Being stuck in traffic causes plenty of anxiety. Should you add “I’m missing a bull market and need to buy stocks” to your list of traffic jam worries? Maybe. And maybe not.
Traffic levels or, more specifically, traffic congestion could be an indicator of economic activity. INRIX–a company that specializes in monitoring and reporting traffic activity but does not specifically claim expertise in economic analysis—seems to be convinced. A report from the company attempts to use economic events and economic patterns to explain traffic trends. While the attempt raises an intriguing possibility (traffic congestion as economic indicator), the analysis lacks statistical rigor and the handful of anecdotes INRIX offers fall short of persuasive.
For instance, Los Angeles, to no one’s surprise, topped INRIX’s Scorecard of worst-congested U.S. cities in 2012. But, to the surprise of many, LA did not achieve this honor in 2011—edged out by Honolulu. INRIX uses economic growth to explain LA’s move back to the highly coveted top spot, remarking:
“This (increase in traffic congestion) is likely due to the fact that Los Angeles County gained approximately 90,000 jobs in February 2013 – a growth rate of 2.3 percent. This is the fastest year-over-year growth in the LA area since the recession began in 2007.”
Yet the INRIX report contradicts itself. The company claims that Los Angeles congestion, despite moving back to the top spot, actually dropped 9% from 2011 to 2012. But if LA had fantastic job growth and if economic growth is correlated with traffic congestion, why did congestion decline?
A better explanation for LA’s move back to first place is traffic trends in Hawaii, where congestion dropped 23% from 2011 to 2012. As a side note, it also appears INRIX improperly points to jobs growth in 2013 to explain traffic congestion in 2012; whereas one would expect the jobs growth to come first, followed by the traffic congestion.
But INRIX doesn’t give up so easily. The Scorecard’s report includes the following observations that attempt to tie traffic levels to economic activity:
“After a tumultuous economic year in 2012, the economy may be back on the mend and with that bringing increased traffic congestion. With many economic indicators, such as household wealth and retail sales, trending toward the positive in 2013, INRIX’s comparison of congestion in 2012 versus 2013 year-to-date paints a clear picture of how the overall economic climate affects national traffic congestion.”
“Despite economic ups and downs throughout 2012, INRIX reports that congestion back on the rise in 2013 – congestion in January through March 2013 is already 4 percent higher than the same time period in 2012, indicating that after 2012’s rollercoaster, the economy may be on the road to recovery for good.”
However, there really has been no indication that the economy is “on the road to recovery for good”, only continuing reports of sluggish growth and disappointing jobs reports. The commentary continues:
“Fears over recurring fiscal deadlines, the threat of the breakup of the Eurozone and ongoing debt issues in 2012 likely fueled declines in traffic congestion, with businesses and consumers alike taking a ‘wait and see’ approach. While bad news for drivers, the gains recorded in the U.S. and Ireland in 2013 show there is some cause for optimism in the year ahead.”
So not only is economic activity correlated with traffic congestion, fears about economic activity are correlated with traffic congestion. This one is a big stretch. INRIX goes on:
The countries impacted most by the European debt mirror those with the largest drops in traffic congestion:
§ 2012: Portugal (-50%), Spain (-38%) and Italy (-34%)
§ 2012 compared to 2013 Q1: Portugal (-68%) and Spain (-57%)
INRIX’s list leaves off another (really) important country affected by the debt crisis: Greece.
Besides anecdotes that fail to convince, the causal connection between economic activity and traffic jams needs further explaining. It is not entirely obvious that people drive less when they are unemployed. In fact, the opposite could be true. Families might opt for local travel or “staycations” that require much more driving than flying out of the country. Job searches for the unemployed–networking through lunches and interviews–require plenty of driving as well. It seems the worst traffic jams occur at the beginning or end of a holiday weekend when no one is working.
Despite these shortcomings, INRIX should recognize its theory as a work in progress and not give up on it. The firm has unique access to data on traffic patterns that few others can analyze. Some measures of traffic volume may have strong causal links with some measures of economic productivity. INRIX’s focus should be on backing its theory with more rigorous statistical analysis and less on identifying chance anecdotes that turn out to be highly questionable. As it stands, INRIX has a business supplying traffic data to the makers of navigation devices. If lucky, the firm could expand its customers to navigators of financial markets.