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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Hitting The Gas…And The Brakes

There is an interesting set of twists and turns at play between US unemployment data, vehicle sales, and gasoline demand. If you were to look at the first two, you would say the economy had the pedal to the metal, hitting the gas. However, the third (gasoline demand) would lead you to believe the economy was hitting the brakes. Here are a bunch of charts to illustrate these differing directions:

First up is the US employment picture. Granted, the participation rate in the US may be a whisker away from the 36-year low of 62.8% as the workforce shrinks, but jobless claims are hanging around their lowest level since early 2006 – affirmed by the unemployment rate, which is close to its lowest level since 2008:

Unemployment rates

This sets my spidey sense tingling – not only from a macro view, but because of its implications for energy. For the unemployment rate has a superhero-strong relationship with US vehicles sales. As the unemployment rate falls, vehicle sales increase:

Vehicle sales and unemployment

This makes logical sense: as more people find jobs, more people buy cars. Hence, vehicle sales were at their highest level in eight years for June, reaching 16.92 million vehicles (annualized). Meanwhile, the US unemployment rate ticked lower to 6.1% in the same month, the lowest since late 2008 (both measures deteriorated marginally last month, but remain close to multi-year records).

But it is here my logic falls apart, because the next leap of logistical faith is that more jobs = more cars = more demand for fuel. But it doesn’t. For miles driven in the US appears to have peaked in 2007:

This can be attributed to a number of reasons, from changing demographics (less younger people driving, more older people who are driving less) to more general changes in driving behavior (discussed previously on the burrito here and here).

The apparent passing of ‘peak miles’ is reflected in implied demand for gasoline, which also peaked in 2007.

Gasoline sales

This trend of falling demand is expected to become entrenched in the coming years (highlighted below by the EIA’s long-term projections) as a combination of fuel efficiency and changing usage patterns usher demand lower:

Light vehicle sales

The EIA doesn’t believe we’ve reached ‘peak miles’, projecting total vehicle miles driven to increase by 0.9% annually to 2040. But it does believe we have passed ‘peak demand’.

What does all this mean? Well, from the above information we can draw two positive conclusions: that the employment situation is looking relatively decent, and that fuel efficiency and changing usage behavior will continue to reduce gasoline demand. As for what they tell us about each other, the changing demographics in the US means this relationship is to become increasingly less obvious.

By Matt Smith of Energy Burrito




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