Surging energy costs driven by the war in Iran are leaving US households increasingly vulnerable to price pressures, analysts from Goldman Sachs and Moody’s said in reports released this week.
“Although US households’ finances are generally intact, spending growth remains modest and increasingly uneven, leaving consumption more exposed to renewed energy price pressures stemming from the Middle East conflict,” Moody’s analysts wrote in a client note on Monday.
As crude oil prices have risen throughout the conflict — Brent crude oil (BZ=F), the international benchmark price, and WTI crude oil (CL=F) prices are up 40% and 50%, respectively, over the past month — so have prices on everything from gas to fertilizer.
US gasoline prices at the pump crossed $4 per gallon nationally on Tuesday, according to AAA, while headline inflation has steadily ticked up, “helping push consumer confidence further downwards from already low levels,” said Goldman Sachs analyst Ben Shumway.
Read more: What is consumer confidence, and why does it matter?
Prices on urea, a key crop fertilizer, have surged by more than 45% over the past month, while futures on fertilizer feedstock ammonia have gained more than 30%, according to Bloomberg data. Price hikes on those inputs, just as farmers begin planting, are likely to filter through to consumer food prices.
US consumer spending accounts for roughly two-thirds of US gross domestic product (GDP), according to data from the Federal Reserve Bank of St. Louis. And rising prices threaten to crimp growth in this spending, holding back economic growth.
Recent retail sales data shows growth in spending among US consumers has already moderated, with core retail sales increasing by 0.3% in January even as the headline figure ticked down by 0.2%, according to Goldman Sachs economist Joseph Briggs.
And “spending headwinds from higher inflation due to the recent energy price surge are likely to weigh on spending growth for the rest of the year,” Briggs wrote.
Higher gasoline costs can also act as a tax on Americans, Moody’s noted, forcing consumers to spend more on so-called essential goods and services while cutting back in other, more discretionary areas. Some estimates peg the costs to US households from the recent surge in gas prices at $8 billion.
Goldman Sachs is now forecasting real consumer spending will rise 1.3% on a fourth-quarter-over-fourth-quarter basis this year, compared to 2025’s growth of 2.1%.
At the same time, the labor market has cooled significantly as the US has largely entered what economists call a “no-hire, no-fire” mode of low job growth and low hiring. Data from the Labor Department on Tuesday showed that February’s hiring rate was the worst since the depths of the pandemic.