Does Electric Power Generation Hold the Key to Revealing the Real Trend of the US Economy?

The Fed reports data on electric power generation and distribution as part of its monthly report on Industrial Production. The not seasonally adjusted year to year data for February (actual) showed a gain of nearly 5% from last February. That’s a steep increase from the 0.5% gain in December and 0.3% in November, suggesting massive strength in the US economy. But much of the increase is probably weather related as February 2012 was very warm in most of the country, and this year saw record cold in some parts of the country. That would cause increased demand for electric heating and lighting this year versus last year’s reduced usage due to the warm weather.

Overall, the trend has been flat since 2007, interrupted by a 5-10% dip during the 2008-09 recession.

Electric Power Generation - Click to enlarge

Electric Power Generation – Click to enlarge

I  like this indicator because it reflects everything that goes on in the US economy. It is a proxy for combined business and personal consumption activities. The long term view of this indicator suggests that the economy has done nothing in the past 3 years in a supposed recovery.

There may be another explanation for the apparent sluggishness. It may be due to increasingly energy efficient lighting, air conditioning, and refrigeration.  The changeover to compact fluorescent lighting may be a contributing factor to keeping rates of gain below the levels of the past. Americans are wasting less electricity and it is difficult to isolate that factor from the impact of declining or stagnant economic activity. At some point the conservation trends will level out and this indicator should again do a better job of reflecting the trend of the economy. April is usually the low point of the year so it will be particularly interesting this year to see if the low comes in higher than the 2011 and 2008 lows. That would suggest that the economy is growing.

Permanent chart page on Industrial Production and Electric Power Generation.

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