On the Road Again: U.S. Gasoline Usage Rising
Originally posted on Convergex.com. By Nick Colas.
Summary: We’ve finally discovered where American consumers are spending some of the savings from lower gasoline prices: they are buying more gasoline. Supply of gasoline is up 6.3% year over year through the end of January and was +6.6% in December, according to the U.S. Energy Information Agency. That’s a notable observation, and not just for the oil industry. Since the vast majority (86%) of Americans drive to work, gasoline consumption is a useful crosscheck of national employment levels and growth trends. Further, there is a strong historical correlation (69%) between gas usage and miles driven, so higher gasoline sales also point to a rebound in how much Americans are driving overall. Miles driven peaked in 2007, troughed in 2012, and are now growing solidly again. One side note for the eco-minded: national fuel efficiency hasn’t changed much since 2000, at 21-22 miles per gallon.
I have often wondered why Google and many other high tech companies have such a strong interest in self-driving cars. The auto industry is not a bastion of high returns on shareholder capital, after all. The technological requirements for such a vehicle are profound: any glitch that causes a system failure could easily merit the term “Crash”, after all. And how will insurance companies – and more importantly, consumers – feel about the inevitable Version 1.0 failures of any autonomous driving system? It is a daunting challenge for an industry better known for creating hook-up apps, advertising products you may or may not want, and accurately cataloging adorable cat videos. OK, I know they do other things well, but you get the idea. This is a huge challenge.
The simple answer is that most Americans drive to work alone – some 76% according to the last Census data published on the topic in November 2011. Their morning commute takes an average of 25 minutes, and presumably the same or more in the afternoon when you include shopping trips or children’s activities. By contrast, only 5% of American workers use mass transit and a mere 2.9% walk. Rumors of the “Death of the car” are not only exaggerated, they are flat out wrong. For most Americans, if you want to work you need to drive, unless you live in a handful of cities with effective mass transit. Put another way, 97% of Americans don’t live in New York City or San Francisco.
In the terminology of Silicon Valley, therefore, the technology industry has a large addressable market – 105 million Americans according to the Census report – that must spend close to an hour away from their smartphones, PCs and tablet computers. They can’t (or shouldn’t, anyway) do anything but drive and maybe listen to the radio. Free them from this task and you increase their ability to use your products and services. The daily commute is essentially the last frontier for tech companies when it comes to expanding their share of the fixed 24 hours in a day.
The importance of the daily car commute is also a useful construct for understanding the U.S. economy. There are two central datasets that we’ll use in this note:
Traffic Volume Trends, from the U.S. Department of Transportation. This monthly report shows miles driven across America, as measured by 5,196 sensors on a variety of public roads.
Gasoline Supply Data, from the U.S. Energy Information Agency (part of the Department of Energy. A weekly/monthly series of datasets that show the amount of gasoline and other fuels supplied to the domestic market.
Both information sources have data back to the 1970s, so they are ideal for a long-term study of both cyclical and secular economic trends. We’ve included several charts of summary data immediately after this note and if you would like the underlying data just email us for a copy.
The Great Recession and its long economic shadow are easy to spot in both the miles driven and gasoline supply data. A few points about that here, as well as some general observations:
Miles driven peaked in 2007 at 3,031 billion total miles and troughed at 2,945 billion in 2012. That 2.8% decline may sound small, but considering the U.S. population grows by about 0.8% annually, this is a real decline of closer to 7.0%. There are a whole raft of long-term explanations for what moves the needle on miles driven, but they include labor force participation (male and female), the age of the population, trends in urbanization and city planning, and the price of real estate near major employment centers.
Not surprisingly, gasoline supplied declined over the same period (2007 to 2012) by 6.2%.
In case you are wondering about how national fuel economy informs these numbers, the answer is “Not much”. Take the miles driven and divide by fuel supplied/consumed and you get the actual miles per gallon of the U.S. fleet of cars and gasoline-burning trucks (as opposed to diesel). As it turns out, MPG hasn’t changed much since 1980: 20-21 miles per gallon. Yes, passenger cars and trucks have become more efficient over that time, but the mix shift from cars to trucks offsets that technological advance.
The long-term correlations between gas consumed and miles driven are therefore quite strong. Using rolling average data from the 1970s to today, the correlation is 69%. Looking at more recent experience – January 2007 to the present day – the correlation is 76%.
The upshot of this analysis is that recent data from both miles driven and gasoline supplies supports the notion that more people are making a daily commute and are, therefore, working. Consider:
The last three months of gasoline supply data show year over year comps of 5.2%. November was 2.7% (and against a very strong 5.2% growth rate from November 2013), December was 6.6% (against 3.3% last year) and January looks to be 6.3% (last January was negative 1.5%).
Miles driven gets reported on a lagging basis, so we only have data up to November 2014. Still, the trailing three month annual growth rate ending then is 2.0% and trailing 12-month growth is 0.9%. That is better than either 2013 (0.4% growth) or 2012 (0.3% growth). Yes, we still need 1.3% more growth to reach the old highs from 2007, but at least we are getting some accelerating growth over the last 3 years.
In summary, the gasoline supply and miles driven data point to two conclusions. First, the U.S. labor market is improving. Now, we don’t know what kinds of jobs await our newer commuters; we just know that more of them are on the roads and they are using more gas. There’s a big difference in getting into your pickup to head to the oil fields and climbing into your compact car to wait tables from a wage and overall economic benefit standpoint after all.
And second: yes, the technology industry’s focus on self-driving cars is absolutely warranted. Most working Americans – and more every day – drive to their jobs. That 50 minutes/day is up for grabs, and any enterprises that can make it more efficient and safer will have a lasting and important competitive advantage.
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Photo by: Erich Ferdinand
