Monday Report
Curbing Global Energy Demand II & Initial Survey Results July 23rd, 2007

Utah Economic Snapshot

Economic Notes:

This Weeks Leads



Initial results of Monday Report Survey

Thanks to all of you who participated.

  1. How often do you read the Monday Report?
    • Always - 58%
    • Frequently - 32%
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    • Weekly - 66%
    • Every two weeks - 26%
  3. How much of the Monday Report do you read?
    • All - 10%
    • Most - 52%
    • Just what interests me - 38%
  4. What is your overall satisfaction with the Monday Report?
    • Very satisfied - 58%
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    • Neutral - 6%
  5. Rate your satisfaction with the following features of the Monday Report.

    Very satisfied =1, Somewhat satisfied =2

    • Length - 1.4
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    • Layout - 2.1
  6. How relevant do you find the information in the Monday Report?
    • Very relevant - 38%
    • Somewhat relevant - 60%
    • Neutral - 2%
  7. Please rank each part of the Monday Report in order of importance to you.

    Least important =1, Most important =5

    • Scorecard - 3.3
    • Feature articles - 4.1
    • Utah Economic Snapshot - 4.1
    • Economic Notes - 3.7
    • This weeks leads - 3.1
    • Events - 2.7
  8. Which section of the Monday Report do you think needs most improvement?
    • Scorecard - 4%
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    • Utah Economic Snapshot - 10%
    • Economic Notes - 4%
    • This weeks leads - 22%
    • Events - 12%
    • Other - 12%
    • No Response - 26%
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    • Yes - 12%
    • No - 52%
    • Maybe - 32%
    • No Response - 4%
  10. What is the optimal day to receive the Monday Report?
    • Monday - 58%
    • Tuesday - 2%
    • Thursday - 4%
    • Friday - 26%
    • Sunday - 4%
    • No Response - 6%
  11. When is the optimal time to receive the Monday Report?
    • Morning - 54%
    • Afternoon - 22%
    • Night - After work hours - 14%
    • Other - 2%
    • No Response - 8%

Curbing the growth of global energy demand

Continued From Last Week

The opportunities for improvement are huge, but market forces alone won't realize them.

Opportunities and barriers (Last Week)

  • Residential buildings
  • Commercial buildings
  • Road transport
  • Industry

Capturing opportunities (This Week)

  • Developed versus developing economies
  • Overcoming market failures
  • Environmental benefits

Developed versus developing economies

To a large extent, capturing the 135 QBTUs of opportunities for energy-productivity improvement we've identified will depend on the commitment of the developing world, which accounts for nearly three- quarters of them (Exhibit 5). The reason is that developing countries tend to start from a much lower base of capital stock (industrial-production capacity, for instance, or fleets of vehicles) and grow more rapidly than developed economies. What's more, it is much cheaper to incorporate energy-saving features in new capital than to retrofit. The additional cost of installing energy-saving double-pane windows in a new building, for instance, is significantly less than the cost of upgrading an existing one's single-pane windows.

China, in particular, will play a crucial role because of its size and rapidly growing influence in the world economy. Indeed, we estimate that in 2020 China's opportunity for energy productivity improvement will be as high as 31 QBTUs-5 percent of global energy demand in that year. China's power sector alone will generate 16 percent of the global growth in energy demand that we expect from 2003 to 2020, so it really matters whether the country meets that demand with power plants at current efficiency levels or with new, high-efficiency plants. Although addressing such issues will be difficult, we believe that measures to improve energy productivity can actually help China's economy. In fact, given the country's relatively low labor costs in building, these opportunities may well have higher returns there than the 10 percent or so we have observed elsewhere. Moreover, China could be a considerable source of innovation as it develops and tests new energy- efficient devices for use in markets around the world.

Overcoming market failures

For leaders in developing and developed markets alike, improving energy productivity is an obvious point of departure for achieving energy policy objectives of all stripes. But as we've seen, market forces alone won't capture the opportunities. How can governments remove the distortions and market inefficiencies holding back energy productivity and, at the same time, create an environment that encourages businesses to seek innovative ways of tapping into the resulting opportunities?

Incentive programs implemented through energy intermediaries are an attractive option in the residential and commercial sectors. Today, the returns of many utilities are based on the volume of electricity delivered, which encourages them to promote growth in demand. Instead, governments could reward improvements in energy efficiency among end users. Such an environment would encourage companies to find ways to overcome information barriers as well as agency problems.

