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Consumer Impact From Ukraine Conflict

April 1, 2022

The Russia and Ukraine war is causing higher energy costs and higher gas prices. But how is the conflict affecting US consumer spending in 2022? Catch our newest TrendsTalk episode with ITR Economist and Speaker Lauren Saidel-Baker to learn more.




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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi, I'm Lauren Saidel-Baker, and welcome to this episode of ITR Economics TrendsTalk.

We have been talking a lot about the war in Ukraine, and specifically about the economic risks that accompany that conflict. So today, I wanted to address one of the biggest questions that I've been getting from the road and that's with regard to the US consumer.

Specifically, I've had so many conversations in the past couple of weeks about why these economic risks, especially with regard to higher energy costs and higher gasoline prices, haven't been enough to force us at ITR to downward revise our forecast for the consumer and their spending to have what we are calling a soft landing, this cycle; that is the avoidance of a recession, a contraction. And we do expect that the US consumer will continue spending, albeit at a slightly slower pace of positive growth.

Now the real reason behind this expectation has a lot to do with the consumer strength, the strong footing. We've been talking about this since, roughly 2020, during the midst of the pandemic, talking about just how strong and stable the US consumer is this time around.

We see it in higher wages, higher disposable income. And that's on a real basis, not just a nominal basis, so even on an inflation adjusted terms, people are earning more money. More people working, earning more money. We have higher savings rates just happen too. We have actually a lot of borrowings that we could tap into if we really needed to. We have some very responsible debt level right now. That's not always true for the consumer. So we do have this very stable footing, this platform that should sustain growth to come.

And yes, the conflict in Ukraine is causing higher energy prices. We are seeing it a little more acutely in Europe than we are here in the United States, but nevertheless, prices at the pump are rising and there is nothing American drivers like more than complaining about the latest gas prices.

But keep in mind, we have been here before. We've seen rising energy prices, and we at LTR have run the analysis. We just don't find that rising oil prices or rising gas prices at the pump are necessarily enough to make consumers pull back in other categories. In fact, during a lot of previous cycles, we find that while oil prices are rising, consumers are continuing to spend at an accelerated pace, so this isn't just the one necessary condition.

And yes, higher costs will be increasing the cost of living. That is a risk if inflation does begin to outpace wage growth. But it's a risk that even those higher salaries won't feel like they are going as far. That real cost of living, certainly is a concern for many individuals.

But we aren't there quite yet, so keep this in perspective. We can continue spending far beyond a couple of dollar rise at the gas pump. I know it's going to make for catchy headlines, and we do expect that the current quarter of activity in 2022, will be the peak growth this cycle, so the consumer probably will start to show slightly slower signs, slightly softer demand signals in the rest of 2022 and into 2023.

Please don't let the timing confuse you. I know the headlines are going to link this to the war in Ukraine. They are going to say because of this conflict, US consumers are pulling back. It's very convenient timing.

But don't lose sight of those economic fundamentals. They've been in place for a very long time. They have been predicting this timing. Headlines will catch you every single time.In this case, stick with the fundamentals. Stick with the leading indicators, and stick with us, here at ITR.

We'd love to see you on a future episode of TrendsTalk. I'm Lauren Saidel-Baker. Let's talk real soon.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.