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Analysis of Vehicle Miles Traveled (VMT), GDP, and Gas Prices Produced by Marcus Bowman (3G Mobility, LLC)

Date: March 24, 2011

Figure 1. VMT 1998 to January 2011 (Monthly) (Rolling 12-month totals)1

The first chart (Figure 1) shows the monthly trend in Vehicle Miles Traveled (VMT) (millions of miles) from January 1998 to present (based on most recent data, January 2011, as published by FHWA:

1. VMT has increased 15 months in a row on a year-over-year basis2 2. VMT continues to average about 3,000 billion miles per year. 3. The peak-to-trough decline was -2.50% (data in table below) 4. The decline from the peak to current levels is: -1.30% (data in table below)

1 Office of Highway Policy Information, FHWA: Traffic Volume Trends (released in March 15, 2011): http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm 2 Between December 2010 data and January 2011 data, the FHWA changed the monthly data of most months from June 2000, altering VMT monthly totals up or down 1 or 2 billion miles and some months by as much as 3 or 4 billion. The January data has 2010 end year coming up as 2.999 trillion whereas it was reported as 3,000 trillion in December. Also, note February 2010 year-over-year is now listed as flat when it was reported in previous months as a gain (see chart in Appendix).

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Table A. VMT at Peak, Trough, and Current

(rolling 12-month total VMT as of date shown, with % change from peak)

Peak (Nov 2007) 3,039,000,000,000

Trough (May 2009) 2,963,000,000,000 -2.50%

Current (Jan 2011) 2,999,439,000,000 -1.30%

It has become popular within transportation industry analysis to determine the causes of the decline in VMT. APTA in particular—citing CBO, DOE, and academic studies—points to rising gas prices; claiming a 10% rise in gasoline prices reduces VMT by “0.2 to 0.3 percent in the short run and by 1.1 percent to 1.5 percent eventually”.3 The data in the rest of this brief examine the relationships of VMT to gas prices and GDP, short-term and long-term. VMT Peak in November 2007 and Trough in May 2009 The period of the decline in VMT started from the high of 3.039 trillion miles in November 2007 to a low of 2.963 trillion miles marked in May 2009.4 During this time the following events occurred:

1. U.S. unemployment rate from 4.5% in November 2007 to 9.1% in May 2009.5 2. The Dow Jones Industrial Average declined 39% during that period, starting

November 2007 at 13,568 and beginning May 2009 at 8,168 (after dropping as low as 6,545 in March 2009).

3. U.S. quarterly, real GDP declined 4.14% from Q4 2007 to Q2 2009 (see Figure 2).6

Job loss of that scale, and declines in business activity, has obvious impacts on the amount of driving. The correlation between the amount of driving in annual VMT and annual GDP has been .9515 in the past 10 years. Since 1998, the correlation is .9730.

VMT and GDP

The next chart (Figure 2) shows VMT and Real (chained) GDP from 1998 to 2010. Annual GDP statistics are for “Real GDP” (adjusted for inflation, using 2005 as base year) as published by the U.S. Department of Commerce Bureau of Economic Analysis.7

3 Effects of Gasoline Prices on Driving Behavior and Vehicle Markets, Congressional Budget Office, January 2008. http://www.cbo.gov/ftpdocs/88xx/doc8893/01-14-GasolinePrices.pdf 4 Note: the U.S. unemployment rate was 4.5% in November 2007. By May 2009 it was 9.1%. The Dow Jones Industrial Average declined 39% during that period, starting November 2007 at 13,568 and beginning May 2009 at 8,168 (after dropping as low as 6,545 in March 2009). 5 Yearly unemployment rates by Bureau of Labor Statistics ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt 6 http://www.bea.gov/national/index.htm (government calculates real GDP using chained method) 7 http://www.bea.gov/national/index.htm (government calculates real GDP using chained method)

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Figure 2. Annual VMT and Real GDP (1998-2010)8

(VMT annual data and Real GDP annual data)

Peak-to-Trough: VMT decline = -2.50% GDP decline (2007 to 2009) = -2.63%

Figure 2b. Monthly VMT and Quarterly Real GDP (1998-2010)9

(VMT monthly data and Real GDP quarterly data)

Peak-to-Trough: VMT decline = -2.50% U.S. Quarterly GDP decline = -4.14%

8 Real GDP is calculated using the chained method by the Bureau of Economic Statistics at the U.S. Department of Commerce: http://www.bea.gov/national/index.htm. Vehicle Miles Traveled (VMT) data from FHWA: Traffic Volume Trends: http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm 9 Real GDP is calculated using the chained method by the Bureau of Economic Statistics at the U.S. Department of Commerce: http://www.bea.gov/national/index.htm. Vehicle Miles Traveled (VMT) data from FHWA, Traffic Volume Trends: http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm

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The next graph (Figure 3) shows the long-term correlation values. Since 1957, the cumulative correlation rate between VMT and Real GDP, calculated using Pearson’s R, is .9913. Each data point in the graph below represents the 10-year rolling correlation of VMT and Real GDP, beginning from 1966 (the first 10-year data point) to 2010.

