Obama’s gas problem may not be high prices

posted at 8:00 am on February 25, 2012 by Karl

Pres. Obama is playing defense on rising gasoline prices, but are they his real gasoline problem? Political insiders overwhelmingly think so:

“Rising gas prices will always be a reminder of stagnant wages, and it makes an economic recovery harder to feel,” said one Democratic Insider. “Voter frustration rises along with gas prices, and tends to be taken out on the incumbent, so even in a recovering economy, this could be a problem for the president.”

“Gas prices could screw up the economic recovery big time, and President Obama will pay the price at the pump and in the voting booth,” said another.

Note there is a level of nuance in those observations, i.e., gas prices matter to the extent they confirm preexisting frustration with the economy or affect the larger economy, e.g., by fueling price inflation. As Larry Sabato noted during last year’s gas price escalation, the statistical correlation between presidential approval rating and gas prices is strong but not overwhelming (for various reasons). Moreover, correlation is not causation. George W. Bush’s presidency is a good example of this correlation being largely caused by other factors, e.g., Bush’s post-9/11 approval spike and US deaths in Iraq.

Pres. Obama’s gasoline problem may not be rising prices. Pres. Obama’s gasoline problem may be that gasoline consumption has fallen off a cliff. As market commentator James Bianco (among others) notes:

Economic activity almost always requires travel. Whether commuting to work, driving to a store, getting goods delivered, or taking a vacation, more miles driven and more gasoline used means higher economic activity. This is not controversial, as we discussed a few years ago.

So, it comes as a surprise that these measures of broad-based economic activity (gasoline consumed and miles driven) are falling hard at a time when most economists are in agreement that the economy has been getting better in recent months. If the economy is indeed getting better, it seems to be happening while we are driving less and consuming less gasoline. For the American economy, this is really hard to do. It has never happened before in the data shown above. All other instances of declining miles and gasoline consumed occurred in or around a recession.

We would not suggest that these economic indicators trump all others and the economy is actually worsening. But it is disconcerting that these measures of critically economic activities are heading lower in a hurry.

As with gas prices — and perhaps more so — what gas consumption tells us about the state of the economy is important. As recently as this month, Pres. Obama attributed the growing price of oil to a strengthening economy which in turn means demand for oil increases. But the International Energy Agency cut its forecast for global oil demand in 2012, which appears to be playing out here in the US. Rising gas prices might not hurt Obama as much if the economy actually improves. But falling gas consumption may suggest further economic malaise — in which case high gas prices may fuel a vicious cycle and continue to anger voters.

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