Consumer Spending Pressures Mount as K-Shaped Economy Emerges; Gasoline Inflation Hits Low-Income Households
Goldman Sachs warns that consumer spending momentum is fading in 2026 as temporary fiscal boosts end and energy prices rise. Higher gasoline costs disproportionately impact lower-income households, fueling concerns about widening inequality.
Spending Slowdown Ahead
The factors that have helped consumers keep their heads above water in the face of tariff price rises and oil inflation, such as the One Big Beautiful Bill Act and tax refunds, aren't frequent boosts to spending, with Goldman colleagues forecasting weak consumption growth over coming months leading to a 1% decline in headline retail sales.
Uneven Inflation Impact
Higher gasoline prices disproportionately weigh on the spending of households in the lowest income quintile—who spend roughly four times as much on gasoline as a share of after-tax income compared with those in the top quintile—and spending on discretionary categories, such as restaurants.
K-Shaped Divergence
Many economists had speculated that a 'K' shape was emerging in the data with high-earning households continuing to thrive while those on the lower end were diverging with their fortunes declining, though Goldman Sachs' chief U.S. economist suggests this reading has perhaps been exaggerated but believes the phenomenon will be more identifiable later in 2026.
Wealth Effect Fading
Higher-income households remain more insulated, reflecting stronger balance sheets and greater exposure to financial assets, however the wealth effect is beginning to fade, as when stock markets, home prices and cryptocurrencies were rising, consumers felt wealthier and spending was stronger but that tailwind is no longer as strong.