Using Gas Prices to Forecast the Unemployment Trend

Previously, we found that the average price of a gallon of gasoline in the U.S. can be used to forecast what the U.S. unemployment rate will be about two years ahead in time.

Since then, gasoline prices have been rising pretty significantly across the U.S. and are predicted to rise even further, so today, we’re presenting a tool based upon our analysis that you can use to anticipate what the jobs situation will be like two years from now.

To find out, enter the latest average price of a gallon of gas in the U.S. into the tool as well as the most recently available value for the Consumer Price Index for All Urban Consumers, which lets us take inflation into account, and we’ll project what the U.S. unemployment rate will likely be two years from now.

Now for a quick word of caution. The correlation between gas prices and the unemployment rate is positive, but is only of low-to-medium strength, which you can see in the spread of the data points about the trend line in our chart showing the correlation.

What that means is that while higher gasoline prices do generally translate into a higher unemployment rate two years into the future and lower gasoline prices translate into lower unemployment rates, the actual unemployment rate two years from now can be significantly different from what the tool forecasts.

As such, our tool is best used to anticipate the general trend in the unemployment rate rather than the specific unemployment rate.

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.

Previously on Political Calculations

• Correlating the Price of Gas and the Unemployment Rate
• Why Are Americans Driving Less?
• How Much Does Your Commute Cost You?
• Should You Move Closer to Work to Save Commuting Costs?
• How to Save Money on Gas, Without Driving Less
• How Much Are Higher Gas Prices Really Hurting You?
• Should You Trade in Your Gas Guzzler?
• Is It Worth the Drive?
• Do Hybrids Really Save Money?
• How Much Do You Pay in Gas Taxes?

Read more at Political Calculations