Much has been written about Europe, that it is dying, that the demographics are terrible and driving is going out of style. Here's the Wall Street Journal from 2013:
The difficult truth for Europe’s auto industry, the people who own it and the many thousands who work in it, is that Europeans are driving less and are likely to continue doing so.
It’s a phenomenon dubbed as “peak-car” by analysts at Morgan Stanley.
Stuart Pearson, an analyst at Morgan Stanley, said a wide range of forces–from high fuel costs, increased online shopping and social interaction, to more congested roads in increasingly crowded European cities—are combining to make Europeans drive less than they used to.
Well, to the extent we can consider the UK part of Europe, this is untrue. More precisely, it is the price of oil that matters.
The graph above shows an index of UK road traffic (vehicle miles driven or 'VMT' here), with the Q1 2008 peak set to 100. As can be seen, UK road miles increased steadily until 2005, when the oil supply stalled. VMT accordingly stagnated in 2004-2005, but then recovered momentum into 2006, and then again stalled from 2006 until the beginning of the Great Recession in 2008. As the Great Recession engulfed Britain, road miles fell, as we might expect.
VMT and oil consumption are both reasonably accurate coincident indicators of the business cycle. Indeed, we can use VMT as a proxy to date recession start and end dates. For 2008, VMT dates the beginning of the Great Recession as does the Euro Area Business Cycle Dating Committee (CEPR), the official recession scorekeeper for Europe. Both VMT and the CEPR date the beginning of the Great Recession to Q2 2008 in Europe. The end dates for the Great Recession are also similar. If we took a contemporaneous view, VMT would have suggested that the Great Recession ended in Q1 2009, one quarter before the CEPR's end date--not a major difference.
On the other hand, VMT would suggest that the Great Recession, Part II (GR2 or 'the Great Stagnation') started in Q4 2010, at which time oil prices hit the 'lock-out price' for the OECD, above which the OECD countries would be forced to reduce oil consumption (which indeed they did). April 2011--the date of the Arab Spring and loss of Libyan oil production--would seem a more distinct start date for GR2, but in fact the groundwork had been laid about 3-6 months earlier. For its part, the CEPR dates GR2 on the Continent from Q3 2011. In this case, VMT called the turn early, but effectively.
Interestingly, the CEPR does not yet appeared to have yet called the end of GR2 (probably should be on the to-do list), but VMT data strongly suggests that this second recession ended by Q2 2013, at least in Great Britain. The CEPR may likely designate the end as something similar.
It is important to note that, from a broader VMT perspective, the Great Recession lasted from Q2 2008 until Q1 2013. It is not two recessions, but only one. The graph shows this clearly. Vehicle miles traveled fell through this entire period. While we can find intermediate turning points, the bigger picture is one of one long, single recession from 2008 until 2013.
This mirrors exactly the experience of 1979-1983. Although it qualifies as two recessions in the US, as a practical matter, in terms of oil consumption, it was one single recession, and the economy did not truly recover until oil prices crashed in February 1986. In other words, the oil shocks of the early 1980s are essentially similar to the oil shocks beginning in 2005 and lasting to summer of 2014. And thus Stagflation in the earlier period is the equivalent of the Great Stagnation since 2011.
Note also the remarkable recovery of UK VMT from 2014. As in the US, low oil prices have created mobility, and mobility will create economic and productivity growth. This recovery in VMT--which was not supposed to happen according to Euro-watchers--explains the very high demand we see for gasoline currently. Vehicle miles traveled have been off trend since 2005 or 2006 in the advanced countries. That's a long time, nearly a decade. If oil prices are cheap, expect some serious catch-up.
And that's exactly what we are seeing in the UK data, and even more so in the US. Gasoline demand is up 400 kbpd in the US, and total demand for Q2 is running 1 mbpd ahead of last year. These are impressive numbers, and underneath all, is the logic of the graph above. The advanced economies, in particular, have been starved for oil for nearly a decade, with essentially all intervening oil supply growth--and then some--siphoned off to serve a growing China and other emerging economies.
For a change, there is enough oil to go around. The US, which benefitted from its own growing oil production, is running ahead of Europe. But Europe will catch up. Expect the strength we see in the US today to migrate to Europe over the next 6-12 months. And we're not even speaking of the enormous potential in China.
The strength of gasoline demand is no fluke, It is the recovery from a decade of demand suppression. That's the story in oil markets.