- by New Deal democrat
Today is the last day of our data drought before the onslaught of delayed reports that begins tomorrow with the November jobs report and CPI.
In the meantime, there is a commenter on another economics site who generally believes that everything is OK as along as vehicle miles traveled YoY stay positive - and as of October, the rolling 12 month average was higher by 1.0%. Others robustly disagreed. So I thought I would take a look.
In the first place, here is the 12 month rolling average of total vehicle miles traveled for the past 50+ years in absolute terms:
[I am having a problem with Google giving me access to my photos, so instead here is a link to a FRED graph of the YoY% change in the 12 mile moving average of vehicle miles driven:
It’s pretty obvious that total mileage traveled turned down, or at least decelerated markedly, at the onset of or shortly before all of the recessions in the past 50 years except for the pandemic.
But of course that just tells us that it is a *coincident* indicator, best for confirming in the rear view mirror what other data has already been suggesting. Notably, only in 1979 and 2000 did it turn down or decelerate in advance; in 1981, it did not turn down until months after the recession had already started. Further, there was a significant deceleration beginning in the summer of 2005 that did not correlate to any recession in the next year; and for 4 entire years after the Great Recession miles traveled were completely flat, punctuated with several periods of small declines that did not coincide with recession, and so would have been very wrong signals had they been followed at the time.
Instead, I think that over the long term total vehicle miles traveled have told us that almost all US recessions in the past 50 years have at least in part been due to oil price shocks. And indeed the deceleration in miles traveled in 2005 coincided with gas prices hitting $3/gallon for the first time in the wake of Hurricane Katrina, and the four year period after the Great Recession was characterized by what I called at the time the “oil choke collar”; i.e., every time the economy would pick up, gas prices would shoot to $4, cooling the economy down, which would result in gas prices sinking back to $3, and the cycle would repeat.
In support of this, here is the YoY% change in vehicle miles traveled compared with the YoY change in the price of gas (red, /10 for scale) and for the period predating that statistic, the price of oil (orange, /20 for scale):
[To be supplied]
The oil price shocks stand out, as the YoY change in prices coincides with a sharp downturn in miles traveled. When the shock ends, vehicle miles recover. By contrast, in the 2001 recession and the pandemic there were no spike in gas prices, and the downturn or deceleration in usage was caused by other things.
Similarly, when we look at vehicle miles traveled compared with real GDP (red), we see a strong although not perfect (nothing ever is!) correlation:
[To be supplied]
In general, this suggests that we should expect at least a deceleration if not a downturn in vehicle miles traveled roughly coincident with the onset of recession. So here is the close-up of the past four years:
[To be supplied]
Through October, YoY vehicle miles traveled were generally steady, suggesting no recession had begun as of that time - but giving us no information with which to forecast.
But there is a very similar metric, which is gasoline product used, which is updated every week, and thus is current through the first week of December, and here is the story it tells:
[Liink to E.I.A. Data and grap of 4 week average of gasoline usage]
The four week average was significantly negative YoY through most of the summer before recovering in September into October. But for the past five weeks since the beginning of November, it has been very negative.
So, if the signs were positive into October, the decline in usage since then does not bode well for the November data were are about to be deluged with starting tomorrow.
