Highway Miles as a Sentiment/Economy Barometer?

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I am about to take to the road on a family vacation which made me think about highway miles data. (by the way, for the regular readers of my blog, I may be sparse till the end of July). The U.S. Department of Transportation compiles some great driving data so I decided to take a look.

Driving Seasonality

This graph shows the last three years of miles driven in the U.S. on a monthly basis in a seasonal plot format:

Not surprisingly there is a peak in the summer months which corresponds to the summer vacation season. You will notice how 2008 was less than 2007 for all months and 2009 is pretty close to 2008. I won't show it in detail here but of course Google search volumes for terms corresponding to vacations have a similar seasonal pattern. The google search volumes are less in 2009 so far than 2008 so no sign yet of a reversal of the downtrend.

Miles Driven as a Sentiment & Economy Barometer

I was curious what the longer term trend looked like on driving miles. The following chart shows the monthly miles driven back to 1970 along with GDP and crude price for interest:

A rolling 12 month moving average of the monthly miles driven data is shown to smooth out the seasonality in the data. Overall, the miles driven have increased over time. There are some obvious times when the miles slowed down or reversed - a few key ones were the early 70's, late 70's through early 80's, early 90's and then of course the past few years. These slowdowns in miles driven correlate quite well with the GDP slowing down or reversing. So it seems like miles driven is a pretty good indicator of overall GDP.

Miles Driven as a GDP Predictor

If you look closely, miles driven seems to be a leading indicator of GDP in quite a few key instances. I am not going to look into it quantitatively here (maybe sometime later), but here are a few of the interesting points on the graph:

• In the late 70's, miles driven dropped off obviously before GDP really slowed down.
• In the early 80's, miles driven started moving up again before GDP showed signs of moving up again.
• Recently, miles driven peaked in late 2007 and started coming down quickly. This was well ahead of any signs of slowing down in the GDP

Miles driven did not foresee every economy slowdown in this data set. The slowdown in 2001 in GDP did not really show up very obviously in the miles driven.

Interpretation and Forecast

My read on this is that miles driven (at least a big portion of it) is discretionary for many households. This is especially true for vacations in the peak mileage months of the year in the summer. So as households feel the pinch or if they just get pessimistic, they start to cut back on vacations and other discretionary travel so the miles drop off. On the opposite end, people are less likely to plan that next vacation until they feel good enough about their financial situation, job, etc.

So going forward, so far, 2009 looks about the same as 2008 so no sign yet of miles starting an increasing trend so this would say the recession continues for a bit. The other thing that strikes me is in looking at the above plot, notice how swift the drop off was in miles the last couple of years. The last time we had such a large fall in miles was in the late 70's which preceded an extended period of economic stagnation. I will try to keep watching this indicator and let you know when I see it start to show signs of picking up which would bode well for the economy.
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