US Gas Demand Says V-Recovery Missing Last 10%

By admin_45 in Blog

Three Data items today, all with different takes on the pace and nuances of a US economic recovery:

#1: Gasoline demand as a proxy for how quickly things are getting back to “normal”. The following chart from the US Energy Information Institute shows 4-week average US gasoline demand in 2020 (blue line) versus 2019 (tan line) over the last 12 months:

What we see in the data:

On the plus side, we’re only about 10% short of a complete V-shaped recovery in US gasoline demand. Last year the 4-week trailing average of daily US gas consumption was 9.4 million barrels/day and this year it was 8.5 million barrels/day (data for weeks ending September 20th).

On the downside, that final 10% is proving very elusive. The 2020 blue line above has clearly rolled over since Labor Day, in keeping with seasonal norms (the 2019 tan line did exactly the same thing this time last year).

Bottom line: US gasoline demand data mirrors the message of many other economic datasets we show you, reflecting an American economy that has somewhat stalled in its post-COVID recovery.

#2: The St. Louis Federal Reserve FRED blog recently published an interesting historical comparison of American versus European/Japanese unemployment rates; here is a simplified version of the chart they presented. The underlying data comes from the OECD, so it’s harmonized for direct comparability but not exactly the same as the BLS data we’re all used to.

US monthly unemployment is shown in red, the Euro area in blue, and Japan in green, and the chart covers a 10-year timespan:

What we see in this data:

The dramatic increase in US unemployment this year relative to the Eurozone or Japan is truly remarkable. The latest data (July) shows Euro area unemployment at 7.9%, Japan at 2.9%, and the US at 10.2%. The US is unique across the developed world for seeing a very large spike in unemployment during/after the COVID Crisis.

As the FRED Blog points out, there is a reason for this discrepancy. “In Europe and Japan, the government’s approach to unemployment during COVID-19 has focused on maintaining employer-employee relationships. Significant subsidies have been provided for employers to maintain their workforces, leading to fewer applications for unemployment insurance benefits. In the US, policy has focused on providing unemployment benefits to workers that have already been laid off or furloughed.”

Takeaway(s): there is a stark difference in how European countries/Japan have chosen to manage COVID-related unemployment versus the US, and this will certainly inform what sort of recovery each will eventually have.

#3: US Cash Currency in Circulation. As much as it is true that COVID has spurred the use of electronic payment systems, it is also true that cash in circulation is increasing at a record pace if you exclude the one-off growth around Y2K.

This is the year-on-year percent change in cash in circulation since 1950, with the August 2020 comp of +14.6% greater than any period save that spike in December 1999/January 2000 of 16-17%.

What we make of this chart:

• Ever since 1973, cash in circulation tends to rise most quickly during/shortly after US recessions. As economic expansion takes hold, demand for cash actually declines (but never, we would note, goes negative).
• The dollar amount of US circulating paper currency has risen by an average of 7.1%/year over the last decade, comprised of 8.1%/year growth in $100 bills and 3.8%/year for $1 - $50 bills. Both CAGRS are greater than population growth plus inflation.

Takeaway: our working theory about the fast pace of growth of US cash in circulation during recessions is that this stems from #1) economic/financial system uncertainty and #2) the use of cash to negotiate lower prices/tax avoidance. We’ve been tracking cash in circulation since the Financial Crisis and thought the 10% growth in physical currency outstanding we saw back then would be a record for the rest of our careers. Cashless payments were a thing back then, after all. But no… COVID-era growth in cash is even higher than in early 2009.

Sources:

St. Louis Fed FRED blog post on US/Eurozone/Japanese unemployment: https://fredblog.stlouisfed.org/