Beware of Falling Gas Prices: Ritholtz Chart

Barry Ritholtz is a Bloomberg View columnist writing about finance, the economy and the business world. He started the Big Picture blog in 2003 and is the founder of Ritholtz Wealth Management, an asset management and financial planning firm.
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Source: dshort.com

The American Automobile Association reports that the average price of a gallon of regular gas is $3.19. (The U.S. Energy Information Administration has regular gas at about $3.26).

Since peaking at the end of July 2008 at $4.11, then collapsing to $1.65 that December, Gasoline prices have been on a wild ride. Since rallying back to almost $4 in May 2011, gas prices have been range-bound, gradually drifting lower.

There are a few factors driving this: Total miles driven has not recovered from its November 2007 highs. It is off almost 3 percent from its highs of more than 5 trillion vehicle miles driven annually. Persistently elevated unemployment of 7.3 percent means there are that many fewer people driving to work. And the pre-collapse shift to the exurbs -- and their much longer commutes -- suggests the trend toward ever-longer commutes may have topped out.

To put gasoline prices into the starkest relief, consider adjusting total U.S. miles traveled on a per capita basis. The chart above, via Doug Short, reveals that per capita miles driven peaked in June 2005. They have since fallen almost 9 percent. The last time we saw average annual mileage at these levels was back in 1995.

No wonder gasoline prices have been falling. At present, gasoline prices are below $3 in six states. If demand continues to drop off, we may soon see an average U.S. price of under $3.

While some analysts are applauding what this means for consumer spending, I am much more concerned with the demand side of the equation. The economy remains filled with soft spots and pockets of weakness.

Source: CNN Money

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Barry L Ritholtz at britholtz3@bloomberg.net