A clever technique reveals the staggering depths of the sudden economic downturn

A clever technique reveals the staggering depths of the sudden economic downturn
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A variety of metrics can be used to analyze the state of the economy, including unemployment, consumer spending, and more. And in an article for the New York Times, reporters Quoctrung Bui and Justin Wolfers point to another, clever indicator that may give us more real-time information than measures that rely on weeks-old surveys: electricity use, which they describe as evidence of how badly the coronavirus pandemic is hurting the U.S. economy.


“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,” Bui and Wolfers explain. “But evidence of the sharp economic shift shows up in a large and rapid decline in electricity usage over recent weeks.”

For their article, Bui and Wolfers draw on research by University of Chicago economist Steve Cicala — who, they note, tracks the “state of the economy” by keeping a close eye on patterns of electricity use and “how it changes from day to day.”

“The idea of tracking electricity usage, he says, follows from the observation that most economic activity requires electricity,” Bui and Wolfers write. “Cicala’s results conform with a similar analysis from the U.S. Energy Information Administration and from reports by regional electricity providers.”

Patterns of electricity in the U.S. in recent weeks, according to Bui and Wolfers, show how much its economy is taking a hit — for example, a 14% drop in “electricity demand” in New York City and a 12% drop in eastern Wisconsin and Michigan.

After the economic crash of September 2008, Bui and Wolfers recall, electricity use in the U.S. “confirmed almost immediately that the economy had cratered” — and it “fell the most in those parts of the country that subsequent data would confirm had experienced the sharpest fall in employment.” They explained:

New data on electricity use in the past three weeks suggest a sharp decline in U.S. 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.

Cicala, they add, has been monitoring electricity use not only in the U.S, but in Europe as well — and his research shows how severely the Italian economy is being battered by the coronavirus pandemic. COVID-19’s impact on Italy has been brutal, and John Hopkins University in Baltimore has so far reported more than 17,600 coronavirus-related deaths in that country. Milan, one of Europe’s major business centers and the capital of the fashion industry., has been shut down.

“The electricity usage in Italy — the epicenter of the coronavirus outbreak in Europe — has fallen more than three times as much as in the United States, suggesting a particularly steep economic decline,” according to Bui and Wolfers.

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