A bearish reading for U.S oil demand.

The Gist: (1) Real wage growth has broken below 2% y/y. (2) The implications are that U.S. oil demand is set to decline as well. (3) Within energy, the risk off trade remains front and center but watching for signs of an early cycle recovery in refining to develop.

The BEA’s personal income data came out last week, and while the headline appeared bullish—personal income was up 0.8% month-over-month, beating consensus expectations—the growth was largely driven by transfer payments such as Medicare, Medicaid, Unemployment Insurance, and Veteran Benefits.

Meanwhile, wages and salaries grew by just 0.45% month-over-month.

Why should oil market observers care about this report?

Growth in real wages drives oil demand, as evidenced by the chart below.