- by New Deal democrat
So, first some bad news: my tech issue has resurfaced, so only links to graphs rather than graphs themselves, hopefully just for a day or two. Basically, unless I keep a bar up open to the blog page, Google and Apple sever their “handshake,” and I have to start from scratch to drag them back into it. Think of it as the tech version of herding cats.
And it’s a particular shame because, well, it’s always a bad day for the economy when the most exciting drama on TV is the financial channel. So today let me take a look at the state of the economy, ex-gas prices; and then what gas prices of $4/gallon or more might do to it. In that context I’ll also update an important graph on real retail sales, which were reported for January on Friday.
First, a couple of months ago I mentioned that gas prices under $3/gallon were a new, real tailwind for the economy. I showed this by dividing that cost by average hourly wages for non-supervisory workers. The resulting graph showed how much labor it required for an ordinary worker to be able to buy a gallon of gas. In January it was close to the lowest since the beginning of the new Millennium.
Here’s the link to an updated graph. Since as of last week’s report gas was just over $3/gallon, I’ve normed the result so that gas at $4/gallon divided by the average hourly wages shows at the 0 line:
The simple summary is that gas prices at $4/gallon would no longer be a tailwind, but they wouldn’t be much of a headwind either. Rather, they would be about average (compared with wages) for the past 25 years.
All things being equal, gas prices deteriorating from a significant positive for the economy to merely neutral wouldn’t be that big a deal. But all things are never really equal.
Because the economy as of the end of 2025 was balancing just at the edge of recessionary readings. The below link goes to a graph of the four main monthly datapoints used by the NBER to determine whether or not a recession is underway - jobs, real personal income minus government transfer payments, real manufacturing and trade sales, and industrial production. Because business sales have only been updated through last November, I also include real retail sales, which as I noted above were just updated through January last Friday (declining -0.3% for the month, and -0.8% below their most recent interim peak last August). Additionally, I wanted to show the impact of AI related data center construction by removing utilities from the industrial production measure:
All of the above metrics went basically sideways in 2025. *All* of them are below their respective peaks in various months from April through September. It’s already been an open question whether the government shutdown last autumn formed the peak of last expansion. Either the expansion just barely scraped by, or we were already in a very shallow recession.
In other words, gas prices turning from a tailwind to simply neutral, even if they don’t go much above $4/gallon, may well be enough to tip over the above metrics into outright recessionary readings.
In that regard, my final link is to one of my usual real retail sales graphs, showing how it (and similarly real personal spending on goods) typically leads employment by a number of months:
Both Real retail sales and real spending on goods were negative YoY in December, before the former rebounded to +0.7% YoY in January (because January 2025 was even worse). Jobs are only up 0.1% YoY as of last Friday’s release for February. Except for the near “double-dip” of 2002-03, going back 85 years job gains have *never* been only higher by 0.1% YoY without a recession being either imminent or already in progress.
