Here is a set of charts from reader Tim Wallace on Gasoline and Petroleum usage vs. the same five weeks in prior years. Explanations from Wallace follow each chart.
Petroleum usage history for the past 6 years for this 5 week snapshot – you can see the drop from ’06 to ’07 was small but I caught that trend in Oct of ’07 and got out of the market.
My experience suggests that if petroleum does not grow at least 0.8% year on year the economy is headed recessionary. Notice the plunge of ’08 into the abyss of ’09.
We see a good improvement in 2010, not anywhere near the recovery we need as we were in an abyss, but it shows improvement. This year, we see another significant downturn, reflective of a stalled at-bet economy.
Gasoline usage history shows a small rise in ’07, then a plunge in ’08. Usage level for the next two years was flat, followed by a huge plunge now. I did not expect this plunge because gasoline is a lot less volatile in my historical analysis than the overall distillates, some of which are weather related, such as heating oil.
It raises the question, why have people stopping driving, because that is what is happening.
Fuel Distillates Usage
The third chart shows the fuel distillates usage. This is the diesel, heating oil segment combined. Diesel makes up 17% of all petroleum and heating oil 3%. Much of the driver in the petroleum usage drop in ’08 and ’09 came from this segment of the economy. The current drop is due to a huge plunge in gasoline usage.
Percent Change from 2006 Baseline
The final chart shows the percentage changes in the past five years off the 2006 baseline. You can see gasoline at about 46% of distillates usage is the driver for the big drop in petroleum right now.
Cash-for-Clunkers Mileage Improvement Not the Explanation for Gasoline Plunge
Please see Crude Futures Have Risen Significantly, So Why are Gasoline Prices Relatively Low? for additional commentary and a rebuttal to the idea that improved mileage or cash-for-clunkers may have anything to do with the current decline in gasoline usage.
The best explanation for declining gasoline usage is that millions have dropped out of the labor force.
Quick Facts on Unemployment Rate
- In the last year, the civilian population rose by 1,726,000. Yet the labor force fell by 67,000. Those not in the labor force rose by 1,793,000.
- In November, those “Not in Labor Force” rose by a whopping 487,000. If you are not in the labor force, you are not counted as unemployed.
- Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.
People have given up looking for work, entered forced retirement collecting social security, ran out of unemployment benefits, do more shopping online, or are simply too broke (or have less desire) to travel than before.
Mike “Mish” Shedlock
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