In my earlier post on this question of the historically unique change in the trend miles driven, I wondered whether this change was cyclical or structural, the former meaning you’d expect things to pretty much snap back when the economy “stabilizes.”
Here’s a point for cyclical. I created a simple statistical model to explain the (log change in) miles driven series shown in the link above, based on unemployment and gas prices. I ran the model through 2007 and predicted the series forward using actual values for unemployment and gas prices.
Sources: National Highway Admin, BLS, my analysis
As you can see, the forecast series (miles_f) hugs the actual pretty closely, meaning movements in joblessness and gas prices broadly explain the movements in series. Had a structural shift occurred, the forecast would be less accurate.
As I wrote the other day:
“I’ve generally been skeptical of arguments about “the new normal,” thinking that much of what we’re going through is cyclical, not structural, meaning things pretty much revert back to the old normal once we’re growing in earnest again. But it’s worth tracking signals like this that remind one that at some point, if it goes on long enough, cyclical morphs into structural.”
That last part is worth repeating…it will be a while before the economy “stabilizes”—before unemployment comes down to normal levels and family balance sheets are back in the black. Relationships between economic variables like these and many others could start to change—and that’s worth our attention.