For their part, utilities can establish technologies for two-way communication between themselves and their customers that facilitate changes in the way consumers use energy. With advanced metering, for instance, consumers can see how their electricity consumption varies over time. This information, coupled with differential pricing (charging premium prices for energy used during peak times, and vice versa) gives customers an incentive to shift their consumption patterns away from peak times. By doing so, demand for expensive peak power-generation capacity can be reduced. Companies such as CenterPoint Energy, Entergy, and Pacific Gas and Electric (PG&E) are already implementing these technologies in the United States. Adopting these and other demand-side programs across the United States could accelerate the efficiency improvements that utilities could intermediate by about 1 percent a year relative to the business-as-usual scenario.

Once utilities can itemize their bills, other interesting options become viable for them. Some are already experimenting with market-based programs that allow energy services companies to identify and compete for energy-saving opportunities as an alternative to building new power-generation capacity. These companies can, for example, combine the engineering expertise needed to reduce energy consumption with financial services that would help municipalities, universities, schools, and hospitals to bridge the gap between their current expenditures and future energy savings. In new-housing developments, energy services companies could help builders find new ways of financing positive-return investments in energy-efficient homes. Similarly, energy productivity gains could be accelerated if incentives were created to upgrade existing assets when they change hands, by providing lower financing costs for buyers of energy- efficient homes, requiring commercial upgrades and expansions to meet new building codes, or developing consumer-financing vehicles of longer duration for efficiency investments.

In addition to fostering innovative market solutions, governments may want to consider tighter standards. By 2020, applying stricter fuel economy rules to the US transport sector (along the lines of those planned in Europe and Japan) would improve the world's fuel economy by four miles a gallon-the equivalent of saving four million barrels of oil a day. Likewise, in China we estimate that introducing world- class insulation standards and energy-efficient heating and cooling packages in new residential construction would save eight QBTUs by 2020, or 6 percent of the global energy productivity opportunity we identified.

Governments also have an important role to play in areas such as power plants and refineries, where new, high-efficiency assets could replace old, less efficient ones, thus raising energy productivity and generating attractive economic returns. Appropriate energy and environmental policies could help provide incentives for the upgrades. In areas such as the manufacture of appliances, evidence suggests that targeted standards encourage economies of scale that could relatively quickly make the price of high- efficiency appliances comparable to that of less efficient equipment under the previous standard. The premium consumers now pay for above-standard efficiency often acts as a disincentive.

Environmental benefits

If the concerted efforts of companies and policy makers can improve the world's energy productivity to the extent we believe possible, the environmental benefits would be significant; this is fortunate because addressing global externalities (such as greenhouse gases) is extremely difficult. Even the price mechanism can have perverse effects. Our research shows that a shift to $70 for a barrel of oil, from $30, makes power generators shift from oil to coal, which is more carbon dioxide-intensive, thus increasing carbon dioxide emissions from the power- generation sector by 8 percent globally.

These dynamics make the possibility of curbing emissions by pursuing positive-return energy productivity opportunities particularly alluring. We estimate that capturing them would contribute up to half of the emission abatement required to cap the long-term concentration of greenhouse gasses in the atmosphere at 450 to 550 parts per million, a range that some experts suggest would meet the goal of preventing average global temperatures from rising by more than 2 degrees Celsius (3.6 degrees Fahrenheit).

Source: McKinsey & Company, 2007

http://www.mckinseyquarterly.com/article_abstract. aspx?ar=2025&l2=3&l3=41&srid=17&gp=0

Next Week - Is Your Workforce Strange Enough to Guarantee Competitive Advantage?

