Ever ponder whether car miles traveled (VMT) does a very good job of predicting recessions? It’s best to’ve stopped after taking a look at this Econbrowser put up from January 4th, however I believed an replace to most up-to-date knowledge could be of curiosity as we acquire December knowledge. First check out what VMT does over recessions, versus heavy truck gross sales (prompt by Calculated Danger at some factors), and the eponymous Sahm Rule (actual time model).
Determine 1: 12 month development fee within the car miles traveled, n.s.a. (teal), in heavy truck gross sales, s.a. (tan), and Sahm rule indicator – actual time (black). Sahm rule is 3 month transferring common unemployment fee relative to lowest unemployment fee in final 12 months. Pink dashed liine denotes threshold for Sahm rule indicator. NBER outlined peak-to-trough recession dates shaded grey. Hypothesized 2022H1 recession shaded lilac. Supply: FHA through FRED, Census through FRED, FRED, and NBER.
It’s exhausting to see, however the 12 month change in VMT declined a couple of months in the past earlier than recovering in December (it’s this decline that Mr. Steven Kopits pointed to), whereas heavy truck gross sales had been up by way of January, y/y. The Sahm rule is precisely at zero as of the February knowledge launched yesterday (it wants 0.5 ppts to breach the edge).
In any case, VMT development is a awful indicator of recession (McFadden R2 of 0.07) in comparison with heavy truck gross sales (0.28) (see regression outcomes on this put up).
Wanting ahead, I might be much more cautious about utilizing VMT as an indicator, provided that the connection between VMT and GDP has seemingly skilled a structural break. In Determine 2 I plot Automobile Miles Traveled (seasonally adjusted) at a quarterly fee per US GDP at a quarterly fee (in order that the items are Automobile Mile Traveled/actual greenback GDP). There may be an apparent pattern at 1.15 p.c lower per yr over the 2000-19 interval. (I estimate a stochastic pattern given I can’t come near rejecting a unit root within the log ratio.) Utilizing the estimated pattern to mission ahead, I acquire:
Determine 2: Automobile Miles Traveled per Ch.2012$ GDP (blue line), and stochastic pattern estimated over 2000-19 (tan line), on log scale. NBER outlined peak-to-trough recession dates shaded grey. Hypothesized 2022H1 recession shaded lilac. Supply: FHA, BEA, NBER, and writer’s calculations.
In different phrases, Mr. Kopits took the downshift to a seemingly new pattern line as a cyclically induced discount in VMT.