Use of electricity plummets
New data on electricity use in the last three weeks suggest a sharp decline in American economic activity on par with that of the Great Recession. It may already be the deepest downturn since the Great Depression; it is certainly the fastest.
These numbers are important because our official statistics can’t keep pace with the abrupt economic changes the coronavirus shutdown has caused. All those closed stores, silenced factories and darkened office buildings are yet to be counted in the government’s official economic numbers, which take months to collect, process and report.
But evidence of the sharp economic shift shows up in a large and rapid decline in electricity usage over recent weeks.
The numbers come from a new electricity-based measure that Steve Cicala, an economics professor at the University of Chicago, has devised to track the state of the American economy and how it changes daily. The idea of tracking electricity usage, he says, follows from the observation that most economic activity requires electricity.
Cicala’s results conform with a similar analysis from the U.S. Energy Information Administration and from reports by regional electricity providers.
“In terms of this scale of event, I don’t think we’ve had in recent history anything like this hit the grid,” said April Lee, an analyst at the EIA.
Cicala said his indicator was useful in times of rapid economic change, adding, “While this isn’t a perfect measure, it certainly helps with filling in the gap so that we can get the most complete picture.”
Cicala’s data show large declines in electricity use across high-density cities, rural areas and industrial centers.
In New York City, electricity demand fell 14% from its recent average, as restaurants, theaters and offices closed their doors.
A similar decline is evident in eastern Wisconsin and Michigan. As of Tuesday, electricity demand was down 12%.
One way to assess the accuracy of this new economic indicator is to replay the signals it would have sent during the previous recession. Lehman Brothers filed for bankruptcy in September 2008, heralding a sharp turn for the worse in an economy already contracting, but the gross domestic product numbers released a few months later initially suggested only a moderate decline in output. It took several more months for the government to release revised numbers revealing the true extent of economic carnage.
By contrast, electricity usage confirmed almost immediately that the economy had cratered.
Today’s social isolation economy is very different from the pre-pandemic economy. The loss of output resulting from shuttered factories will clearly be visible in reduced electricity usage, but other changes — such as differences in the energy intensity of working from home rather than in an office — might yield more ambiguous signals.