What the US/Israel-Iran war means for US consumers

We revised our forecast for consumer spending down in the second March baseline, released Friday, to reflect higher oil prices, which will deliver a bigger hit to households’ real incomes.

• We now expect consumption growth to slow to just 1.9% this year from 2.5% in February, which would be the slowest pace since 2013, excluding the pandemic.
• Spending on durable goods and discretionary services is most at risk.
• The fallout will exacerbate fault lines in the economy between low- and high-income households.
• Aside from oil prices, the key risks to watch are a severe correction in equity markets, which could undermine spending from higher-income households, and a pickup in layoffs, which would be the catalyst for a more serious weakening in the economy.