Car Sales, Gasoline and Demographics
Note from dshort: For the past few years I've been analyzing the Department of Transportation's monthly updates on Vehicle Miles Driven, and I also have a keen interest in demographics. So naturally I was fascinated by this Mike Shedlock commentary I spotted earlier today.
It's no secret (at least it shouldn't be) that gasoline sales have plunged. Here is a chart from my April 6 post Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage for Jan, Feb, March 2012
Jan-Feb-March 2012 petroleum and gasoline usage vs. the same three months in prior years.
Some pin this on car mileage improvements but that answer is easy to discredit. Fuel efficiency has been rising for more than a decade, but the plunge did not start until the Great Recession in 2007.
However, the Great Recession is over, yet gasoline sales have not rebounded. Is this an indication another recession is on the horizon? That the recession never ended? Something else?
Transportation and the New Generation
Inquiring minds are reading a Frontier Group study Transportation and the New Generation: Why Young People Are Driving Less
From World War II until just a few years ago, the number of miles driven annually on America's roads steadily increased. Then, at the turn of the century, something changed: Americans began driving less. By 2011, the average American was driving 6 percent fewer miles per year than in 2004.
The trend away from driving has been led by young people. From 2001 and 2009, the average annual number of vehicle-miles traveled by young people (16 to 34-year-olds) decreased from 10,300 miles to 7,900 miles per capita – a drop of 23 percent. The trend away from steady growth in driving is likely to be long-lasting – even once the economy recovers. Young people are driving less for a host of reasons – higher gas prices, new licensing laws, improvements in technology that support alternative transportation, and changes in Generation Y's values and preferences – all factors that are likely to have an impact for years to come.
America's young people are decreasing the amount they drive and increasing their use of transportation alternatives.
Young people's transportation priorities and preferences differ from those of older generations.
The trend toward reduced driving has occurred even among young people who are employed and/or are doing well financially.
Generation Y is not the only reason behind the plunge. Please consider Mean Duration Long-Term-Unemployment.
From 1980-2010 the average length of unemployment is between 15 and 20 weeks. Now it is 40. The unemployed are not driving to jobs they do not have.
Labor Force vs. Those Not in Labor Force
Labor Force Analysis
- Between 1980 and 1990 those not in the labor force was relatively constant while the labor force grew at a steady rate.
- Between 1990 and 2007 the labor force grew faster than those not in the labor force.
- Since 2008 those not in the labor force is in a strong uptrend while the labor force has been flat.
Nearly 9 million have dropped out of the labor force since November 2007 while the labor force itself is flat. It is safe to assume that group of dropouts is driving far fewer miles on average than they were before.
The mass retirement of boomers, much of it forced retirement is also in play. By forced retirement I mean those who exhausted unemployment benefits and retired to collect social security benefits even though they really want a job.
Timing is such that we can safely rule out cash-for-clunkers as a significant reason behind the plunge. Likewise, improvements in fuel mileage have continuous over decades and cannot account for a sudden plunge.Reasons for Plunge in Gasoline Sales in Order of Importance
- Huge rise in those "not in labor force"
- Boomer demographics and retirement (much of it forced)
- Chronic long-term unemployment
- Changing social trends in younger generations, no doubt accelerated by the recession and student debt
- Declining real wages leave consumers with less discretionary spending cash (think shorter vacations closer to home)
- High price of gasoline
- Increase in online shopping means fewer trips
- Improved fuel rates and cash-for-clunkers
What About Car Sales?
Points two and three are a subset of those "not in labor force". Looking ahead, points 1 through 4 (especially points 2 and 4) will help put a cap on car sales.
Thus, those looking for auto sales' reversion-to-the-mean plus an overshoot, may have seen the overshoot already.
Originally posted at Mish's Global Economic Trend Analysis
(c) Mike "Mish" Shedlock
Investment Advisor Representative