Wednesday, June 14, 2017

Worst Indicator Today? Gasoline Demand -- Latest GDP Forecast, 2Q17 -- 3.2% -- June 14, 2017

Updates

June 15, 2017: see comments below. A reader suggests why gasoline demand is lower this year compared to last year. I don't buy the reader's explanation, nor does Reuters: at the link, posted back in April, 2017, Reuters makes three points:
  • last year's gasoline demand set an all-time record;
  • the weather this year might explain the decrease in gasoline demand; and,
  • most analysts expect gasoline demand to recover
Original Post
 
Latest forecast: 3.2 percent — June 14, 2017:
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 3.2 percent on June 14, up from 3.0 percent on June 9.
The forecast for second-quarter real consumer spending growth increased from 3.0 percent to 3.2 percent after this morning's retail sales report from the U.S. Census Bureau and this morning's Consumer Price Index release from the U.S. Bureau of Labor Statistics.
On CNBC today, in passing, Rick Santelli says he doesn't believe these numbers, specifically when it was pointed out that retail sales fell this past month; he suggested "if you dig deep enough you can always find a nugget of gold" but he thought the 3.2% GDP forecast based on new data was BS.

Others agree: see comments.

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Gasoline Demand

One wonders if this is a most bearish sign -- and then note that the Fed "raised rates" today.


I've said often that if I had to pick only one economic indicator to reflect the health of the US economy, I would pick gasoline demand. If so, the above graph is very, very concerning. Not only is gasoline very inexpensive as we enter the height of US summer driving, but it comes at a time when an oil glut appears to be with us as far as the eye can see.

Note: current gasoline demand is less than it was a year ago today, but even worse, it has turned "downward."

6 comments:

  1. i'd be interested in seeing how they figured a 0.3% drop in retail sales and a 0.1% drop in consumer prices worked out to a 0.2% increase in GDP..

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    1. Someone alluded to that in passing while commenting on Yellen's long monologue today. They said the 0.3% drop in retail sales was offset by inflation -- it was in fact a better number than the "0.3% drop" suggested. CNBC's Rick Santelli did not "buy that" BS. He and Joe Kernen are about the only honest AND smart folks on CNBC.

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    2. i can see some of the decrease in retail sales being due to lower prices, but not all of it...for instance, sales at car dealers were down 0.2% while prices of new cars were down 0.2%, which suggests unit sales were close to flat...but even if all of the 0.3% drop in sales were due to lower prices (which it isnt), that would still mean real retail sales were at best flat, not a boost to GDP...

      moreover, what about April business inventories, also released today, also a big component of GDP, down 0.2% nominally...inventories are adjusted for inflation with the producer price index, which was up 0.5% in April...that means real inventories would be down something on the order of 0.7%, in a big hit to GDP..

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    3. All I know is what I heard Rick Santelli (CNBC) say earlier: he thought a GDP forecast of 3.2% with this most recent data was complete BS.

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  2. its not just the recent month data that might be alarming, it should be all months below the 2016 trend. going back to you gas price chart, the very very cheap gas has been relatively same both years but yoy demand lower since Nov 2016. so what gives especially in a seemingly very vibrant economy running on all cylinders? Well add it up....EV's (minor) + Hybrid adoption and huge MPG(big enough now) + Urban renaissance + Millenials commuting by other means ("huger") + ? Don't underestimate the power of numbers. Latter is "hugest".

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    1. You could be correct, but I don't buy it. Yes, the demand turned lower a year ago, but it happened fairly precipitously, something one does not see with long term trends (millenials, EVs, hybrids).

      A hint for the decrease in US gasoline demand was hinted at by CNBC the other day: Memorial Day traffic was a dud. There was a huge expectation of a lot of "vacation" traveling over the Memorial Day weekend. That did not happen. The Memorial Day traffic, very disappointing, was not well covered by the press.

      If the reason for the decrease in US gasoline demand is due to EVs, millenial commuting, then we should be the decrease in gasoline demand to continue, the gap to widen.

      It will be interesting to see where gasoline demand is a year from now.

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