Rising gasoline prices in the United States, driven by the conflict between the U.S., Israel, and Iran, are increasing concerns among executives in the retail, restaurant, and consumer goods sectors about deteriorating consumer spending power. Low-income groups are facing particularly significant financial pressure. Steve Cahillane, CEO of The Kraft Heinz Company, stated this week that some consumers are "running out of money by the end of the month." He noted that negative cash flow is now occurring among lower-income demographics, with many households beginning to use their savings to cover daily expenses.
Since the COVID-19 pandemic, despite prolonged high inflation, U.S. consumer spending has generally shown resilience, supporting continued economic growth and temporarily alleviating fears of a recession. However, with oil prices climbing steadily, there is growing concern that consumer affordability is nearing its limit. Marc Bitzer, CEO of Whirlpool Corporation, indicated that the conflict with Iran has amplified consumer worries about rising living costs. The company had anticipated a gradual recovery in U.S. appliance demand following the cold winter, but the conflict has led to a noticeable deterioration in consumer confidence. Whirlpool even suggested that the current impact on industry demand is comparable to the levels seen during the 2008 global financial crisis, with overall demand weakened by approximately 15%.
The fast-food industry is also feeling the pressure. Chris Kempczinski, CEO of McDonald's, said that consumer confidence has not improved and may worsen further. The company pointed out that high fuel prices are having a more pronounced impact on lower-income consumers, contributing to increased market anxiety. The dine-in restaurant sector is experiencing a slowdown in demand as well. Dine Brands Global, the parent company of Applebee's and IHOP, reported that more price-sensitive consumers focused on value are starting to cut back on eating out.
Simultaneously, eyewear retailer Warby Parker highlighted that younger consumers are being squeezed by a slowdown in the job market and rising student loan burdens. According to data from the American Automobile Association, the national average gasoline price has risen to $4.56 per gallon, the highest level since July 2022. As a larger portion of consumer income is allocated to fuel costs, budgets for dining out, entertainment, and other discretionary spending are shrinking. Although higher tax refunds have provided some relief, consumer confidence has still fallen to historically low levels.
Meanwhile, the U.S. personal savings rate dropped in March to its lowest level in three years, indicating that a growing number of households are relying on savings to maintain their spending. Recent research from the New York Federal Reserve also shows that low-income consumers have begun actively reducing their gasoline consumption to manage expenses. Bill Adams, Chief Economist at Comerica Bank, noted that in the short term, American households can still sustain spending by depleting savings or increasing credit card usage. However, if oil prices remain elevated for an extended period, consumers will eventually have to adjust their spending patterns to balance their budgets.
Signs of soft consumer demand are beginning to show in corporate earnings. Planet Fitness saw its shares record their largest single-day decline on Thursday after the company lowered its full-year earnings guidance. It reported that new member sign-ups during the traditional New Year fitness season were weaker than expected. The company also announced a pause on its planned price increases for premium memberships. CEO Colleen Keating stated, "The consumer and the overall economic environment have changed."
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