Economy, weather, and CO₂

U.S. macroeconomics
Record high trade deficits in the first months of the year, along with a decline in equity values, prompted a downward revision to the macroeconomic assumptions that underlie the May STEO. Our macroeconomic assumptions are based on S&P Global’s macroeconomic model. We incorporate STEO energy price forecasts into the model to obtain the final macroeconomic assumptions. The macroeconomic forecast was finalized after the announcement of the reciprocal tariffs on April 2 but before the 90-day extension was granted to some countries. As a result, our macroeconomic forecast assumes significantly lower tariffs on China’s products than are currently in place and significantly higher tariffs on countries subject to the 90-day temporary suspension. However, the differences in tariff rates likely have offsetting effects on the macroeconomic forecast.

In addition, the U.S. Bureau of Economic Analysis (BEA) released its advance estimate of the first quarter of 2025 (1Q25) and full-year 2024 GDP on April 30, after our forecast had been finalized. According to the report, GDP contracted at a seasonally adjusted annualized rate of 0.3% in 1Q25, compared with grow of 0.3% included in our forecast.

This month, our forecast assumes that real GDP will grow by 1.5% in 2025, a 0.5 percentage point reduction from last month, and 1.6% in 2026, a 0.4 percentage point reduction from last month. The 2025 forecast of GDP growth is the lowest since January 2024 STEO, when our forecast assumed GDP growth in 2025 would be 1.3%. Much of the revision reflects an increase in imports early in the year, which resulted in a record trade deficit of $130 billion in January and $122 billion in February. The U.S. Census Bureau and the U.S. BEA released the March U.S. International Goods and Services Report on May 6, which showed that the trade deficit reached a new record of $140.5 billion. The monthly average trade deficit was $76 billion in 2024.

A downward revision to consumer spending also contributed to the lower GDP forecast. Our forecast assumes that real consumer spending will grow by 1.9% in 2025, 0.7 percentage points lower compared with last month. This change is primarily due to the forecasted effect of the decline in equity values on consumption, which offsets growth in retail sales. Retail sales rebounded by 1.4% in March, after a sharp decline in January and slow growth in February.

Emissions
We forecast U.S. energy-related carbon dioxide (CO₂) emissions to increase by 1% in 2025, followed by a 2% decrease back to near-2024 levels in 2026. While coal, petroleum products, and natural gas all contribute to increases in 2025 and subsequent decreases in 2026, coal is responsible for most emissions changes over the forecast.

Coal represents more than half of the annual emissions changes in 2025 and 2026, despite only accounting for around 16% of total energy-related CO₂ emissions in 2024. Coal’s impact on total emissions changes is pronounced mainly because of changes in the U.S. electricity generation mix. Because coal has a high carbon content, releasing more CO₂ per kilowatthour (kWh) than natural gas when combusted, small changes to coal in the generation mix lead to relatively larger changes in CO₂ emissions than other fossil fuels. As coal-fired electricity generation comes online or offline due to relative fuel prices or other circumstances, significant changes to coal-related CO₂ emissions can occur.

Although coal represents most of the emissions changes over the forecast, petroleum and natural gas emissions change as well. Petroleum emissions increase in 2025 along with growth in industrial manufacturing and fall in 2026 with decreases in on-road vehicle travel. Natural gas emissions rise in 2025 due to higher demand for residential and commercial space heating, mitigated by some decreases in natural gas-fired electricity generation, and fall in 2026 with relatively warmer weather and lower heating demand.

Weather
Based on our current forecasts and data from the National Oceanic and Atmospheric Administration, we assume the United States will experience a cooler summer in 2025 than in 2024, averaging 450 cooling degree days (CDDs) in 2Q25, 10% fewer CDDs than in 2Q24. Slightly warmer weather in 3Q25 (3% more CDDs than in 3Q24) will partially offset the cooler weather in 2Q25. As a result, we expect 2025 to be slightly cooler than it was last year, which experienced warmer-than-normal temperatures, with around 1,580 CCDs (3% fewer than in 2024) but remain slightly warmer than the previous 10-year average (4% more CDDs).