Friday, February 10, 2012

Zero Hedge -- Why Is Gasoline Tanking?

Various government statistics indicate that the economy is improving, albeit at sluggishly. The Huffington Post crows:
The economy has enjoyed five months of strong employment growth, creating 243,000 new jobs last month. Economic growth gathered pace in the final three months of 2011 and data so far suggest that the momentum carried into early this year.

Men were hardest hit by the recession, which decimated employment in manufacturing and construction. While most of the jobs lost during the 2007-09 downturn will never come back, men are slowly getting back on their feet.
In January, the unemployment rate for men 20 years and over declined to 7.7 percent from 8 percent, closing the gap with women in the same age group. The jobless rate for women in that category fell to 7.7 percent from 7.9 percent in December.

It was the first time since the end of the recession that the unemployment rates between the genders have been equal.
(See also this article that indicates that economies are improving in swing states). However, when you count people that are out of work and discouraged or given up on looking for work, the unemployment rate was 9.9% in January. When you include the under-employed--that is, those working part-time that would like to work full-time--the rate increases to 15.1%. (Source here).

Which brings us to the article from Zero Hedge which looks at a sudden drop in gasoline deliveries, suggesting a sudden economic contraction is around the corner.
Mish recently posted some intriguing charts depicting a significant decline in gasoline consumption. Then correspondent Joe R. forwarded me this stunning chart of gasoline retail deliveries, from the U.S. Energy Information Administration: (EIA)

As Joe noted, this data is interesting because it is un-manipulated, that is, it is not "seasonally adjusted" or run through some black-box modifications like so much other government data.

After discussing and dismissing various arguments on reduction in consumption based on improved fuel efficiency, or e-commerce, the author concludes:
There are no data-supported broad-based drivers for dramatically lower gasoline consumption other than austerity and lower economic activity. The code-word for "austerity and lower economic activity" that is verboten in the Mainstream Media is "recession." Indeed, if you examine the EIA data, the only causal factor that has backing in the data is recession--or if you prefer, austerity and lower economic activity.

* * *

That 27% drop in a few months in unprecedented, except in times of war or sharp economic contraction, i.e. recession.

If we stipulate that vehicles and fuel consumption are essential proxies for the U.S. economy, then we can expect a steep decline in economic activity to register in other metrics within the next few months.

Such a sharp drop would of course be "unexpected" given the positive employment data of the past few months. But as the data above shows, employment isn't tightly correlated to gasoline consumption: gasoline consumption reflects recession and growth.

In other words, look out below.

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