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(2006), (Washington, DC, January 2006).
Key Assumptions
The output of the U.S. economy, measured by GDP, is expected to increase
by 3.0 percent between 2004 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
3 indicates, for the Reference Case GDP growth slows down in each of the
periods identified, from 3.3 percent between 2004 and 2010, to 3.0 percent
between 2010 and 2020, to 2.8 percent in the between 2020 and 2030. In
the near term from 2004 through 2010, the growth in nonfarm employment
is low at 1.3 percent compared with 2.4 percent in the second half of the
1990s, while the economy is expected to experiencing relatively strong
productivity growth of 2.1 percent. Over the forecast period, nonfarm
employment is expected to grow by 1.1 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
forecast of population and labor force participation rate. The Census Bureaus
middle series population projection is used as a basis for population
growth for the AEO2006. Total population is expected to grow by 0.8
percent per year between 2004 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 forecast
period.
To achieve the reference cases long-run 3.1 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 diminish from its current high level to a more sustainable
level between 1.8 and 2.6 percent for the remainder of the forecast period
from 2005 through 2025. Business fixed investment as a share of nominal
GDP is expected to grow over time. The resulting growth in the capital
stock and the technology base of that capital stock helps to sustain productivity
growth of 2.2 percent from the 2003 to 2025.
To reflect the uncertainty in forecasts of economic growth, the AEO2005 forecasts use 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 3.6 percent per year between
2003 and 2025. 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 2.5 percent per year over the
forecast horizon.
Macroeconomic Tables |