Gasoline pt. 2 – Why Is Gasoline Consumption Tanking?

ZeroHedge blog has a great post that serves as a nice follow-up to my post yesterday that highlighted the correlation between gasoline price spikes and lower housing starts:

This data is interesting because it is un-manipulated, that is, it is not “seasonally adjusted” or run through some black-box modifications like so much other government data.  Retail gasoline deliveries, already well below 1980 levels, have absolutely fallen off a cliff.

Using a wealth of data and charts, the author explores a number of possible explanations (gasoline inventory over-stocking, higher vehicle fuel efficiency, the ‘digital economy’ – e.g. telecommuting, online shopping) and concludes that none of them, even in combination, can account for such a steep decline in consumption.  He soberly sums up his findings thusly:

There are no data-supported broad-based drivers for dramatically lower gasoline consumption other than austerity and lower economic activity. The code-word for “austerity and lower economic activity” that is verboten in the Mainstream Media is “recession.” Indeed, if you examine the EIA data, the only causal factor that has backing in the data is recession–or if you prefer, austerity and lower economic activity.

Then there is the price of fuel. People have to go to work, pick up the kids, get their meds, etc., and few urban centers in the U.S. have mass transit systems that are up to the task of replacing autos. So most Americans have what we might call non-discretionary driving. But as the price of fuel rises, people find ways to lower their discretionary driving by combining trips, shopping less often, shortening or eliminating vacations, etc. Enterprises reduce costly business travel with teleconferences and other digital technologies.

Data supports the notion that high oil prices lead to recession. For example, Chris Martenson recently made a compelling case for this in Why Our Currency Will Fail (“Note that all of the six prior recessions were preceded by a spike in oil prices.”)

Household income doesn’t rise just because oil is climbing in cost, and so the extra money spent on fuel is diverted from other consumption or saving (capital accumulation). Higher fuel costs lower household capital formation and reduce consumption/economic activity.

That last paragraph sounds awfully familiar, doesn’t it?  My condolences to our resident comment trolls and gainsayers – you’ve just been PWNED.

Although historical data definitely supports the conclusion that gasoline demand declines during recessions, it also outlines a predictable increase in consumption during subsequent recoveries.  But today, that simply has not happened.  Gasoline demand has continued to plunge even though we have officially been in “recovery” since summer 2009.

I may be just a dumb Okie, but it seems pretty obvious to me that unmanipulated real-world economic indicators paint a much more accurate picture of our economy than hand waving and double talk from the government.

The post ends with this:

If we stipulate that vehicles and fuel consumption are essential proxies for the U.S. economy, then we can expect a steep decline in economic activity to register in other metrics within the next few months.

Such a sharp drop would of course be “unexpected” given the positive employment data of the past few months. But as the data above shows, employment isn’t tightly correlated to gasoline consumption: gasoline consumption reflects recession and growth.

Something that I have said many times in this blog’s comments bears repeating: Before anyone gets too excited about employment figures, remember that employment doesn’t exist in a vacuum.  If we really are seeing a true economic recovery then we will see corresponding increases in consumer spending, consumer confidence, manufacturing output, and real GDP growth.  Regardless of how BLS massages the employment numbers, if we aren’t seeing the related economic indicators on the rise, we are not in a recovery.

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  • Another item that is not mentioned in the article is trucking. When the cost of fuel is down, there are more trucks on the road, hence more products are being moved. These vehicles are the primary movers of all the goods we buy and sell. The railroads don’t have the wherewithal to move the massive quantities of freight that is consumed every year. Trucks can move the goods into places that don’ have any rail service at much cheaper rate. So when the trucking activity picks up, the economy is doing good and when there is a decline in the trucking activity (as there is now) the economy is bad.

  • Commander_Chico

    These stats are shocking, they indicate that the economy is “tanking.” 

    Then why are gas prices going up?

    I think it’s a leading indicator of war with Iran, but could be the usual commodities speculation.

    • GarandFan

       You might also factor in that a rather LARGE number of people in India and China are no longer riding bicycles.

      Yes, a war would drive prices up.  BUT would you suggest that the price is up right now because buyers are stocking up on oil?

      If so, just where the hell are they storing it all?

      •  Don’t confuse Chico with logistics!  They don’t fit his paradigm!

