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Some questionable recession indicators again: VMT, gasoline supply, EPU vs. heavy truck states and Sahm rule


reader Steven Kopitzwho acts as recent weeks Economic Policy Uncertainty Index chart writes that a recession in the first half of 2022 has been strongly advocated this post:

Very consistent with your VMT analysis. It is a clear indication of economic decline, depression and repression.

It amazes me how Mr. Kopitz is able to come to conclusions that are inconsistent with the consensus time and time again, despite being presented with data to the contrary.In the chart below, I show the performance of VMT, gasoline supply, oil consumption, and the Baker-Bloom-Davis Economic Policy Uncertainty (EPU) news-based index in identifying NBER-defined (peak and trough) recession dates, as follows Shown: Sam’s Rules (the last of which formalizes start dates of recessions, not all recessions).

figure 1: Estimated recession probability (NBER peak and trough) based on probit regression, using the level of economic policy uncertainty (top left), using the 12-month growth rate of vehicle miles traveled (top right), and using the 12-month growth rate of gasoline supply (middle left) ), using 12-month oil consumption growth (center right), using 12-month heavy truck sales growth; and Sam’s rule at the onset of the recession. NBER-defined recession peak-to-trough dates appear gray. Sources: policyuncertainty.com, NHTSA (from FRED), EIA STEO, Census (from FRED), Claudia Sahm (from FRED), NBER, and author’s calculations.

The EPU captures recessions, but using the 30% threshold provides false positives for the 2011 recession (in fact, these peaks were associated with the government shutdown and debt ceiling crisis). Using a 12% threshold, the VMT growth rate reflects all recessions at the cost of three false positives. A similar story exists with the gasoline supply. For the truncated sample (3 recessions), using a 38% threshold, there are no false positives and no false negatives for oil consumption. Using a 30% threshold, for the 4 recessions, there were no false positives in heavy truck sales and no missed recessions.

Sam’s rule requires that the 3-month moving average unemployment rate over the past 12 months increase by 0.5% from the minimum unemployment rate, which always marks the beginning of a recession.

Even using VMT, gasoline supply, oil consumption variables, I don’t think there will be a recession in the first half of 2022 unless very low thresholds are used. Furthermore, Sam’s rule indicates no recession.



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