Per Michael Laprarie‘s posts (The surprising correlation between gasoline prices and housing starts and Gasoline pt. 2 – Why Is Gasoline Consumption Tanking?) earlier, we have seen a strong correlation between gasoline consumption and economic activity demonstrated. ZeroHedge returns to the theme today using the broader energy market, and it does not look good.
By Charles Hugh Smith | Of Two Minds via ZeroHedge
It’s Not Just Gasoline Consumption That’s Tanking, It’s All Energy
It’s not just gasoline consumption that’s declining–petroleum and electricity consumption are also dropping. Is that indicative of economic growth?
A number of readers kindly forwarded additional data sources to me as followup on last week’s entry describing sharply lower deliveries of gasoline. (Why Is Gasoline Consumption Tanking? February 10, 2012)
The basic thesis here is that petroleum consumption is a key proxy of economic activity. In periods of economic expansion, energy consumption rises. In periods of contraction, consumption levels off or declines.
This common sense correlation calls into question the Status Quo’s insistence that the U.S. economy has decoupled from the global ecoomy and is still growing. This growth will create more jobs, the story goes, and expand corporate profits which will power the stock market ever higher.
Courtesy of correspondents Bob C. and Mark W., here are links and charts of petroleum consumption, imports/exports, and electricity consumption. Let’s start with a chart of total petroleum products, which includes all products derived from petroleum (distillates, fuels, etc.) provided by Bob C. The chart shows the U.S. consumed about 21 million barrels a day (MBD) at the recent peak of economic activity 2005-07; from that peak, “product supplied” has fallen to 18 MBD. The current decline is very steep and has not bottomed.
This recent drop mirrors the decline registered in 2009 as the wheels fell off the global debt-based bubble. Those arguing that the U.S. economy is growing smartly and sustainably have to explain why petroleum consumption looks like 2009 when the economy tipped into a sharp contraction.
A link of interest from Mark W.: Montly U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels per Day) showing gasoline “product supplied” from 1945 to 2011. This shows gasoline has declined about 700,000 barrels per day from 2007, from 9.2 MBD to 8.5 MBD in November 2011. This represents about a 13% decline.
That 13% decline (still trending downwards) is not an indicator of a healthy economy on the rebound. But wait, there’s more, and it’s worse.
Mark W.also forwarded these charts of Electrical power consumption. Not only has electrical consumption never recovered the levels of mid-2008, it peaked in mid-2011 and has begun a sharp decline in late 2011.
I marked recent recessions on a long-term chart of electrical consumption to show that the deep recession of 1981-83 barely registered, while the recessions of 1990-91 and 2000-2002 are essentially noise.
That makes the secular decline from 2006 peaks all the more striking. (It is perhaps no coincidence that the housing bubble peaked in 2006-07 along with the extraction of home equity craze.)
Clearly, electrical consumption is in a downtrend with no recent historical precedent. Those claiming that U.S. growth is sustainable and the Dow is heading for 15,000 must square their rosy projections with sharply declining energy consumption. The two simply don’t match up.
No indeed. This does not bode well for the “recovery” nor the near term direction of the United States economy.