The American Interest
Analysis by Walter Russell Mead & Staff
Does Falling US Gas Consumption Signal A New Recession?

This isn’t the kind of news we like to receive at the stately Mead manor in glamorous Queens: US gasoline consumption, in the words of blogger Charles Hugh Smith, has “fallen off a cliff.”

This is bad news: as Smith points out, deliveries of gasoline to retail outlets track very closely with recessions going back thirty years.

Here at Via Meadia we’re confused. Financial markets are celebrating labor market data, consumer sentiment numbers and other indicators that point to an accelerating and deepening economic recovery. But central banks are acting as if the global economy still needed intensive care, President Obama’s new budget is brimming with Keynesian stimulus, and organizations like the World Bank and the IMF are forecasting slowing growth in America and a recession in Europe.

We are perfectly happy in principle with the idea that those IMF and World Bank forecasts are garbage; economists, for all their dogmatism and self-righteous certainty, are not very good at predicting the future. And we would rather bask in good news about unemployment, however qualified by reflections on a shrinking labor force, than shiver and moan about looming dangers ahead.  Our animal spirits are sick of recession and our optimistic inner self thinks a recovery is long overdue.

But those gasoline numbers give us pause.  When Americans stop filling their tanks, something is wrong.

(H/t: Zerohedge)

Published on February 11, 2012 10:21 am
  • Cromwell

    Financial markets are higher for one reason only: Bernanke and the ECB are attempting to goose consumer spending via inflating the prices of risk assets including stocks and growth-related currencies such as the AUD and NZD and high-yield (aka junk) bonds; we’ve seen about $40b of the latter issued so far this year (plus around 180b of investment grade if I remember correctly). They are achieving this via the 3-yr LTROs in Euroope and by Operaton Twist in the US. the combination of the latter at zero-interest rates through 2014 means the Treasury yield curve is being artificially compressed, with real yields either negative or just above the inflation rate. Investors have no choice but to venture out the risk curve in order to meet the mandates of their investment policy statements and to match the performance of the S&P or whatever fixed income index they are benchmarked too.

    In other words, what we are seeing in markets has little to do with the real economy — it’s merely the latest artificial sugar high from Helicopter Ben. And before we condemn him, let’s bear in mind he sees himself as having no other means of keeping the economy afloat given the utter disaster that is the Obama policy making apparatus.

    This is not a recovery, people, no matter how the BLS statisticians manage the data.

  • Cromwell

    Correction to what I wrote: combination of zero rates through 2014 AND Operation Twist; investors venturing out the risk spectrum rather than risk curve.

  • Anthony

    Charles Hugh Smith presents compelling data and indicates definitive correlation – its not called in some circles the “Dismal Science” for nothing; chart from EIA (U.S. Energy Information Administration) warrants observation given your analysis.

  • Andrew Allison

    @cromwell wrote: “Bernanke and the ECB are attempting to goose consumer spending via inflating the prices of risk assets including stocks and growth-related currencies . . .”

    I don’t think they are attempting to; they already have. But the gas price data indicate that there’s resistance. Otherwise, I couldn’t agree more.

    Consider the slow-moving economic train-wrecks which abound, the fact that the unemployment number are pure fiction, that spending is out of control, and that Israel is gearing up to bomb Iran.

    The apparent health of the economy is all smoke and mirrors!

  • Mrs. Davis

    Wait till gas hits $4.00. That will look like diving off a cliff.

  • Hubbub

    If you go back in history and observe the economic ups and downs during the last Great Depression, you will notice that period also had months when the economy looked at though it were recovering only to dive again. The ups usually had something to do with government manipulations or Wall Street exuberance (insanity). The downs had to do with reality.

    Real world activity brought on by the approaching war in Europe helped to revive some areas of the manufacturing sector, and all out war insured growth and prosperity for some years thereafter.

    Government cannot by its very nature bring about a revival in our economic well being – see the old Soviet Union for an example of a government run economy.

    The government needs to do what it does best and that means it needs to get out of the way and let business take its natural course.

    Governments by their very nature want to control, to pick winners and losers, to foster the well being of those in power. I5t consumes, it does not produce. It is for hoi polloi in so far as that is necessary for it to survive.

  • JM Hanes

    It’s actually rather sad that signs of thrift and of people trying to live within their means, however reduced those resources be, is seen as a harbinger of economic doom. Have we really traveled so far down the road of debt based consumption that there’s no turning back?

    In a similar vein, are there really no distinctions to be made between putative capitalism in which success hinges on the cost of borrowing money that you don’t have and capitalism in which success hinges on attracting investors?

    The differences seem pretty clear, here at my unsophisticated kitchen table, as do the basics of financial health. When I look at all the data crunching and the charts and the retrospective pattern analysis done by the economic intelligentsia and then contemplate their abysmal track record when it comes to making anything other than the most obvious predictions — and often flubbing even those — I have to wonder if maybe they should be reexamining their conceptual foundations instead of the latest stats.

  • http://facingzionwards.blogspot.com/ Luke Lea

    Maybe it’s a reflection of the higher cost of gas? It takes time to change the fleet. Or the numbers may be wrong?

  • Jacksonian Libertarian

    Are we now importing a lot of already refined gasoline? That would account for the drop in deliveries from refineries. It just doesn’t seem possible that gasoline consumption could have fallen 47%. I didn’t see any confirming data from gasoline retailers showing that they are selling 47% less gas in the linked article. So I think this report needs to be taken with a grain of salt, as I haven’t noticed a drop in traffic. You would think rush hour traffic would vastly improve if there were 47% fewer cars on the road.

  • a nissen

    N.D. and Canada are now having the same problem as wind farmers—supply exceeds domestic demand, no way to “refine and export. Enter the Pipeline to the Sea.

    Liam Denning: “Pipers Call Tune at U.S. Oil Revival”
    WSJ 2/11/12
    http://online.wsj.com/article/SB10001424052970204642604577214872396920812.html

    Which reminds me, I have belatedly come across what the WSJ really meant awhile back when it reported the U.S was a net oil exporter—that was not crude, but the products of its refineries. Makes a big difference! We are still net importing 10 or more million barrels a day and exporting a few hundred thousand barrels a day. Or so I read.

  • Scott

    There’s something wrong with that data. No way we’re heading into recession again. At least not in the next 3-6 months.

    Here’s the first sentence from a barely noticed press release last week from the Bureau of Transportation Statistics:

    “The amount of freight carried by the for-hire transportation industry rose 3.9 percent in December from November, the largest monthly rise in 17 years, which brought the level of freight shipments to an all-time high, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics’ (BTS) Freight Transportation Services Index (TSI) released today (Table 1).

    http://www.bts.gov/press_releases/2012/bts007_12/html/bts007_12.html#table_01

    For raw industry data, go with the Association of American Railroads that publish rail car loading data. Rail car loadings are what economists call “high frequency data”. They come out weekly. Because it’s reported so frequently you may be able to spot the beginnings of economic turns when the data turn down for a few consecutive weeks, which they have not done since the recession ended in mid 2009.

    Here’s what the AAR said last week:

    “The Association of American Railroads (AAR) today reported an increase in weekly rail traffic for the week ending February 4, 2012, with U.S. railroads originating 284,546 carloads, up 6.2 percent compared with the same week last year.”

    Here’s the link to the site. Unfortunately, the link that takes you to the raw historical data is down tonight:

    http://www.aar.org/

  • Jacksonian Libertarian

    Here is the chart, if you dig you will find that like most government data it must be corrected and corrected again as it is always incomplete. So while consumption may be going down, it isn’t going down like it’s “falling off a Cliff”.
    http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103600001&f=M