Changing commutes and the drive for new cars

In the second quarter of last year, I looked at the sharp decline caused by the pandemic in the data for light vehicle miles traveled in the United States. If you missed that column, or if your memory needs to be refreshed, I suggested this decline in miles traveled could affect demand for motor vehicles in the coming months. I further suggested the pandemic might permanently impact the number of commuter miles traveled, and this might cause a shift in the number and type of motor vehicles purchased for years to come.

As a plastics industry analyst, I have a deep and abiding interest in the trends in motor vehicle demand. There are a number of reasons for this. The most obvious is the motor vehicle industry is a huge end market for plastics products. Rising demand for motor vehicles drives — don't miss the pun there — demand for plastics parts, molds and tooling, and plastics machinery. This fact alone is enough to drive — that's the last one — my interest in the auto industry.

But it goes much deeper than this. Motor vehicle demand, combined with miles traveled, has a substantial impact on the market for energy products. And the trends in the prices for energy products correspond closely with the trend in the price of plastic resins. Therefore, processors who do not manufacture auto parts are still subject to fluctuations in demand for crude oil and miles traveled.

And finally, the U.S. auto industry is the bellwether indicator for the entire American manufacturing sector. If you ever find yourself pondering supply chain issues, tax policy, labor disputes, tariffs, climate change, the skills gap, the employment data or what it really means to have something that is Made in America, then you might just be a budding auto industry analyst yourself.

I do not have the space to explain completely just how important the auto industry is for our nation's economic, political and psychological well-being, but I think I you get the gist of my argument. The question before us now is whether a decline in miles traveled correlates with a decline in the number of vehicles purchased, especially in the long term.

One line on the chart is a graph of the data in total sales of autos and light trucks, and it is encouraging. The precipitous drop in the second quarter of last year was followed by a V-shaped recovery. In the second half of last year and the first two months of 2021, the data hovered just below the pre-pandemic level of 17 million units. But in a surprise move, the total for this March jumped up to a robust 17.7 million units on an annualized basis. This is the highest monthly figure in three and a half years.

This is certainly good news, but the question remains whether the sales data can continue this pace. It should surprise nobody that there is some pent-up demand for autos as a result of the lockdown. I would bet there is pent-up demand for a wide array of goods and services. The fact that most Americans received some extra money from the federal government combined with the fact that most Americans either are or soon will be vaccinated means this pent-up demand will soon be converted into rapidly rising sales for many products, especially vehicles.

This will propel the overall U.S. economy to a strong pace of growth over the next three or four quarters. But how long will this pent-up demand last? Are there any negative side effects from such rapidly rising demand? And last, but not least, what are the permanent effects — scars? — that will emerge in our post-pandemic patterns of consumption?

This is where the chart on vehicle miles traveled starts to enter my thinking. We know there was a sharp decline in the second quarter of last year, and there was the beginning of a V-shaped recovery in this chart as well. But look closely at the recent trend. For the past few months, the data for vehicle miles traveled has plateaued at a level that is approximately 10 percent lower than the pre-pandemic average. The graph will gradually go higher as we achieve herd immunity because some of us will decide to return to a place of work that is not our home office space. Nevertheless, some may choose to spend their newly acquired government money on upgrades to their home office, and they may opt for a new-normal lifestyle that requires much less commuting.

We are already witnessing ways in which the pending surge in consumer spending could reveal more unanticipated damage and gaps in our national supply chain. Such a gap has pushed energy and resins prices higher. Interest rates have also escalated significantly in recent months just as the pace of economic growth starts to accelerate, and it seems quite possible to me they could go even higher.

Taken together, all of these trends suggest the long-awaited recovery phase in which we are currently basking may be shorter than we like. I cannot rule out the possibility that there was some structural damage to our economy that still needs repair. Neither can I rule out the possibility that our collective pattern of household consumption has shifted, and it may shift even further once we get past the expression of our pent-up demand and return to a pattern of building for the long term.

The threat from COVID is diminishing, but there are still risks from rising prices, rising interest rates, a strained global supply chain and political tensions. From a cyclical perspective, a case can be made for a scenario where "the faster we go up, the shorter the ride will be."

But there may also be a scenario where we are able to just walk this thing up and watch in wonder as markets and policymakers adroitly handle all of the problems we encounter. I have my doubts, yet there is a chance. But regardless of the choices we make, it will take more than just a few months of data to get a better sense of supply and demand equilibrium. As always, I encourage us all to continue our search for clues in the data in the coming months.

As for the now, I plan to look beyond the triple-digit, year-over-year gains that will be posted in some of the Q2 data because it will be nearly impossible to identify any kind of a meaningful baseline. Instead, I will spend some time reconnecting with family and friends and soaking in the springtime. That way I can express all of my personal pent-up demand while at the same time minimizing my impact on supply shortages and inflation pressures.

The threat from COVID is diminishing, but there are still risks from rising prices, rising interest rates, a strained global supply chain and political tensions. From a cyclical perspective, a case can be made for a scenario where "the faster we go up, the shorter the ride will be."