Consumer Spending Shift
US Consumers Rethink Spending Habits Amid Surging Fuel Prices and Inflation
U.S. consumers have not stopped spending since the Iran war drove up fuel prices — but they are spending differently. Drivers are only topping off their tanks instead of filling them up. Shoppers are skipping clothing and furniture stores. Lower-income families are cutting back on even basic food, according to Associated Press.
The national gas average peaked near $4.56 per gallon for regular fuel. Diesel hit $5.66 per gallon. The average U.S. household has absorbed $447 in extra energy costs since the war began, totaling roughly $60 billion nationwide, according to Procurement Magazine.
Gas Prices Force Drivers to Ration Every Gallon
When the U.S. and Israel launched Operation Epic Fury on February 28, Iran responded by closing the Strait of Hormuz. That waterway carries 20% of the world's oil. Brent crude surged past $120 per barrel almost immediately. By April 2, the national gas average crossed $4.00 per gallon for the first time in four years, according to AAA.
Walmart CFO John David Rainey said customers are now buying fewer than 10 gallons per visit. That "gasoline rationing" behavior shaved 2.5 percentage points off Walmart's operating profit growth, Financial Times reported. Warehouse clubs saw a surge in fuel traffic — Sam's Club reported a 26% year-over-year jump, while BJ's Wholesale Club saw gas station visits rise 17.2% in March, according to TheStreet and Benzinga.
Major Retailers Report a Pullback on Everyday Purchases
The spending squeeze is hitting a wide range of businesses. McDonald's CEO Chris Kempczinski said consumer sentiment is "certainly not improving, and it may be getting a little bit worse." He noted lower-income spending is "absolutely still declining," according to Reuters. Dollar General CFO Donny Lau said core customers are cutting back on basic food as fuel costs eat into their budgets.
Department store sales fell 3.2% in April. Furniture and home sales slipped 2%. Retail sales overall grew just 0.5% in April, down sharply from 1.6% in March, according to PBS News. The Commerce Department said higher prices accounted for most of that growth, meaning Americans bought less stuff even as they spent more money.
Inflation Hits Its Highest Point Since Late 2023
The Bureau of Labor Statistics reported April inflation at 3.8%, driven by a 3.8% surge in energy costs — the highest reading since October 2023, according to CBS News. Core PCE inflation is projected to reach 4% by year-end, double the Federal Reserve's 2% target. The Fed is now expected to hold or even raise interest rates, pushing back long-awaited cuts.
Mark Zandi, chief economist at Moody's Analytics, warned that "the damage has already been done." Consumer confidence slipped to 93.1 in May. Inflation at 3.8% is now outpacing wage growth of 3.5%, meaning workers are falling behind in real terms, according to Scripps News.
A K-Shaped Economy: Rich Spend, Poor Pull Back
Analysts describe a "K-shaped" spending pattern — a divide between income groups. Higher-income shoppers are still buying premium beauty products and new clothes. Lower-income households are trading down to dollar stores and warehouse clubs. Neil Saunders of GlobalData said gas prices have acted as a "catalyst" that "dents the psyche of consumers" and ripples into every part of their budget, according to Reuters.
The White House called the economic fallout "temporary disruptions" from a necessary military effort. Critics counter that the conflict has no clear endgame and has cost ordinary Americans dearly. Consumer spending makes up 70% of U.S. GDP. Economists warn that if Americans keep cutting back, the risk of a recession will grow, according to CBS News.
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