Driving fewer miles may be a ‘new normal' for the US economy

Personally speaking, one of the silver linings that has emerged in the past few weeks is a rising appreciation of nontraditional market indicators. This started with the daily deluge of statistics pertaining to COVID-19. Now that the economy is starting to reopen, the business media has started to report on a widening variety of indicators.

At the start of the recovery from the recession a decade ago, these early indicators were called "green shoots." This time the catchphrase is "new normal." Annoying catchphrases notwithstanding, getting a different perspective on how this intricate economy functions by exploring unusual trends is an opportunity to learn something new and useful.

For instance, I recently heard that after a precipitous drop in the number of truckloads of commercial rubbish hauled nationwide in April, there was a strong rebound in May. These numbers nicely correspond with the record-breaking recovery that has occurred in the widely followed U.S. stock markets. So, with both stocks and commercial rubbish haulers experiencing a strong, V-shaped recovery, can the rest of the economy be far behind?

I am convinced the worst is now behind us, but it was obvious quite early that the market for plastic automotive parts was hit hard. In keeping with this spirit of nontraditional indicators, I am using two graphs for my analysis and forecast of how I think an early-phase recovery in the automotive industry will unfold this year. Along with a chart of the well-publicized data on light vehicle sales, I am including a graph derived from the monthly data measuring vehicle miles traveled in the United States.

Unless you are a tire manufacturer, a gasoline refiner or an auto insurance actuary, you probably paid little attention in the past to the data on vehicle miles traveled. You know that traffic gets increasingly worse every year, but you never bothered to quantify it. But then we shut down the economy and roads became eerily deserted.

If this situation were to persist for an extended period, it would ultimately have a significant impact on demand for motor vehicles and plastic automotive parts. With the amount of sitting in rush-hour traffic every day, it is easy to assume that demand for motor vehicles in America will always be strong. But now that many of us have had to work from home and shop online for two months, it occurs to me this data series on miles traveled will become more important in the near future.

The chart shows the rate of change curve for the seasonally adjusted data for miles traveled each month. This curve indicates that prior to the shutdown of the economy, the total number of miles traveled expanded by an average of just over 1 percent per year during the past decade. There was an annual decline of about 2 percent during the Great Recession in 2008 and then another minor dip in 2011. The data posted steady growth until the economy was shut down in March.

In April, the number of vehicle miles traveled plummeted more than 40 percent when compared with the same month a year earlier. This was by far the largest one-month decline ever seen in this data. As the graph illustrates, this one-month drop pushed the total for the 12 months ending in April down by 4 percent when compared with the previous 12 months.

A common theme emerging from many of the U.S. economic data series, including this one, is that the shutdown resulted in the quickest and deepest decline in the data ever recorded. But the good news is that the rebound for many of these series is also coming quick and sharp. The May figures for vehicle miles traveled are not yet available, but I have heard early reports that the total will come in sharply higher than the April total.

The May total for sales of lightweight vehicles is available, and as you can see on the second chart, it is most encouraging. The annualized sales total was 12.2 million units in May. This is a strong increase over the totals from March and April, though it is still well below the trend from before the pandemic hit. Nevertheless, it is fair to say that this chart is also exhibiting a V-shaped recovery.

I expect the data for both of these series will continue to rebound during the second half of the year. Nevertheless, the annual totals for 2020 will still register substantial declines when compared with 2019. The rising activity in the second half of this year will not be enough to offset completely all of the damage sustained during the first half. However, the trends in both series are set up for strong percentage growth in 2021.

While I believe we are heading into a strong recovery in the overall economy, I have questions about whether these series from the automotive industry will get back to their pre-COVID-19 levels next year. There are a couple of reasons for this. First, I am expecting a noticeable "second wave" in the coronavirus statistics later this year. I do not believe this will have a large impact on the overall U.S. economic data. Our health care system is better equipped and well-rehearsed, and I believe it will handle any second wave without much effect on the overall economy.

But I do think that our recent experience of staying at home, combined with the possibility of another rise in infections this fall, may keep many former commuters in their home offices for good. This may also hold true for many shoppers at retail establishments. And, if not for good, then for much of the time. In other words, the total number of trips to the workplace or out to shop will stay significantly lower than before.

We may be at the beginning of a new secular trend in the consumptive behavior of Americans. This trend could lower the total number of miles traveled, which will likely have a dampening effect on demand for light vehicles and also new and replacement automotive parts over the long term. It is still too early for me to state definitively this trend has actually started, but it is a potential, nontraditional behavior I will look for in the coming months and years.