Shrinking Labor Force Pressures Gasoline Demand

First quarter fuel demand jumps 1.4% in the first quarter, according to the Energy Information Administration.

By Brian L. Milne, Energy Editor, Schneider Electric

Preliminary data from the Energy Information Administration (EIA) shows gasoline demand in the U.S. ending the first quarter 1.4% higher than during the same three months in 2012, although down 1.2% during the four weeks through March 29, mitigating early year expectations for robust growth for the motor transportation fuel in 2013.

After sinking to an 11-year low in 2012 at 8.703 million barrels per day (bpd), the fourth consecutive year in which U.S. gasoline demand declined against the prior year, expectations called for greater demand as the U.S. economy continued to grow since the Great Recession. There were signs of this expected recovery taking form through much of the first quarter.

View Schneider Electric’s Weekly and Historical Fuel Price Index.

When not considering for population growth, gasoline demand is on the decline as vehicle mileage efficiency improves and consumers have become far more conservative in their driving habits than in the past as retail gasoline prices remain high compared with historical averages. An aging population, too, with Baby Boomers retiring means less road travel by this group also pressuring gasoline demand. Many see 2007, when the EIA reported consumption at 9.286 million bpd, a year that U.S. gasoline demand peaked.

Consider gasoline demand popped above the five-year average for only three weeks in 2012 and so far none this year suggests an enduring trend in diminished gasoline demand. Through the first quarter, gasoline demand was down 4.4% compared with the five-year average for those three months.

Another key factor for the weakness in gasoline demand is the employment picture, which remains grim for many. Despite signs in January and February suggesting robust hiring, the pace of job expansions slowed considerably in March, with only 88,000 new jobs created. This wasn’t due to the effects of government sequester, analysts were quick to explain, but rather because of the 2% increase in the payroll tax that took effect Jan. 1 and hit discretionary spending hard for many consumers. Consider the Department of Labor reported 24,000 lost retail jobs last month.

In a curious twist, the national jobless rate fell 0.1% to 7.6% in March to the lowest since 2008 and before Barack Obama was sworn in as US president. The answer lies in a steep drop in the civilian labor force, which tumbled by 496,000 in March to 63.3%. That’s the lowest employment participation rate since 1979. Meanwhile, another 4.6 million have been unemployed for 27 weeks or more, with the long-term unemployed accounting for 39.6% of those unemployed. Another 2.3 million persons were marginally attached to the labor force in March, near unchanged on the year.

A smaller workforce translates into lower demand for gasoline because less people are making roundtrips between home and office. Higher taxes also reduce discretionary spending prompting a greater degree of frugality that historically has led to lower gasoline consumption.

About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 17 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.gas_pumps-150x131

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