Goldman Sachs has raised concerns regarding the financial stability of US consumers, who are currently suffering from inflation pressures exacerbated by the ongoing conflict in Iran. A recent note from Goldman indicates that what initially looked like a robust year for consumer spending is now presenting significant challenges, with predictions of weakened real consumption growth in the coming months.
### Key Insights from Goldman Sachs
Goldman strategist Ronnie Walker highlighted that rising gasoline prices, which have surged by nearly 40% since the onset of the war, are a major factor impacting household incomes. This increase represents an approximate $140 billion annualised burden on consumers at current fuel prices. According to Walker, if Brent crude oil prices stabilise at $80 per barrel by the end of the year, this burden may decrease to $60 billion. Yet, for the entirety of 2026, the anticipated total impact could amount to $70 billion.
The hike in fuel prices disproportionately affects lower-income households, who allocate approximately four times more of their after-tax income to gasoline compared to wealthier households. This, in turn, has a detrimental effect on discretionary spending categories like dining out.
### Consumer Confidence Decline
Recent data reveals that confidence among consumers has reached alarming lows. The University of Michigan Consumer Sentiment Index has plummeted to 47.6, marking an unprecedented 11% decline from March and the lowest score in the survey’s 74-year history. This decline surpasses the sentiments recorded during both the 2008 financial crisis and the inflation upheaval of the 1980s. Notably, the drop in confidence spans across all demographics, including age, income, and political affiliation.
This dismal consumer outlook is reflected in the surge in inflation expectations, which rose to 4.8%—the largest single-month increase in a year.
### Attention on Retail Data
As eyes turn to the upcoming retail sales data for March, expected on Tuesday morning, it will offer insights into how consumers coped last month amidst escalating energy costs.
### Market Reactions and Consumer Stocks
Investors are preparing for softer earnings reports from fast food chains and dollar stores, which heavily cater to lower-income consumers. Notably, shares of McDonald’s (MCD) have not participated in the broader market rally, declining by 1% over the past month, while Dollar General (DG) and Dollar Tree (DLTR) have both remained flat.
Despite the shaky consumer sentiment, executives from leading consumer companies report that consumer spending remains surprisingly resilient. For instance, PepsiCo’s CEO Ramon Laguarta mentioned that consumers are favouring lower-priced snacks, with volume in their snack business showing improvement. Similarly, Ulta Beauty’s CEO Kecia Steelman stated that their consumers are not opting for cheaper beauty products despite rising fuel prices, as they view their cosmetic purchases as essential to self-care.
### The Road Ahead
With first-quarter earnings for many discretionary retailers, such as Macy’s (M), due in May, there is a reasonable expectation of softer results alongside more conservative outlooks.
It’s crucial to remember that while the stock market may be reaching record highs, these gains do not necessarily correlate to improved financial conditions for the average US household. Higher fuel prices continue to affect the disposable income available for households, leading to a more complicated economic landscape.
This analysis highlights the tension between stock market performance and consumer financial health, indicating that the road ahead may pose challenges even for consumer-facing industries.
