Spectral analysis of the relationship between energy consumption, employment, and business cycles

Abstract

Through the use of cross-spectral techniques, we identify the dependence of U.S. industrial energy consumption on the industrial production index and total non-farm employment over business cycles. In particular, total energy consumption, mainly due to its industrial component, responds to changes in the production index. It is found that the industrial demand for energy is fairly sensitive to business cycles, while the household energy consumption and transportationsector energy consumption are not significantly affected by the expansion and contraction phases of the economy. In addition, there is a significant degree of correlation between the total non-farm employment and energy consumption over the business cycle frequencies. The evidence indicates a simultaneous response of employment and energy consumption to business cycle movements of the production index and suggests neutrality between energy and labor employment.