America’s New Energy Future: The Unconventional Oil and Gas Revolution and the US Economy
form. IMPLAN’s input-output framework allows one to enter direct contributions, by industry, in order to analyze and quantify direct and indirect contributions. The sum of all contributions relative to the total size of the economy provides initial benchmark estimates to evaluate the importance of a given industry. The induced economic contributions represent the changes in consumer spending when their incomes are altered. The broad range of consumer spending means that induced contributions tend to be dynamic and reactive to shifts in consumer sentiment and employment outlooks. For the purposes of this study, IHS Global Insight utilized its US Macroeconomic Model (Macro Model) to enhance IMPLAN’s standard methodology of measuring the induced economic contributions. The Macro Model’s dynamic equilibrium modeling methodology provides a more robust determination of the induced economic contributions than could be obtained from IMPLAN’s static modeling approach. IHS Global Insight established an algorithm for linking IMPLAN’s and the Macro Model’s direct and indirect contributions. Both models were run using the initial set of input assumptions to produce direct and indirect contributions. The results were evaluated, and both the IMPLAN and Macro Model were refined and calibrated and run again in an iterative fashion, repeating the refinement and calibration process, until IMPLAN’s and the Macro Model’s direct and indirect contributions were consistent. Finally, the Macro Model was solved endogenously to produce the total economic contribution. The difference between the Macro Model and IMPLAN results (direct plus indirect) represents the expenditure-induced contributions of value added, labor income and employment.
Measuring the Economic Contributions A baseline macroeconomic forecast of the US economy was used to evaluate and assess the contribution of the unconventional oil and natural gas industries over the next 25 years. The US economy is resilient and self-adjusts to a long-run state of full equilibrium. Hence, any contributions, policy changes, and external shocks will initially change the economic state with a longer-term convergence to the baseline. In other words, the economic ripples that result from a one-time shock this year, such as a federal stimulus program or natural disaster, will dissipate over the long term and bring the US economy back to its equilibrium state. Consistent with this framework, the IHS Global Insight US macroeconomic baseline forecast has the unemployment rate in the short term at well above its long-term equilibrium growth level, with unemployment at 7.8% in 2012, 7.0% in 2015, and not dropping below 6% until 2020. Eventually the unemployment rate reaches its long-term growth equilibrium level in 2035, at 5%. The high unemployment rate is an indicator of short-term growth in GDP below its long-term potential. In 2012, employment in the entire unconventional upstream sector will account for more than 1.7 million jobs, increasing to over 2.5 million jobs in 2015, almost 3 million jobs in 2020, and almost 3.5 million jobs by 2035, the end of the forecast period. Value added and labor income mirror this uninterrupted upward trend, with value added increasing from approximately $238 billion in 2012 to an average of $400 billion between 2020 and 2035. Labor income is forecast to double from about $125 billion in 2012 to $250 billion in 2035. A sector-by-sector discussion of each of these measures is presented in the next section.
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October 2012