Curbing the growth of global energy demand

  • Curbing the growth of global energy demand II
    • Opportunities and barriers
    • Residential buildings
    • Commercial buildings
    • Road transport
    • Industry
  • Initial Monday Report Survey Results
  • Economic notes
  • This weeks leads

Bob Springmeyer

Bonneville Research

  • Utah Economic Snapshot
  • Utah Labor Market Indicators - June 2007 (May 07)

    • Employment Growth: 4.5% (4.5%)
    • Employment Increase: 55,100 (54,000)
    • Unemployment Rate: 2.6 %(2.5%)

    Source: Utah Dept of Workforce Services, 7/17/07

    U.S. Labor Market Indicators - June 2007 (May 07)

    • Employment Growth: 1.4% (1.4%)
    • Unemployment Rate: 4.5%(4.5%)

    Source: Utah Dept of Workforce Services, 6/12/07

    Where the Jobs Are - June 2007

    • State Total - 55,046 +4.5%
    • Salt Lake County (47%) - 25,772 +4.4%
    • Utah County (18%) - 10,182 +5.8%
    • Davis County (4.6%) - 3,831 +3.7%
    • Weber County (6.1%) - 3,367 +3.6%
    • Washington County (4.3%) - 2,373 +4.5%

    Source: Utah Dept of Workforce Services, 7/17/07

    What kinds of Jobs - June 2007

    • State Total - 55,046 +4.5%
    • Specialty Trade Contractors - 10,000 +15.0%
    • Professional, Scientific, and Technical Services - 5,600 +9.0%
    • Accommodation and Food Services - 4,000 +4.3%
    • Health Services and Social Assistance - 3,900 +3.7%
    • Food Services and Drinking Places - 3,300 +4.4%
    • Finance and Insurance - 2,800 +5.2%
    • Construction of Buildings - 2,500 +11.5%

    Source: Utah Dept of Workforce Services, 7/17/07

    Economic Snapshot - Twelve Months FY2007

    • Sales and Use Taxes (Gen Gov't) +3.0%
    • Individual Income Taxes (Education) +12.9%
    • Corporate Franchise Taxes (Gen Gov't) +10.9%
    • Motor Fuel Taxes (Transportation) +6.0%
    • Severance Taxes (Gen Gov't) +5.4%

    Source: Utah State Tax Commission, 7/18/07

  • Economic Notes:
    • Global Business Confidence
    • There has been no appreciable change in global confidence since mid-April. Businesses are more upbeat than at the beginning of the year when sentiment was at its low point, but they remain cautious. Confidence is consistent with an economy that is expanding at the low end of its potential, and there is no indication in the survey results that the stronger global growth experienced in the second quarter of 2007 will accelerate further during this quarter. Financial services firms are very upbeat, but construction and real estate firms remain nervous. South American businesses are the most optimistic, while European businesses are the most guarded.
    • Risk of Recession
    • The Moody's Economy.com probability of recession rose in June to 21%, up from May's 16%. The modest increase in the probability of recession is not alarming as it remains within in the range that has prevailed since early-2006. Also, the rise in the probability of recession in June reflects falling consumer confidence, weakening housing markets and a decline in equity prices.
    • Treasury International Capital Flows
    • Net long-term TIC flows rose to $126.1 billion in May, compared to $80.3 billion in April. Total monthly net TIC flows came to $105.9 billion in May, up from $97.8 billion in April.
    • The Conference Board Leading Indicators
    • The Conference Board index of leading indicators fell a larger than expected 0.3% in June, following a downwardly revised 0.2% gain in May. An outsized decline in building permits was the main reason for the June miss.
    • Industrial Production
    • Industrial production rebounded in June, rising 0.5%. All three major components strengthened, led by a 0.6% surge in manufacturing output. Capacity utilization rose three-tenths of a percentage point to 81.7%.
    • California Manufacturing Survey
    • The second quarter purchasing managers' index for California indicated an expanding factory sector in the state. At 58.4, the index represents an increased rate of expansion from the previous quarter.
    • Consumer Price Index
    • The seasonally adjusted consumer price index increased 0.2% in June, after increasing 0.7% in May and 0.4% in April. The energy component, which had risen sharply in previous months, fell 0.5% in June and therefore helped moderate growth in the headline index. The core index, which excludes food and energy prices, also increased by 0.2% in June, after increasing 0.1% in May and 0.2% in April. Over the past year, core CPI inflation has run at a 2.2% rate, compared to 2.3% in the previous month and 2.4% in April. While the headline reading came in 0.1 of a percentage point higher than the consensus had predicted, the core index was in line with expectations.
    • NAHB Housing Market Index
    • Homebuilder optimism decreased another four points to 24 in July, a drop of 12 points total since March. Overall, the index is down sharply in every component. In fact, the traffic of potential buyers index value of 19 is an exceedingly low number, signaling that the bottom of the housing market appears nowhere in sight.
    • New Residential Construction (C20)
    • Housing starts increased 2.3% to 1.467 million units in June. Housing permits decreased 7.5% during the month. New construction activity is slow and will decline even further, as the housing market has yet to hit bottom.
    • MBA Mortgage Applications Survey
    • Mortgage demand increased 0.9% in the week ending July 13. Purchase applications decreased 1.6% and refinance applications increased 4.9%. The link between the applications survey and realized sales remains tenuous during this time of structural changes in the housing market.
    • Chain Store Sales
    • Chain store sales rose 0.3% in the week ending July 14 marking the third consecutive small gain. This was the first set of three consecutive weekly gains in over three months. Year-over-year growth jumped to 3.4% as sales fell in the comparable week last year.
    • Oil and Gas Inventories
    • Crude oil inventories fell by 0.5 million barrels for the week ending July 13, according to the Energy Information Administration, roughly in line with expectations of a 0.7 million barrel draw. Gasoline inventories unexpectedly fell by 2.3 million barrels; analysts were expecting a 1 million barrel build. Refinery activity improved for the fourth consecutive week, increasing 0.8 percentage points to 91.0%. Distillate supplies rose modestly by 0.2 million barrels, slightly below expectations. This report will exert upward pressure on oil prices.
    • Weekly Natural Gas Storage Report
    • Underground storage of natural gas increased by 65 billion cubic feet during the week ending July 13. This figure fell slightly short of expectations, which had anticipated an injection of 68 Bcf. Estimates for injections ranged from a high of 90 Bcf to a low of 52 Bcf for the week. Underground natural gas inventories currently stand 15.7% above the five-year average. This report is likely to have a bullish impact on prices, extending the rally that natural gas prices experienced on Wednesday.

