U.S. Gasoline Prices Up - Driving Down

Perhaps 2.2% doesn't sound like much, but as a measure of the degree motor vehicle miles driven in the U.S.has fallen, it continues an unprecedented decline in demand. That follows an inexorable rise in vehicle miles driven. Just since 1993, total mileage driven (the distances traveled by an increasing number of vehicles) had risen by one-third.

And it wasn't just the latest spike in prices that affected drivers' behavior. The twelve-month average of vehicle miles driven peaked back in late-2006. Since that all-time peak, vehicle miles are down 1.5%.

Last month, gasoline prices moved above $4.00 per gallon (which was double their average price in 2005). In response, vehicle miles driven fell 2.2% from the first four months of 2007. As further emphasis of the degree to which vehicle miles fell, 2008's first four months' total miles driven was the lowest in three years. (The data for this past May will be available in roughly two weeks in Haver's USECON data base under "Other Stats.")

Comments made this past April from the U.S. Department of Energy regarding gasoline prices can be found here.

In addition to driving fewer miles, motorists responded by buying fewer of the less fuel efficient light trucks. Data released last week indicate that June sales of light trucks overall fell to their lowest level since 1995 (-24.3% y/y). The relatively fuel inefficient U.S. made trucks fared even worse. Domestic light truck sales of 4.98 mil. (AR) units were at their lowest level since 1993 (-24.6% y/y). Sales of imported light trucks also were hit and show a 22.8% y/y decline. But the decline was from record levels in 2007.

Clearly, the rise in crude oil prices is behind the surge in gasoline prices. Near $140 per barrel the cost of a barrel light sweet crude (WTI) was double that of a year ago.

Crude Awakening: Behind the Surge in Oil Prices from the Federal Reserve Bank of Dallas can be found here.

Data on May industrial production for Germany, the United Kingdom and Norway were released today.

Industrial production in Germany and in the UK declined more sharply in May than the consensus in each country had expected. In Germany, the decline from April to May was 2.4% compared with a consensus expectation of a 0.5% decline. The actual decline was the steepest decline since August, 1997. Part of the decline may have been due to the fact that many workers took two days off between a Wednesday holiday and the weekend. In the UK, the decline was 0.8% compared with a consensus estimated decline of 0.2%.

In contrast to the May declines in Germany and the UK, industrial production in Norway rose 1.7%. The longer term trends in industrial production in the three countries are shown in the first chart. (The original base for Norway's index (1995=100) and the UK's, (2003=100) have been changed to (2000=100) to facilitate comparison with Germany, whose base is (2000=100).) Since 2004, the trend in industrial production in Germany has been sharply upwards while those in the U.K. and Norway have tended downward.

Manufacturing is much more important in the German economy than it is in either of the economies of the U.K. or Norway. The second chart shows the importance of manufacturing in the three countries. In Germany the ratio of manufacturing to Gross Value Added has been relatively steady over the past ten years, just below 24%. In the U.K. the share of manufacturing has declined steadily as the service sector has increased. Manufacturing is currently only about 13% of the total economy. In Norway oil and gas extraction and services dominate the economy and manufacturing plays a small roll, accounting for only about 9% of the economy.

UK IP is now lower in two of the past three months. The three-month moving average has turned negative. Weakness in the industrial economy is now spreading and deepening. The consumer sector is leading the weakness. Consumer durable goods output is down in seven of the last eight months on a Yr/Yr basis. Consumer nondurables are down yr/yr in six of the last eight months but also in eight of the last 10 months (Yr/Yr basis as well). Intermediate goods output is off in two of the past three-months Yr/Yr. While capital goods output has fallen in May on a Yr/Yr basis for the first time since December 2005.

The declines in output the current quarter (2008-Q2) are severe. For MFG the drop is -1.8% at an annual rate. Consumer durable goods output is off at a 9.4% pace in the quarter. Nondurables output is off at a 2.9% pace. Intermediate goods output is falling at a 3.3% pace. Capital goods output is rising at a 2.0% pace.

The UK is showing both inflation pressures and economic weakness. The weakness in the UK is more severe than what Europe has showed, at least as a whole. Still, the UK like Europe continues to show capital goods as the strongest sector. In this month’s report that strength is clearly on the decline.