On Valentine's Day 2011, we explored the correlation that appears to exist between what motor gasoline prices are today and what the unemployment rate will be two years from now. At the time, we found that:
While the correlation is far from a perfect match, what we do see suggests that Americans can indeed use the real price of gas at the pump to reasonably anticipate how the unemployment rate will change two years down the road.
We then went on to create a tool where anybody can plug in the average price of gasoline today to forecast the U.S. unemployment rate two years later (we later simplified the tool, which is currently featured at the top of our website in our "Good Morning, White House Staffer" feature.)
At the time, we offered a vision of two possible scenarios based on the U.S. Energy Information Administration's projections of average U.S. motor gasoline prices that would play out through the end of 2012 (emphasis ours):
For example, using the default data for our tool, which takes the average retail price of motor gasoline in the United States from 21 February 2011 and pairs it with the Consumer Price Index for All Urban Consumers (CPI-U) from January 2011, our tool projects that the unemployment rate will be about 8.3%, which is lower that the 9.0% unemployment rate reported in January 2011, suggesting a mild improvement from now until then.
However, if average gasoline prices rise quickly to exceed $3.50 per gallon across the nation, as they already have in California, our tool would project that no significant improvement in the U.S. unemployment rate will take place over the next two years.
Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.
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