      • Commander_Chico

        Um, when oil futures are bid up, prices usually rise at the pump immediately.

        • GarandFan

           Oil futures are bid upwards based on the premise that a profit will be made.  If that demand does not appear, you lose your shirt.

    • LiberalNightmare

      War with Iran?

      Are you sure you don’t mean kinetic action?

  • 914

    Gas has been artificially inflated since Obama ascended ! No big secret, He is risky to the free world! Hence speculation and profiteering.

  • 0bama said he intended to modify the energy consumption patterns of the American People by sending “price signals.”  Ergo this is a deliberate policy, and the forthcoming second dip to the recession is a consequence of deliberate policy.

  • GarandFan

    For a “recession that’s ended” we appear to still have a large pool of people in the “U6” category.  I’d imagine they’re not driving much, or making discretionary purchases beyond the basics.

    On another note, relative to gasoline; has “The best and brightest administration, evah” considered that in promoting electric vehicles, they’re causing a decline in the tax money supposedly captured at the pump to maintain the highways?

    Perhaps they can take a clue from my local MWD.  We were encouraged to ‘save’ water.  The encouragement came in the creation of a 3 tiered price structure.  As you used more, you paid more.  So everyone cut back.  Then the MWD RAISED PRICES.  Seems folks cut back so much, the MWD couldn’t make payroll or other costs.

    • jim_m

       They aren’t unemployed, they are merely government subsidized workers.  They work for the obama admin by providing an excuse to take over more and more of the economy.

  • 914

    “0bama said”

    I do believe his lips may have moved??

  • ackwired

    Interesting data. it looks like the trend downward started in 2003 or 2004, long before the bubble burst and the recession started.  I looked at the historical gas prices, and I don’t see a correlation there.  The gap down(2012?) is interesting.  But we may be jumping to conclusions if we don’t understand the long term trend.

    •  So 42 years of data fails to reveal any long term trends?

      • ackwired

        Rodney, you need to read the post before you rush to insult me.  When your response has nothing to do with my post, you might come off looking poorly.

        • Read the post.  Clicked through and read the article on ZeroHedge. 

          My statement

          “So 42 years of data fails to reveal any long term trends?”

          is neutral, but feel free to take as much umbrage as you can carry with you.

          • ackwired

            So what did you see in the 42 years of data that explained the last decade’s downslope?

          •  Inflationary pressures not captured in the current measures of inflation but reflected in fuel deliveries leading economic downturns and matching recoveries.  Which in turn indicates our current recovery isn’t and that the dreaded double dip may have already started or soon will.

            See the correlation charts on the ZeroHedge site.

          • ackwired

            Thanks for the reference.  I have now read the zerohedge report, and I still have the same question.  If the gasoline deliveries are driven by economic conditions, why did the current down trend start in 2003 when the economy was booming and continued to boom for years?

          • I answered as to the trends I saw.  Trends you discern are yours to explain.

  • Brucepall

    Our Federal Reserve Notes have a value measured in prices of commodities, goods and services and so fourth, in that when one looks at the prices of things, like gasoline, they appear to be rising.  But I submit that when one looks at prices this way, one is only focused on half the equation, and completely ignoring the other half.  Could it be that the price of gasoline (among other things) is simply rising because the value of the dollar is falling?

    When I first got started driving (at age 15), gasoline cost 19 cents a gallon.  Today I’m vacationing in Guam, and it cost 4.73$.  A lot has transpired between these two data points; but in general, most would agree that the US dollar doesn’t buy what it use to. Allow me to unpack that further.

    Perhaps because I am a frequent traveler, I’m constantly making comparative cost analysis of things around the globe over time: Like what lunch cost in Savannah, Georgia compared to Zurich, Osaka or Manila.  Except for Buenos Aires, the cost of a meal (in US $) has risen rapidly.  But its not just food.

    Business transactions in US dollars are a lot harder these days.  Bridge financing in local currency is fairly simple and straight forward, but as soon as one tries to finance in US dollars for anything more than very short term (60 days or less), then its not so simple. The asking price sky-rockets.  Exchange rate risks are high, and the rest of the world knows it.

    I believe we don’t notice much of this in America because, for most of us, we don’t leave the country, and thus we only transact in US dollars.  With the money printing at the Federal Reserve, and its incestuous relationship with the US Treasury, where trillions of $ of US debt are being bought by our own government…  what is happening is the market price for credit ($) is being compressed, where otherwise, it should be rising rapidly.  

