American consumers opened their wallets wider in February following a pullback in spending during January, but an ongoing conflict in Iran has driven fuel costs sharply higher and could force families to cut back on purchases.
The Commerce Department reported Wednesday that consumer spending climbed 0.6% last month, exceeding forecasts and reversing a 0.1% drop in January. However, concerns are mounting that Americans already dealing with years of high inflation may reduce their purchases as energy costs surge.
Gasoline prices crossed the $4 per gallon threshold on Tuesday for the first time in two years and climbed an additional 4 cents overnight.
By Wednesday, the nationwide average for regular gasoline reached $4.06 per gallon, representing a full dollar increase from pre-war levels.
Shoppers increased purchases at clothing and accessory retailers by 2%, while electronics and appliance store sales grew 0.5%. Online retail activity expanded 0.7%.
The monthly data provides only a limited view of consumer behavior and excludes categories such as travel and lodging. Among service sectors tracked, restaurant sales advanced 0.4%.
The Iran conflict commenced on February 28 and has resulted in the closure of the Strait of Hormuz, eliminating one-fifth of global oil supplies. Brent crude prices, the international benchmark, have surged more than 45% since hostilities began. Diesel fuel costs have climbed even more rapidly than gasoline, increasing transportation expenses for businesses. Economic analysts anticipate corresponding inflation increases, possibly beginning this month.
Analysts had anticipated that unusually substantial tax refund payments would stimulate consumer activity early in the year. However, escalating fuel expenses are expected to consume much of that additional income.
“The hit to real incomes from higher gas prices is especially regressive, hurting lower-income households disproportionately, while the lift from tax refunds is more evenly spread,” Samuel Tombs, chief economist at Pantheon Economics, wrote in a recent report. “Moreover, refunds will slow to a trickle by late April, providing little protection if high prices persist.”
Elevated gasoline costs appear positioned to decrease actual household earnings by approximately $15 billion monthly, he noted.
Patrick De Haan, an analyst at GasBuddy, which monitors fuel costs, explained that the key measure of gasoline’s impact is how much fuel expenses represent of a consumer’s earnings. He indicated that gas prices are nearing 3% of median household income.
“When that gets up to about 4, 4 1/2, 5%, that’s really when people really start trimming back on some of their discretionary purchases,” he said.
Several retailers have already issued warnings about potential consumer impacts if fuel prices continue climbing.
Daniel Erver, CEO of Hennes & Mauritz, stated last week that the Swedish fashion retailer anticipates energy costs will have a “significant impact on the consumer behavior.”
Meanwhile, Darren Rebelez, CEO of convenience store operator Casey’s General Store, informed investors last month that substantial reductions in customer spending are unlikely unless gasoline approaches $5 per gallon.
