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Diesel Consumption: Predicting the Economic Effects of the Weather

Diesel consumption is down slightly MoM in January 2011, but this month’s diesel usage allowed the boys and girls at UCLA’s Anderson School of Management to postulate the effects on the economy from January’s snow storms.

Unlike other data sets, the Ceridian-UCLA PCI is based on real transactions recorded second by second at specific locations within the United States This allows us to drill down within each month and within regions to study holiday effects, weather effects and other changes that might suggest a new direction for the economy. The issue addressed in this section is the effects of recent snowstorms on December and January diesel fuel purchases, as well as the strong inter-holiday sales discussed last month.

Truck traffic is likely affected by snowstorms in an obvious way, less traffic during the event and more before or after, depending on how accurately the event was anticipated. But we are measuring refuelings, not traffic, which may have greater flexibilities and more complex patterns around snowstorms. From the standpoint of the monthly data, the problematic snowstorms are the ones near the ends or beginnings of months, which may transfer diesel fuel purchases to the previous month or to the next month, causing misleading month-to-month comparisons.

To Econintersect, this is a fun analysis – and provides some insight into the effects of bad weather.  There were two bad snow storms – one in late December 2010, and the other in January 2011.

Looking at the daily diesel use in during the storm periods, it is difficult to notice the economic effects of the storm in late December – as the diesel use normally drops off as this is a holiday period.  However, there was a noticeable dip in January 2011.

When the data was broken down by region, the storms effects were obvious.

The variance by region was documented by the table below.

This The Ceridian-UCLA Pulse of Commerce Index™ (PCI) methodology is meant to correspond to Industrial Production (IP).  The table above should give insight into January 2011 IP which will be released later this month.

Econintersect, on the other hand, extracts the base data to forecast real economic growth for its own economic forecast – and not as a proxy for IP.  Diesel usage is a remarkable economic pulse point as freight in the USA almost exclusively is moved with diesel as its source of propulsion.

Both the published index and the raw unadjusted fuel use data has been fairly noisy in recent months.  Most of the noise has been removed in the published index through its averaging methodology. Unfortunately, when you average data which has significant monthly variation the sensitivity is lost to what the data is trying to say.

The unadjusted index values were revised this month for the entire index,  but optically the relationships appear unchanged.  After the record breaking December 2010 diesel use (analysis here), January did not break any records.

This Ceridan-UCLA PCI dropped 0.3% MoM.  Using only 2009 and 2010 data for the baseline seasonal adjustment – the index is off 0.6%.

Overall, this data source is saying the economy may be off a little in January.  We can blame it on the weather.

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