Sunday, April 29, 2012

Gas prices and driving

As regular readers know, I believe that energy prices determine more about the economy that any other single factor.  When the price of oil goes up, either we get inflation to cover the tab or everything else slows down.  The only sure-fire way to grow the economy is to cut your energy bills.  And if you cannot control energy prices, the only way to cut your energy costs is to cut usage—either by doing without or getting more efficient.

I must admit that driving is so seductive for many of us, the thought of getting the USA to actually cut down on driving seemed unlikely.  And yet is has happened.  In fact, it has happened for so long that it is beginning to look like a trend.  And the drop is significant!

Some of fall-off in energy consumption can be attributed to an increasingly fuel-efficient fleet.  But buying new higher-mileage vehicles is expensive so not surprisingly, the big cutback in energy consumption shows up as fewer miles driven. Joy-riding has probably taken the biggest hit.  And that triggers an interesting cultural shift.  The young have never experienced "joy" in driving.  Yes it gets them out of the house.  Yes, it provides one more place to have sex.  But the act of driving itself is an expensive experience that is risky, provides plenty of opportunities to be hassled by cops, and leaves you wide open to the slings and arrows of status emulation.  Add in traffic congestion and rotting roads, and driving becomes a very unpleasant chore.

I learned to drive in the 1960s and trust me, it was FUN.  A night's worth of cruising could be done on $2 worth of gas (7 gallons /26 liters).  Even kids could afford muscle cars with 7-liter engines—the tires and brakes sucked but you had enough torque to rotate the earth.  Yes, they were worn out at 100,000 miles but they were VERY easy to fix.  Parts were dirt cheap.  The roads were newer and MUCH smoother.  And there were places where one could go to discover the physics of driving very fast.  My first car was an Austen-Healy Sprite.  So I wasn't in the 7-liter league, but we had driving gloves and Harris tweed sport coats and heel-and-toe downshifting.  I was quite dashing.

Vehicle Miles Driven Have Been Tumbling For 6 1/2 Years

Doug Short, Advisor Perspectives | Apr. 22, 2012

The Department of Transportation's Federal Highway Commission has released the latest report on Traffic Volume Trends, data through February. Travel on all roads and streets changed by 1.8% (3.9 billion vehicle miles) for February 2012 as compared with February 2011. The 12-month moving average increased by 0.14%. This is the third month of increase after nine consecutive months of decline (PDF report).

Here is a chart that illustrates this data series from its inception in 1970. I'm plotting the "Moving 12-Month Total on ALL Roads," as the DOT terms it. See Figure 1 in the PDF report, which charts the data from 1987. My start date is 1971 because I'm incorporating all the available data from the DOT spreadsheets.

The rolling 12-month miles driven contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The most recent dip has lasted for 50 months and counting — a new record, but the trough to date was in November 2011.

The Population-Adjusted Reality

Total Miles Driven, however, is one of those metrics that must be adjusted for population growth to provide the most revealing analysis, especially if we're trying to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics' Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.

Clearly, when we adjust for population growth, the Miles-Driven metric takes on a much darker look. The nominal 39-month dip that began in May 1979 grows to 61 months, slightly more than five years. The trough was a 6% decline from the previous peak.

The population-adjusted all-time high dates from June 2005. That's 80 months ago — over 6 1/2 years. The January 2012 data was the lowest reading since the all-time high, 8.38% below the 2005 peak. The latest data, for February, is a fractional improvement to 8.31% below the peak. Our adjusted miles driven based on the age 16-and-older cohort is about where we were as a nation in July 1995. It's thus possible that the trough for this latest decline is behind us. more
Gas prices go up and the economy slows.  So gas prices come back down (much more slowly.)

In Case You Missed It, Gas Prices Have Fallen Over The Last Two Weeks

Apr. 22, 2012

NEW YORK (AP) — The worst appears to be over. Gasoline prices are going down.

After a four-month surge pushed gasoline to nearly $4 per gallon in early April, drivers, politicians and economists worried that prices might soar past all-time highs, denting wallets, angering voters and dragging down an economy that is struggling to grow.

Instead, pump prices have dropped 6 cents over two weeks to a national average on Friday of $3.88. Experts say gasoline could fall another nickel or more next week.

Drivers might also get to say something they haven't since October 2009 — they're paying less at the pump than they did a year ago.

"It's nice, much more manageable," said Mark Timko, who paid less than $4 per gallon Wednesday in the Chicago suburb of Burr Ridge, Ill., for the first time since March. "I wasn't sure how high they were going to go this year."

Gasoline prices are lower than they were a year ago in 11 states, according to the Oil Price Information Service. At $3.88, the national average is still high, but it's down from a peak of $3.94. Predictions of $5 gasoline earlier this year have — mercifully — evaporated.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, expects gasoline prices to drop to just above $3.80 by late next week. Stuart Hoffman, chief economist at PNC Financial Services Group, said the falling prices will put more money into the economy for Americans to spend elsewhere.

A 10-cent drop in gasoline prices would mean drivers would have an extra $37 million per day to spend on other things. more

8 Trends Behind The Plunge In Gasoline Sales

Mike "Mish" Shedlock, Global Economic Trend Analysis | Apr. 20, 2012,

It's no secret (at least it shouldn't be) that gasoline sales have plunged. Here is a chart from my April 6 post Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage for Jan, Feb, March 2012

Jan-Feb-March 2012 petroleum and gasoline usage vs. the same three months in prior years.

Every month for quite some time, the rolling average of petroleum and gasoline usage has been trending down. The question is "Why?"

Some pin this on car mileage improvements but that answer is easy to discredit. Fuel efficiency has been rising for more than a decade, but the plunge did not start until the Great Recession in 2007.

However, the Great Recession is over, (really? JL) yet gasoline sales have not rebounded. Is this an indication another recession is on the horizon? That the recession never ended? Something else?

Transportation and the New Generation

Inquiring minds are reading a Frontier Group study Transportation and the New Generation: Why Young People Are Driving Less

From World War II until just a few years ago, the number of miles driven annually on America’s roads steadily increased. Then, at the turn of the century, something changed: Americans began driving less. By 2011, the average American was driving 6 percent fewer miles per year than in 2004.

The trend away from driving has been led by young people. From 2001 and 2009, the average annual number of vehicle-miles traveled by young people (16 to 34-year-olds) decreased from 10,300 miles to 7,900 miles per capita – a drop of 23 percent. The trend away from steady growth in driving is likely to be long-lasting – even once the economy recovers. Young people are driving less for a host of reasons – higher gas prices, new licensing laws, improvements in technology that support alternative transportation, and changes in Generation Y’s values and preferences – all factors that are likely to have an impact for years to come. more


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  2. High mileage is very important thing as everyone can't bear the skyrocketing prices of petrol.