Today it is Econintersect’s day to post apparently conflicting data. Earlier we posted that the USA trade balance shrunk in February 2011 (analysis here) due to lower petroleum imports. In this post you will learn diesel use grew in March 2011 despite rising fuel prices.
According to Ceridian-UCLA in March 2011:
The Ceridian-UCLA Pulse of Commerce Index™ (PCI), issued today by the UCLA Anderson School of Management and Ceridian Corporation rose 2.7% on a seasonally and workday adjusted basis in March, more than offsetting the 0.3% decline in January and the 1.5% decline in February. On a quarter over quarter basis, the PCI is up 3.9% at an annualized rate, a welcome acceleration from the weak growth of the PCI in the 3rd and 4th quarter of 2010.
The Ceridian-UCLA Pulse of Commerce Index™ (PCI) methodology is meant to correlate to Industrial Production (IP). 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.
Remember, these data points come from two different series of data, with different reporting periods (February vs March), one counts money while the other counts quantity, but most importantly there is differential between counting something at point of import versus counting at point of use.
Despite the good numbers this month, diesel use growth remains in a cyclical down cycle. The following graph shows the second derivative trend (acceleration), which has been declining for a year. The rate of growth is slowing but there still is growth.
This trend is a combination of higher fuel efficiency in on-road vehicles – combined with higher tonnage on higher energy efficient rail versus on-road trucks. Still, this increase shows there is still life in the economy.
Last month Econintersect (analysis here) discussed the fuel rising prices and the effect on the economy. Ceridian-UCLA have added to this discussion in this month’s release:
Last month we expressed concerns about the rising price of diesel fuel. The jump in the volume of diesel fuel purchased this month came against a headwind of a very substantial rise in diesel fuel prices to $3.80 a gallon in March 2011 compared with $2.80 a gallon a year ago. Though this rise in fuel costs encourages greater fuel efficiencies, we have not found any evidence that the variability in fuel efficiencies affects the movement of the PCI over the short run. The more likely channel through which higher costs of diesel and other refined products affect diesel volumes is by slowing the rate of growth of demand. This would be especially worrisome if the economy were late in the expansion and had built up major imbalances that need correction, but early in an expansion with hugely stimulative monetary policy, inflation seems the greater worry than a large drop in growth. Still higher crude oil prices inevitably will suck some of the vigor out of the economy.
Trade Deficit Shrinks: Petroleum Imports Fall in February 2011 by Steven Hansen
Are Rising Fuel Prices Beginning to Affect Economic Growth? by Steven Hansen