Power demand in Italy has fallen 18 percent so far. Such data can be a real-time indicator of coming economic damage.
March 20, 2020

With Americans largely self-isolating amid concerns about COVID-19, some of the hardest hit areas are already seeing electricity demand begin to weaken. Could this be a sign of things to come?

Harris Public Policy Assistant Professor Steve Cicala

Harris Public Policy Assistant Professor Steve Cicala took a look at what has happened to power demand in Northern Italy, which some say is about eleven days ahead of the U.S. trajectory of the virus. Cicala compiled regional grid data, adjusting for weather changes, and found that power demand has plunged in Northern Italy since the middle of February.

On Friday, February 21, life was largely going about as normal in Northern Italy. The following day, the Italian government began to institute quarantine measures. By Monday, power demand began to slow. As the chart shows, there was then a bump in power just before the government instituted a national lockdown about two weeks later on March 10. About a week after that, power demand had fallen 18 percent compared to demand just prior to the quarantine measures.

*Change relative to Feb. 21 Note: Adjusted for changes in demand due to the weather. Source: ENTSO-e, adjusted with data from National Oceanic and Atmospheric Administration

Cicala says power demand could be a real-time indicator of the more widespread impacts on the Italian economy. And, what is happening in Italy could point to what the United States could expect in the coming weeks as states issue tighter restrictions on daily life.

“If paychecks and employment follow what is happening in the electricity-demand data, then there are a lot of people who will need help,” Cicala said.

Cicala explains that when there is a sharp shock in the economy, other indicators like employment may lag in reflecting the impact. This is because laying off workers is often seen as a last resort as companies start by taking other measures like ramping down production or adjusting maintenance schedules. Conversely, electricity demand shows the more immediate change and is a broad measure of economic activity. This was on display during the last recession in the United States. U.S. power demand began to fall a month before the official start date of the recession, according to the National Bureau of Economic Research—a date that was determined after an additional year of data had been collected. As policy makers today are considering which countermeasures may be in order to buffer the economic effects of coronavirus, a real-time indicator of the economy’s strength is of the utmost importance.

—This article first appeared on the EPIC website.