zerohedge | 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!
