Saturday, April 10, 2010

Hamilton: "Do rising oil prices threaten the economic recovery?"

by Calculated Risk on 4/10/2010 05:17:00 PM

From Professor Hamilton at Econbrowser: Do rising oil prices threaten the economic recovery?

Ten of the 11 recessions in the United States since World War II have been preceded by a sharp increase in the price of crude petroleum. Oil had been holding around $80/barrel over the last month, but traded as high as $87 last week, leading the Financial Times to ask whether oil could give the "kiss of death to recovery." Here is how I would answer that question.
See Hamilton's post for his analysis with several graphs. He concludes:
$87 oil is certainly not helping the recovery. But I would be very surprised if it proves to be the kiss of death.
And with the opposite view from the Financial Times article:
Olivier Jakob, of Swiss consultant Petromatrix, said in a note that the “recovery of 2009 was fuelled with crude oil at $62 a barrel, not at $90 a barrel or $100 a barrel. We fear that the latest run on WTI will be the kiss of death for a global economy that was trying to avoid the possibility of a double-dip recession.”
excerpted with permission
I tend to agree with Dr. Hamilton. However I also vehicle watch miles driven from the Department of Transportation (DOT), and the DOT recently reported that vehicle miles driven in January were down from January 2009:
Travel on all roads and streets changed by -1.6% (-3.7 billion vehicle miles) for January 2010 as compared with January 2009. Travel for the month is estimated to be 222.8 billion vehicle miles.
Here is a repeat of the graph I posted last month:

Vehicle Miles YoYClick on graph for larger image in new window.

This graph shows the percent change from the same month of the previous year as reported by the DOT.

As the DOT noted, miles driven in January 2010 were down -1.6% compared to January 2009, and miles driven have declined 2.9% compared to January 2008, and are down 4.7% compared to January 2007.

If miles driven continues to decline, I'll be more concerned about oil prices.