Energy is the lifeblood of the global economy. Factories need energy to run, and goods need fuel to get shipped.
So it is wise for investors to keep an eye on trends in the energy sector as a way to gauge the status of the economic recovery — or, when trends are ugly, a sign that investors might be in for a bumpy ride.
There are a host of indicators and headlines relating to oil and energy consumption, but here are three recent reports I found that I think are particularly telling.
All three should set off warning bells, and investors should take note:
The UCLA Anderson School of Management teams up with employment services firm Ceridian Corporation to track real-time diesel fuel consumption data. The pair’s most recent report shows an alarming decline in use of the key fuel.
Specifically, the “Pulse of Commerce Index” — that’s the official name for the diesel data — fell 1.7% in January following a 0.4% decrease in December. January’s figures are not just down month-over-month, but also off 2.2% from last year.
Click to Enlarge Most disturbing? The diesel index shows almost zero growth since the summer of 2010. Check out the chart.
“It seems difficult to square the behavior of the PCI with the evident improvement in a number of economic indicators, most notably the increase in payroll jobs and the decrease in initial claims for unemployment,” said Ed Leamer, chief economist for the index.
In short, something doesn’t add up.
This index is not a magic measuring stick. But diesel obviously is a crucial part of the national economy and a good proxy for rail traffic and truck traffic … and thus worth paying attention to.
Click to Enlarge As with diesel, broader gasoline deliveries reflect the ebb and flow of the economy. Check out this chart about monthly total U.S. deliveries as measured by the U.S. Energy Information Administration:
This data is most interesting because it is raw. It is not “seasonally adjusted” or modified based on flash estimates and revisions. It is, for all intents and purposes, real demand.
The biggest takeaway? Retail gasoline deliveries are well below 1980 levels, with no sign of rebound, despite the fact that the recession is “over.”