The US consumer still has some gas left in the tank

American consumers now face their third price shock in recent years, with petrol averaging more than USD 4 per gallon. Given the importance of US consumption to the global economy, we examine its foundations, and see some signs of resilience.

US consumers have been hit by a succession of price shocks post-pandemic: an inflationary spike that peaked in mid-2022, then tariff-related goods price rises. Now they face higher energy and petrol costs as a result of the Middle East conflict, with President Trump warning the latter could be higher “for a little while.” But although the popular narrative depicts a fragile US economy dependent on the incomes of a wealthy few, we see signs that spending is holding up across the broader population.

Over the past year, the theory of a ‘K-shaped’ US economy – with a marked difference between thriving wealthy and struggling lower-income consumers – has gained traction. This was initially rooted in analysis by Moody’s, which argued that the consumption of the richest 10% of US households represented 50% of total US consumption in 2025, a fraction that had been increasing steadily in recent years.

Although the popular narrative depicts a fragile US economy dependent on the incomes of a wealthy few, we see signs that spending is holding up across the broader population

Two further claims have been made based on this argument. The first is that since the richest American households hold the most US equities, the recent resilience of consumption has been largely driven by the strong performance of the equity market¹. The second, related point, is that the US economy has thus become more vulnerable to an equity market downturn.

Complex consumer dynamics

A deeper look at the data, however, reveals flaws in this narrative. Based on official data on the estimated fraction of disposable income accruing to the richest 10% of households, as well as estimates of their savings rates, we calculate that their share of total consumption would be around 30%. This is still large, but much lower than the level implied by Moody's analysis. 

Consumption inequality in the US also seems to have increased only moderately in recent decades. Data from the Bureau of Labor Statistics shows the share of consumption of the top 20% of earners was 37.1% in 1984: in 2023, the most recent official data available, it was 38.3%². Since then, the message from alternative, real-time data sources, notably credit and debit card transactions, is clear: the richest US households have not increased their consumption dramatically more than the rest of the population.

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Such data show small cumulative differences since 2023 across high, medium and low income spending. The last available data point, from December 2025, actually shows higher year-on-year growth for the low-income consumer. Data from Bank of America based on their own credit and debit card use, and from Stripe Inc, a financial services platform, are broadly consistent with these findings.

Consumption by the very richest 1-2% of US households, or roughly speaking, those earning more than USD 1 million per year, is difficult to capture also in these alternative data sets. But based on the best available evidence, we do not think that the remarkable recent resilience of the US economy rests on the shoulders of millionaires and billionaires alone.

We do not think that the remarkable recent resilience of the US economy rests on the shoulders of millionaires and billionaires alone

Post-pandemic inflation helped redistribute wealth

Recent history offers some clues to how this resilience may have evolved. The US economy has weathered several significant post-pandemic macro shocks. The first was the post-Covid inflation spike. Yet despite the Federal Reserve (Fed) raising rates from zero to five percent at the fastest pace in four decades, the US economy recorded robust consumption growth in real terms.

As we argued in late 2023, part of the reason was that more than 90% of mortgages in the US had fixed interest rates, and were thus insulated from rate hikes. Post-pandemic, we also saw evidence of wealth redistribution from creditors to debtors, who have a higher propensity to consume. Debtors benefited from significant inflation – which peaked at around 9% in mid-2022 – eroding the real value of their outstanding debts. Fiscal handouts also helped build some savings buffers.

Post-pandemic, we saw evidence of wealth redistribution from creditors to debtors, who have a higher propensity to consume

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Consumers weathered the tariff shock

The second consumer shock was ‘Liberation Day’ tariffs in April 2025. As we argued in the immediate aftermath, despite the significant uncertainty involved, the US economy was healthy enough and independent enough from global trade to weather such a shock without incurring a recession. As long as unemployment did not rise substantially, and average earnings continued to exceed the higher rate of inflation generated by tariffs, US consumption would still be able to grow, albeit more slowly. These expectations, including those of modest domestic inflationary impacts, have largely been confirmed.

Higher energy prices from the Middle East conflict now threaten a third shock. The previous two have helped temper growth in spending. In our view this softening of consumption growth mainly reflects a weaker US labour market compared to previous years, largely characterised by a ‘no-hiring, no-firing’ environment.

A petrol price shock of this magnitude, with increases of 30% on average nationwide, should generate a significant further contraction in demand for other goods, particularly in discretionary spending, and consumers ‘trading down’ within the same categories of goods. Many commuters are reliant on petrol and must simply absorb the higher prices.

However, given our base scenario of a Middle East conflict de-escalation , we expect most of these effects to be temporary and for the price of petrol to revert closer to pre-war levels later this year. We have therefore only moderately downgraded our full-year 2026 US growth forecast from 2.2% to 1.9%.

Unless we see signs of major weakness in labour markets, we believe the US consumer can once again withstand the shock

While retail sales excluding petrol and the other volatile components were still quite firm in March, this also reflects larger than usual tax refunds. Once these dissipate, we expect US consumption to settle at weaker levels than seen post-pandemic. But unless we see signs of major weakness in labour markets, we believe the US consumer can once again withstand the shock.

The US economy is otherwise in robust health. Fiscal policy is supporting growth, large companies are benefiting from solid fundamentals and earnings growth, and we still expect one interest rate cut from the Fed in end-2026. All these factors, together with our expectation of a limited duration conflict in the Middle East, help underpin our moderate pro-risk stance in portfolios.