Figure 3. 10-Year Rolling Correlation of VMT and Real GDP (1966-2010)

(Scale 0.0 to 1.0000)

The most recent 10-year correlation between VMT and GDP is .9515—extremely strong, yet the lowest in the data, as illustrated better in the chart below (Figure 4).

Figure 4. 10-Year Rolling Correlation of VMT and Real GDP (1966-2010)

(Scale .9500 to 1.0000)

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The next chart (Figure 5) shows this type of change—which at first appears unprecedented, and perhaps the sign of a change in the relationship between VMT and GDP—has happened before. Calculating the rolling 5-year correlations, in 1982 there was a larger, short-term impact on the relationship.

Figure 5. 5-Year Rolling Correlation of VMT and Real GDP (1966-2010)

(Scale 0.0 to 1.0000)

The unemployment rate in 1982 spiked to 9.7%; the highest level from 1966 to present (note the yearly unemployment rate for 2009 is 9.3% and for 2010 is 9.6%).10 Between unemployment, gas prices, GDP, there are many factors affecting the amount of driving in VMT.

VMT and Gas Prices

The chart below (Figure 6) shows the monthly level of VMT (blue, right scale) and weekly gas prices (black, left scale) since 1998.

10 As published by the Bureau of Labor Statistics ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt

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Figure 6. VMT and Gas Prices (1998-2010)11

Change in Gas Prices and Change in VMT

For context, the chart above (Figure 6) misses the significant percentage price changes in gasoline during this period. As studies consider the elasticity of 10% increases in the price of gas, the chart below (Figure 7) illustrates the much broader swings in the price of gas, with minimal impact on VMT. Since 1998 (data in Table B):

� Gas prices have increased 222.0% � VMT has still increased 16.8%

11 Gas prices are the U.S. Regular Conventional Retail Gasoline Prices (Dollars per Gallon) (Weekly), as published by the Energy Information Administration (EIA) of the U.S. Department of Energy: http://www.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_w.htm Vehicle Miles Traveled (VMT) data from the Office of Highway Policy Information, FHWA: Traffic Volume Trends: http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm

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Figure 7. % Change in Gas Prices to % Change in VMT12

Since 1998, the average annual increase in VMT was 1.2% even as gas prices increased an average 9.6% per year. Gas prices increased +15.0% in 2003, +19.1% (2004), +23.2% (2005), and +12.9% (2006) yet VMT still increased during that period and 2007.

Table B. VMT and Gas Price Data Since 1998

Year Gas Prices Annual % VMT Annual %

1998 $1.06 2,591,000,000,000

1999 $1.16 9.4% 2,648,416,666,667 2.2%

2000 $1.50 29.9% 2,728,583,333,333 3.0%

2001 $1.42 -5.2% 2,768,333,333,333 1.5%

2002 $1.35 -4.9% 2,830,166,666,667 2.2%

2003 $1.55 15.0% 2,867,833,333,333 1.3%

2004 $1.85 19.1% 2,935,250,000,000 2.4%

2005 $2.28 23.2% 2,981,583,333,333 1.6%

2006 $2.58 12.9% 3,004,083,333,333 0.8%

2007 $2.81 9.1% 3,025,583,333,333 0.7%

2008 $3.26 16.1% 3,004,000,000,000 -0.7%

2009 $2.36 -27.5% 2,970,333,333,333 -1.1%

2010 $2.79 18.1% 2,999,000,000,000 1.0%

Average change 9.6% Average change 1.2%

12 Historical retail gasoline price data as published by the Energy Information Administration (EIA) of the U.S. Department of Energy http://www.eia.doe.gov/petroleum/data.cfm#prices. VMT data from FHWA

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Long-Term Relationship and Impacts: Gas Prices and VMT

The next chart below shows annual VMT and gas prices from 1957 to 2010. Gas prices (per gallon) are on the vertical axis, priced in pennies, with the scale ranging from 10 pennies to 1000 pennies, or $10 per gallon. VMT is the horizontal axis, ranging from 0.5 trillion miles per year to 4.0 trillion miles per year. The dates from 1957 to 2010 are labeled though not all readable due to overlap. A line is inserted in gray from one year to the next. Then, in dotted red an actual trend line is shown.

Figure 8. Gas Prices and VMT (1957-2010) (Log scale)13

What might happen in the future based on all this?