  • This Weeks Leads
    • Neiman Marcus
    • Neiman Marcus, a 38-unit chain, operates locations throughout AZ, CA, CO, FL, GA, HI, IL, MA, MD, MI, MN, NJ, NV, NY, TX, VA and Washington, DC.
    • The upscale, specialty department stores occupy spaces of 120,000 sq.ft. in malls and urban/downtown areas.
    • Growth opportunities are sought throughout CA, FL and TX during the coming 18 months.
    • Typical leases run 20 to 30 years.
      • Wayne Hussy,
      • Neiman Marcus,
      • 1201 Elm Street, Suite 2800,
      • Dallas, TX 75270.
    • Hickory Farms
    • Hickory Farms, Inc. trades as Hickory Farms.
    • The 1,200-unit chain operates locations nationwide and in Canada.
    • The stores, selling food gift packages, cheeses, candies, meats and specialty foods, occupy spaces of 700 sq.ft. to 2,500 sq.ft. in kiosks, malls and power and specialty centers.
    • Growth opportunities are sought nationwide during the coming 18 months.
    • Typical leases run six to eight weeks from November to December.
    • The company will occupy kiosks or vacant storefronts. For details, contact
      • Kendyle Peters,
      • Hickory Farms, Inc.,
      • 1505 Holland Road,
      • PO Box 219,
      • Maumee, OH 43537;
      • Web site: www.hickoryfarms.com
    • Toni & Guy
    • Toni & Guy USA, LP trades as Toni & Guy.
    • The 60-unit chain operates location nationwide.
    • The hair salons occupy spaces of 1,500 sq.ft. in malls.
    • Growth opportunities are sought nationwide during the coming 18 months.
    • Typical leases run 10 years with options.
    • For details, contact
      • Jean Reasonover,
      • Tony & Guy USA, LP,
      • 3113 Kennison Court,
      • Plano, TX 75093;
      • Web sites: www.toniguy.com and www.tigihaircair.com
    • Fast Frame
    • Fast Frames USA Inc. trades as Fast Frame at 300 locations nationwide and internationally.
    • The shops, selling art work, accessories and framing services, occupy spaces of 1,500 sq.ft. in strip centers.
    • Growth opportunities are sought throughout the existing markets during the coming 18 months.
    • Preferred cotenants include major anchors.
    • Typical leases run five years with options.
    • The company is franchising.
    • For more information, contact
      • Brenda Hales,
      • Fast Frame USA Inc.,
      • 100 Lawrence Drive, Suite 300,
      • Newbury Park, CA 91320;
      • Web site: www.fastframe.com.

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