    This 800 lb Gorilla in the market place has driven interest rates negative in respect to domestic monetary instruments (just take a look at today’s prices of 5, 7 or 10 year TIPS – or Treasury Inflation Protected Securities).  This is driving more and more savers to move their capital into risker assets – like oil.

    The oil commodity hub at Cushing, Oklahoma is at its maximum storage capacity.  But the prices of WTI – West Texas Intermediate –  is bumping along the bottom of the 100$ per barrel ceiling.  Even President Obama’s release from the Strategic Petroleum Reserves (remember that?) hasn’t been able to make an appreciable dent in prices.  But as this post and other analysis discern, US gasoline usage is plummeting!  Ummm… What is wrong with this picture?  

    A better question is: what is fixing to happen next?  I believe we are on a cusp of another recession.  But that, (at least for me) is going to be the least of our problems.  Take a look at what happened in the aftermath of the last time the 800 lb Gorilla had such a voracious appetite for debt… back in World War II.  In the years 1946, 1947, and 1948 inflation ran wild to the tune of 47%.  Patriotic war bond holders had their face ripped off.

    I see what the rest of the world already sees, that being the value of the dollar is sliding, and now is in danger of falling off the cliff (precipitously).  Thus, if you think gasoline prices (and everything else) are high now – just wait 5 years. 

    Yes, I believe the stock markets will crash (due to the coming recession), but then it (and commodity) prices will sky-rocket (due to government induced monetary inflation).  So strap yourselves in; its going to be a heart-palpitating ride.  FWIW-

    Semper Fidelis-

    • Commander_Chico

      Excellent analysis.

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  • Brucepall


    Thanks for the positives.  Upon further reflection, timing is everything in the markets, and even though I end up being right in the macro sense, I am often too early.  

    Our fiscal train wreck has been building for a long long time.  I though the crash was coming in 2008, and was prepared… but that didn’t happen, and so I was wrong.  I still find it hard to wrap my mind around negative real interest rates with US Treasuries.  Who would buy such instruments?

    Well silly me, millions of folks (and especially big banks) do.  And the market (bond vigilantes) haven’t said boo! (although they are saying so now in places like Europe). Go Figure.

    This blog has a conservative flavor to it, which is why I have it book- marked under “Politics”.  I am not beholden to any of the two political parties; I am a registered “Independent”.

    Having said that, I must say the Republican Party has a dismal record IMHO when it comes to understanding and applying effective economic policy.

    I remember wage and price controls (Nixon), WIN (Whip Inflation Now) buttons (Ford), and I was even so concerned with our last administration’s fiscal policy, that I wrote a nice letter to the Treasury Secretary (Pauleson) on 1 May 2008, saying I was going on strike concerning future purchases of TIPS until their policy in this regard changed. 

     The canned computer generated reply l received led me to ponder if his (their) response would of been the same, if I had wished him and his minions a cursed death in the afterlife… but I didn’t explore this supposition as I might have received a courtesy visit from the FBI.

    So, I am no fan of much of the actual economic policy that has flowed from the Republicans in the past.

    However, the Democrats have been worse – on a scale of several orders of magnitude.  IMHO, the current crop in power now (In the Executive Branch and Senate) have been an unmitigated disaster for our country.  All of their economic policies-  beholden to special interest – have been 180 degrees of what is actually needed to clear the markets, reset business confidence, and set America onto a path of sane fiscal policy.  Its almost like they do not have the whole country’s best interest in mind. 

    I mean, its almost like seeing the smartest guys in the room starting to crack-up under stress… perhaps cause they don’t know what in the hell else to do?

    I’ve never seen anything like it… except in combat, where even the smallest personality defect or character flaw gets magnified all out of proportion, and they start doing the dang dumbest things that even my dog wouldn’t do.  

    I’d like to wrong about all this… I really would.  But I’m preparing for the worst.  May God bless America, as our creditors surely will not.

    Semper Fidelis-

    • No, they’re not cracking under stress, the Criminals at the private federal reserve and their cronies want your real assets ie houses and land.  Just like they did before they engineered the great depression.  Nobody’s that dumb, noone can do everything they can to destroy the economy by accident.

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