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.
