There is a structural trend in the data as well. Note that the level of driving seems to grow at a slower pace during each expansion. The expansion after the 1973-75 recession was 3.8%; the expansion after the 1980-82 recession was 4.1%. However, the subsequent growth rate after the 1990-91 recession was 2.5% and after the 2001 recession was 1.3%. In this expansion, the average growth rate in miles driven is a mere 0.8%.
Why are fewer miles being driven? We suspect a number of factors are at work.
To some extent, the law of large numbers is having an effect. There are simply constraints to driving that are probably leading to slower growth, namely, road infrastructure and the amount of the population that can afford to own a car. The aging baby boom population is being replaced by Americans who seem to drive less.
The advent of social media may reduce the need to drive; baby boomers used to “cruise” to meet friends. The internet allows gatherings to occur without leaving home.
Still, the jump in the data from 2014 into early 2016 and the subsequent slowdown do concern us. This drop could be an early warning that consumers are retrenching; the lack of wage growth may be weighing on household spending. We note that consumption trends are showing slowing growth.
This chart shows the three-year moving average of the contribution to GDP coming from household consumption. The sharp decline in the last recession shows how damaging the last recession was to the household sector. Although the recovery has been robust, the level of growth remains well below previous cycles. In addition, for the past three quarters, the trend contribution level has been stuck at 2%. If this reading fails to accelerate, it would suggest growth will remain slow.
Thus, the miles driven number does suggest some softening in the economy. The slowdown isn’t serious enough to signal an imminent recession, but it should give policymakers pause on moving aggressively on interest rates. If monetary policy remains accommodative, the bullish environment for equities should remain in place.
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