Spending Cuts
US Consumers Rethink Spending Habits as Fuel Prices Rise, Impacting Major Retailers
American consumers are pulling back hard. Since the U.S.-Israel war against Iran began in late February, gas prices have surged to a national average of $4.39 to $4.56 per gallon — a 47% jump in just three months, according to AAA. Major retailers including Walmart, McDonald's, and Dollar General are all reporting the same thing: shoppers are spending less.
The pain is expected to get worse. Many consumers were cushioned by larger-than-normal tax refunds averaging $3,571, boosted by last year's One Big Beautiful Bill Act. But analysts at Goldman Sachs and Bank of America warn that as that money runs out, a sharp pullback in spending could hit in the third quarter of 2026, according to Reuters.
Drivers Fill Tanks Halfway as Gas Bites Hard
Walmart CFO John David Rainey says customers are now buying an average of less than 10 gallons per gas station visit. He called it "an indication of stress." Costco CFO Gary Millerchip told Associated Press that members are visiting stations more often but pumping less each time — topping up out of fear that prices will rise even further.
The $4.00-per-gallon mark was the breaking point, according to Dollar General CEO Todd Vasos. His stores serve heavily rural customers who drive long distances and have few alternatives. Dollar General responded by adding more $1 items to its shelves. Sam's Club reported a 26% year-over-year jump in gas station traffic in May as drivers hunted for membership discounts of 10 to 30 cents per gallon, according to TheStreet.
Lower-Income Households Bear the Sharpest Cuts
The squeeze is not hitting everyone equally. McDonald's CEO Chris Kempczinski said customers with household incomes of $45,000 or less are scaling back the most. Dollar General's CFO Donny Lau pointed to households earning under $35,000 as "feeling the pinch" from both higher gas costs and cuts to SNAP food benefits. The average U.S. household has absorbed $447 in extra energy costs since late February, according to Moody's Analytics.
Even higher earners are changing behavior. Families making $100,000 or more are increasingly shopping at Dollar General and TJ Maxx, according to Washington Post. Retail sales grew 4.9% year-over-year in April — but when adjusted for inflation, they actually dipped 0.1%, according to BMO Capital Markets. Credit card debt hit $1.25 trillion in Q1 2026, a 6% jump from a year earlier, according to the New York Fed.
The Iran War Triggered an Energy Crisis With No Easy Fix
The root cause is the closure of the Strait of Hormuz. Iran shut down the waterway on March 4, 2026, cutting off 20% of the world's seaborne oil trade. By March 10, global oil production had fallen by 6.7 million barrels per day as Gulf producers faced transport standstills. The International Energy Agency called it the "largest supply disruption in the history of the global oil market."
Convenience stores, which sell 80% of all fuel in the U.S., are feeling the hit too. Total fuel dollar sales are falling even as prices rise — because drivers are buying less volume. Some chains are now pushing food more aggressively to offset lower fuel margins. Data from Datassential shows 35% of consumers now say convenience store food quality has improved, according to NACS.
Economists Warn the Worst May Still Be Ahead
Mark Zandi, chief economist at Moody's, warned that "financially pressed consumers will have no option but to turn more cautious," potentially pushing the U.S. into a soft economy. Stanford researchers argue that gas prices — visible on every street corner — are driving inflation fears so high that the Federal Reserve may have to delay interest rate cuts indefinitely.
If gas prices hold at current levels, the average household will absorb $2,000 in extra energy costs by February 2027, according to Moody's Analytics. Discretionary spending — things like clothes and furniture — is forecast to slow from 40.4% earnings growth down to just 5.2%, according to Reuters. The White House insists these are "temporary disruptions" and that the economy remains on a "solid trajectory." Polls tell a different story: 66% of Americans say they feel financially stressed, according to CBS News.
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