As gasoline prices spike, consumer durable spending decreases. And vice versa. The widely recognized soft spot in 2011Q1 is seen here as a run up in gas prices and a decrease in consumer durable spending. We seem to be seeing a similar pattern this year, though consumer durable spending appears already to be recovering. If I have any short term hope for this economy, this graph is its parents. If gasoline prices continue decreasing, PCEDG will increase and help the economy grow. And vice versa.
The mechanism operates because gasoline expenditures are very price inelastic in the short run, and consumers are budget constrained. More spending on gasoline, less on durables, and most of those are manufactured in the US, so it depresses economic performance. This is a very demand-oriented story.Read it at Naked Keynesianism
The nagging influence of energy prices
by Steve Bannister