The safest, government-style approach is to assume the past will replicate in the future. Therefore, the heavy red line and arrow above shows a continuation of the 54-year trend. Under such a scenario gas prices continue increasing to over $5.00 per gallon within a period of 10-20 years from now with VMT increasing 33% toward 4.0 trillion miles driven per year. Bottom line is that as a scenario planner, if you were to plan a set of outcomes from the chart above, about 70% of the scenarios would involve increases in VMT. About 20% of the scenarios would involve a stagnation; and perhaps 10% of scenarios would you consider a reversal effect.

13 Historical retail gasoline prices (annual data, based on all grades) as published by the Energy Information Administration (EIA) of the U.S. Department of Energy http://www.eia.doe.gov/petroleum/data.cfm#prices. VMT data as published by FHWA.

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Long-term correlation of VMT and Gas Prices

The next chart below adds in the actual prices of gasoline. In the 1970’s, the price of a gallon of gasoline increased from an average of 35 cents to about 110 cents for gallon (+214%). Then the price remained stagnant until rising in the last 5 or so years to an average of about 310 cents (increasing again, this time +182%). VMT has paused in the past on account of sharp rises in gasoline prices; however, on balance, as gas prices have increased over the years, so has VMT. For example, in the 1980’s, consumers digested the higher prices and VMT resumed increasing.

There is actually a correlation of .8807 between gas prices and VMT since 1957

Gas Prices +801.0% since 1957

VMT +365% since 1957

Figure 9. Gas Prices and VMT (1957-2010) (Log scale)14

The chart above shows the relative (percentage) increases in the price of gasoline plotted against VMT with each year labeled. The astonishing point is that VMT actually increases as gas prices have increased. It is almost a perfect timeline. Each year basically follows one after the other.

14 Historical retail gasoline prices (annual data, based on all grades) as published by the Energy Information Administration (EIA) of the U.S. Department of Energy http://www.eia.doe.gov/petroleum/data.cfm#prices. VMT data as published by FHWA.

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Why Could the Trend Continue that People would drive more as gas prices rise?

Gas does not drive the miles in VMT. People drive the cars they choose to drive the miles in VMT. New cars travel more “vehicle miles of travel” on the same gallon of gasoline. The next generation of cars is accumulating “vehicle miles of travel” without gasoline. To adjust to higher gas prices, people could increase their rate of purchase of natural gas, hybrid, and electric vehicles. The price of electricity becomes relevant to future driving demand. Gas prices are just one component of estimating future VMT. So the reason the bold red arrow in the chart above indicates higher VMT may in part be that gas prices are going to have a declining influence over time. Strategies of drivers to adjust to higher gasoline prices now include all of the following options:

• Adjusted driving habits (driving 55 mph, coasting to stop lights, etc)

• Switching to different style of cars (purchasing a sedan instead of an SUV, etc)

• Manufacturers producing new cars with better fuel economy

• Hybrid Cars

• Electric Cars

• Alternative fuel cars (natural gas, hydrogen)

• Concept cars (air vehicles)

• Hyper-miling (people are adapting their cars)15

Gasoline Consumption as a percentage of Consumer Expenses

Why has VMT historically increased even though gas prices rise? The trend line in the chart above (Figure 8) shows that in over 50 years of data, higher gasoline prices are absorbed as people adjust their budgets in different ways, and driving increases. Gas prices hold a special place in the U.S. conversation. For decades, gas prices have been a traditional talking point. It is the one price that most Americans see in front of them just about every day. And it changes a lot; therefore, people talk about it a lot. However, gasoline consumption represents just 4.0% of the average Americans annual expenses16 as shown in Figure 10 below.

15 http://green.autoblog.com/2011/03/18/diy-ecomod-turns-geo-metro-into-214-mpge-dolphin/ 16 2009, http://www.bls.gov/cex/csxshare.htm#2009

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Figure 10. Monthly U.S. Consumer Expenditures (Percentages) (2009)17

The serious fact is that VMT declines have been correlated to challenging economic periods of inflation, stagflation, and recession. Rising gas prices hurt people in the checkbook and affect spending decisions.

1717 2009 data from the Consumer Expenditure Survey of the Bureau of Labor Statistics, U.S. Department of Labor: http://www.bls.gov/cex/csxshare.htm#2009

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Appendix

Growth Rate in VMT (Year-over-Year) (Monthly, January 2001-January 2011)18

The chart below shows 15 consecutive months in a row of year-over-year growth in VMT. January 2011 (+0.86%) was the highest year-over-year growth in VMT since November 2007 when the economic weakness is widely considered to have been starting.

18 Office of Highway Policy Information, FHWA: Traffic Volume Trends: http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm