Analysts from Goldman Sachs and Moody's indicated in reports released this week that the risk of rising price pressures for U.S. households is intensifying, driven by surging energy costs amid the conflict involving Iran.
Moody's analysts noted in a client report on Monday that although household finances remain generally sound, consumer growth is moderate and increasingly uneven, making spending more vulnerable to a fresh wave of energy price increases triggered by Middle East tensions.
International crude oil prices have climbed steadily since the conflict began, with benchmark Brent and U.S. WTI crude rising approximately 40% and 50%, respectively, over the past month. Prices of related goods such as gasoline and fertilizer have also increased.
According to AAA data, the national average retail gasoline price surpassed $4 per gallon on Tuesday. At the same time, overall inflation continues to trend upward—a development that Goldman Sachs analyst Ben Sniderman said is "further weighing on consumer sentiment, which was already low."
Data show that the price of urea, a key agricultural fertilizer, has surged more than 45% in the past month, while futures for ammonia, a fertilizer ingredient, have risen over 30%. With farmers in planting season, these increases are likely to pass through to final food prices.
Figures from the Federal Reserve Bank of St. Louis reveal that consumer spending accounts for about two-thirds of U.S. GDP. Rising prices could curb spending growth and subsequently slow economic momentum.
Goldman Sachs economist Joseph Briggs pointed out that recent retail data already reflect softening consumption: overall retail sales fell 0.2% month-over-month in January, while core retail sales edged up just 0.3%.
He suggested that the current spike in energy prices, by pushing inflation higher, will likely continue to suppress the pace of consumer spending throughout the year.
Moody's added that higher oil prices act as a de facto tax on households—forcing consumers to allocate more to essential expenses and reducing discretionary spending budgets. One estimate indicates that the recent rise in gasoline prices has already cost U.S. families an additional $8 billion in total spending.
Goldman Sachs now projects that year-over-year growth in real consumer spending will slow to 1.3% in the fourth quarter of this year, down from 2.1% in 2025.
Meanwhile, the U.S. labor market has cooled noticeably, essentially entering what economists refer to as a "low hiring, low firing" mode with subdued job growth. Data from the Labor Department on Tuesday showed the hiring rate in February dropped to its lowest level since the worst of the pandemic.
Moody's analysts noted that in 2022, a strong labor market and rapid wage growth helped cushion such shocks. Now, with slower income growth, even a modest increase in fuel costs can significantly squeeze discretionary spending.
The analysts also highlighted that energy price increases disproportionately affect middle- and low-income households, where essential spending makes up a larger share of income. This dynamic could increase the economy's reliance on spending by wealthier groups.
This may pose another risk to consumption growth: affluent households, who account for the bulk of U.S. consumer spending, tend to see confidence drop quickly during stock market volatility—such as that triggered by tensions with Iran.
Moody's analysts concluded that while consumer spending remains the core driver of U.S. economic growth, the ongoing Middle East situation and oil price surge are testing its resilience.
However, concerns about an economic slowdown are not yet fully reflected in the data. A report from the Conference Board on Tuesday morning showed consumer confidence unexpectedly rose in March, beating Wall Street expectations.
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