Friday, August 21, 2009

Despite Rising Gas Prices, The Onset of Economic Recovery Is Driving Higher Traffic Volume in June

The graph above shows traffic volume for all roads in the U.S. (data here) on a moving 12-month basis from January 2005 to June 2009, along with gas prices at various times between December 2007 and June 2009 (data here). For 16 consecutive months between December 2007 and March 2009 the 12-month moving traffic volume fell (shaded area in graph), consistent with the 17 consecutive months starting in November 2007 of percentage decreases in monthly miles driven compared to the same month in the previous year, see CD post here.

It's interesting that gas prices during this period of falling traffic volume ranged from as high as $4.06 in July 2008 to as low as $1.68 in December 2008 and traffic volume continued to fall. Traffic volume increased slightly in April of this year for the first time since November 2007, and increased again in June by 2 billion miles, the highest monthly gain since October 2006.

Hypothesis: The demand for gas and driving are highly inelastic with respect to gas prices, but are highly sensitive to general economic conditions. Falling gas prices from $4.06 per gallon last summer to $1.68 by last Christmas wasn't enough to stimulate driving, but the onset of an economic recovery in June was enough of a stimulus to finally increase traffic volume, despite rising gas prices in each month this year.

Originally posted at Carpe Diem.


At 8/22/2009 9:12 AM, Anonymous Anonymous said...

Low interest rates are bring out the speculators (who borrow from banks) and are driving up oil prices.

At 8/22/2009 9:23 AM, Blogger marketdoc said...

I believe the data reported by the Federal Highway Administration includes both commercial and private traffic although I could not find where it is broken down between the two categories. Seems to further confirm a pick-up in economic activity as more goods and people are moved around the country. Yes, the economic recovery is underway.

At 8/22/2009 12:55 PM, Anonymous Anonymous said...

Isn't the data also consistent with consumers being somewhat elastic to price, but with a lag? It takes time for changes like this. You have to do things like change child care arrangements, change shipping habits, change vacation plans, find a carpool partner, etc.


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