Tell-Tale Signs: Are Gas Prices a Leading Indicator of Decline?

In the auto-dependent USA, gas usage and retail sales are inextricably linked.

Even though urbanization is increasing in much of the world, including the US, and online sales are growing, affluent customers continue to spark retail sales trends. And the affluent generally drive for their big ticket purchases.

A decrease in gas usage is not always followed by a decline in retail sales - nor is the reverse always a fact - but the appearance of the two together frequently signals economic trouble.

This may also have an impact in France, where another Presidential election is shaping up, in Germany, where support for further Eurozone bailouts is weak and in China, where a new politburo is being formed. The connection between rising gas prices, citizen-consumers' moods and election outcomes should be closely watched. Gas prices have never been a formal leading indicator of broader trends, but their impact in this election year is particularly acute. JL

Joe Weisenthal reports in Business Insider:

The latest roundup of the weekly data is up over at The Bonddad Blog, and as always, it's very worth checking out. There were two datapoints that really stood out in terms of gas prices, and their effect on the US economy.

Sales remained positive, but one report flashed a warning. The ICSC reported that same store sales for the week ending March 3 rose +1.3% w/w, and also rose only +1.7% YoY.

Shoppertrak did not report. Johnson Redbook reported a 3.0% YoY gain. Last week I said that "these reports have taken on added significance. If the consumer is beginning to fold, I would expect to see YoY comparisons under 2% as a warning signal." This week we got one such signal. Only one report and only one week, but it raises a yellow flag to pay extra attention.

And...

Gasoline prices are more than 10% higher than one year ago while usage continues to be much lower: Oil rose slightly to $107.40. Gas at the pump rose another $.07 to $3.79. Both of these are significantly above the point where they can be expected to exert a constricting influence on the economy. Gasoline usage, at 8262 M gallons vs. 9192 M a year ago, was off -10.1%. The 4 week moving average is off -7.8%.

These are the most severe YoY declines since they began last March. Last week I said that a YoY decline for more than 10% for one week, or a 4 week average decline in excess of 7.5%, would be warning signals that the Oil choke collar was having an effect. This week we got both.

Sharply lower car use and flagging retail sales. Watch out.