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Another Recession on the Way?

December 26, 2012 By Young Research

Since at least 1973 all major dips in total American energy consumption have been associated with recessions. Consumption crashed after the recent Great Recession to the lowest levels since the late 90s. After bottoming out in September 2009, consumption was trending upward until April 2012 when it fell sharply once again. Since a post-recession peak in January of 2011, American energy use has fallen off (chart 1). The question is whether or not falling consumption is caused by an economy sagging toward a new recession, or by structural and technological changes in the American economy that demand less power to be consumed overall.

energy consumption

Total energy consumption in the United States peaked in 2007, when Americans used 101.3 quadrillion BTUs (quads) of energy. Consumption sank to 94.6 quads at the nadir of the Great Recession in 2009, and recovered to 97.7 and 97.4 quads in 2010 and 2011 respectively. But the first nine months of 2012 indicate that this year could end with a reduction in annual consumption of 2 full quads or more. That would bring U.S. energy consumption within only 1 quad of its lows from the last recession.

The declines in U.S. energy consumption could be indicative of further gains in U.S. energy efficiency, or a sign that the economy is in a cyclical slowdown and using less energy altogether. If the former is the case, gains in efficiency could help boost GDP as fewer barrels of oil are imported, thereby boosting the net trade portion of GDP. If however declining fuel consumption is indicative of declining aggregate demand, we can expect GDP growth to slow or even turn negative.

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