Rising Gas Prices Hit Retail Sectors Hard
Recent trends indicate that surging gas prices are starting to significantly impact various retail sectors. According to Bank of America (BofA), total debit and card spending per household rose by 4.7% year-on-year for the week ending March 28. This increase correlates with escalating gas prices, influenced by geopolitical tensions resulting from the US-Israel conflict involving Iran, which has notably boosted gas station sales.
For the same week, sales at gas stations experienced a remarkable surge of 21.4%. In fact, sales soared by more than 20% on six of the eight measurement days within that week. Conversely, sectors such as furniture stores saw declining sales every day during this period. Department store sales gradually worsened, while spending at home improvement retailers also fell.
The pressured US consumer.
Source: BofA
Since the onset of the conflict in late February, gasoline prices in the US have escalated dramatically. The national average gas price transitioned from the low $3 range to over $4 per gallon within a few weeks, with some areas like California experiencing prices above $6 per gallon. The dramatic rise in fuel costs is primarily attributed to supply disruptions in the Strait of Hormuz—a crucial route for global oil supply—along with increased shipping, insurance costs, and a heightened geopolitical risk premium.
Consequently, US consumers are now experiencing a sharp escalation in fuel prices, leading analysts to project that costs may remain high persistently, even if geopolitical tensions subside due to ongoing supply limitations.
The economic ramifications of this surge in gas prices are becoming increasingly evident in various economic indicators. The University of Michigan’s Consumer Sentiment Index plunged to 58.4 in late March, a level reminiscent of the 2008 financial crisis. Additionally, real gross domestic product (GDP) growth forecasts for 2026 were revised down by 40 basis points, a more pronounced reduction than that experienced in China.
The job market is also starting to feel the impact of these rising expenses, as initial jobless claims rose to 235,000 last week, indicating that energy-sensitive industries are beginning to slow down hiring in response to soaring operational costs.
Prominent companies like Nike have felt the strain, issuing a disappointing earnings forecast for the current quarter, signalling broader economic concerns ahead.
BCA Research strategist Peter Berezin noted the war’s economic effects may not yet be fully represented in existing data, but the signs are troubling. He emphasised that while immediate impacts may not be clear, the repercussions on the economy could be significant. "Gasoline prices are up a dollar, and diesel prices have increased approximately $1.70 per gallon," he pointed out. This eventual rise in transportation costs will invariably impact various household expenses—exacerbated by simultaneous increases in the costs of essentials such as fertiliser.
In summary, as consumers grapple with rising fuel prices, retail sectors are showing signs of strain. The road ahead may be challenging for multiple industries, especially if current economic pressures persist amidst geopolitical uncertainties.
