GDP, declining through 2040. The average shares of gross output relative to expenditures for total energy, petroleum, and natural gas, at 3.5 percent, 2.2 percent, and 0.4 percent, are close to their historical averages of 4.2 percent, 2.1 percent, and 0.7 percent, respectively.