Gas vs. Retail: History and Math Don’t Lie
Looking through the pages of history, we see that gas prices aren’t always quite as consistently relevant to retail sales as many might think.
Here’s a mixed bag to start the year off. Retail gas prices at the pump are over 50% higher than they were last year. Aside from the obvious fact that starting in late January gas prices start to lap an increasingly favorable compare vs last year, we find it interesting to look through the pages of history and see that gas prices aren’t always quite as consistently relevant to retail sales as many might think. Huh??
Throughout the 1990’s, total retail sales (ex energy) and prices paid at the pump had a 37% correlation. Then, in the first half of the 2000’s there was a 45% correlation. The correlation rose even higher to 74% in the back half of the decade, and was 89% over the last 2 years. Check out chart 3 below, which shows how the spread between retail sales and gas has been increasingly volatile in recent years while putting it higher highs and lower lows. We agree that each period needs to be taken in isolation and dissected to drill down factors that are specific to that time. But the lack of long-term support is tough to ignore.
The month of December will be a historical peak in the spread between total retail sales growth and year-over-year pump price growth, due to gasoline’s 53.7% increase y/y. Not for a minute will we ever buy into an argument suggesting that higher gas prices is good for retail sales. But the ‘higher gas is the enemy’ argument just fell a notch on our list of things to watch.