Consumers can’t outrun high gas prices for much longer before pulling back on discretionary spending, Goldman Sachs projected.
“The hit to real disposable income from higher gas prices tends to weigh in particular on spending on cars and discretionary goods and services,” Goldman Sachs economist Jessica Rindels wrote in a new note on Monday. “We expect most of the impact of the war on Gross Domestic Product [GDP] to come through consumer spending, and we have lowered our consumption growth forecast for 2026 year over year from just over 2% before the war to 1.2%.”
Added Rindels, “We have lowered our 2026 Q4/Q4 GDP growth forecast by 0.5 percentage points to 2.0% to reflect higher oil prices and incoming Q1 tracking data, and we see the risks as tilted toward a larger hit to growth.”
The backdrop for consumer spending this spring and summer remains mixed, at best.
Over the past five days, oil prices have undergone a volatile relief-and-retreat cycle as the market reacted to the shifting geopolitical landscape in the Middle East.
After peaking near $120 a barrel amid Operation Epic Fury, prices plunged sharply early last week. WTI crude (CL=F) fell about 13%, and Brent crude (BZ=F) dropped to approximately $94.26 by Friday night following the announcement of a temporary ceasefire.
However, as of today, that downward trend is reversing again amid the collapse of high-level peace talks over the weekend.
Oil prices have spiked to $103 a barrel on Monday. Regular unleaded gas prices hit a national average of $4.16 a gallon on April 8, the highest since the summer of 2022.
Read more: How oil price shocks ripple through your wallet, from gas to groceries
“With the U.S. not coming to agreement or terms with Iran, it is likely that the Strait [of Hormuz] will remain under their control and that oil prices and thus gasoline, diesel and jet fuel prices keep rising due to the likely continued closure of the Strait,” GasBuddy head of petroleum analysis Patrick De Haan warned.
Consumer weakness has subsequently started to appear.
In early April, the University of Michigan’s Consumer Sentiment Index tanked to a record low of 47.6, down from 53.3 in March. This is the lowest reading since the survey began in 1952, with consumers calling out the Iran conflict and soaring gas prices as the main reasons for their pessimism.
Discount retail stocks such as Walmart (WMT) and Target (TGT) have traded higher amid signs of consumer weakness — Walmart is up 2% over the past month, while Target has added 1%. Costco (COST) has also gained 1%.