High Gasoline Prices Signal Trouble to Older Americans

“Americans haven't forgotten 1973. Every time oil prices spike, people feel worse about the economy almost immediately, long before any paycheck shrinks or layoff notice arrives. With one-year West Texas Intermediate futures having climbed from about $55 to $75 a barrel since early 2025, that sentiment deterioration is already under way -- and because sentiment not only reflects but shapes spending, the consequences are tangible.

 

Scaled to the current oil-price move and the share of Americans for whom the 1970s remain the economic reference point, the implied drag on consumer spending over the coming months runs to something in the range of 8% to 12% for that cohort -- but closer to 3% to 5% for younger consumers, whose sentiment is less tightly coupled to gasoline prices and whose spending responds accordingly.

 

The evidence behind those numbers reveals something important about economic psychology. Using 2008-17 data from the Gallup Daily Poll of more than 1.7 million Americans, one of us (Mr. Makridis, with Carola Binder) published research showing that consumer sentiment darkens within days of a gasoline price increase -- and the effect is roughly 50% stronger among Americans old enough to have lived through the oil crises of the 1970s. People who watched unemployment climb from 4.6% to 9% in 18 months, who sat in gas lines, who absorbed the message that rising energy prices mean recession never quite unlearned it. When they see $4.50 at the pump, they sense trouble.

 

Sentiment also shapes economic reality. When people expect hard times, they spend less -- and that helps bring about the hard times. Research from Mr. Makridis linking consumer beliefs to nondurable spending finds that a one-standard-deviation deterioration in economic confidence is associated with a 17% to 25% decline in consumption expenditures. The current oil price move -- roughly 40% since early 2025 -- is associated with approximately a 0.15- to 0.20-standard-deviation decline in sentiment based on estimated elasticities, implying a consumption drag of 3% to 5% among affected households before any change in their actual financial circumstances.

 

Gasoline prices are well-suited to produce this effect. They are posted on signs at every intersection, updated daily, visible even when your tank is full.

 

The same price move reshapes housing markets more slowly and far less uniformly -- rippling through the country, lifting some places and pressing down on others. In cities whose economic base is energy -- Houston, Oklahoma City, Midland-Odessa, Texas -- the income channel dominates. Wages rise, local employment expands, and housing markets follow. Research by one of us (Mr. Larson, with Weihua Zhao) tracking four decades of ZIP Code-level house prices estimates that for a city with roughly half its export employment in oil-related sectors, a 50% rise in oil prices produces roughly 15% higher citywide house-price appreciation over five years compared with non-oil cities.

 

Everywhere else, rising oil prices function as a tax on transportation, and that tax compounds with distance. Suburbs beyond 15 miles from a city center face the steepest relative losses as higher commuting costs get capitalized into home values. The research finds a doubling of oil prices produces roughly 1.5% to 3% of relative house price underperformance for suburban properties vs. center-city ones. A 40% oil-price move -- close to what we've seen since early 2025 -- implies perhaps 1 to 2 percentage points of relative suburban drag over the next several years.

 

When oil prices rise, the gains in energy-producing cities are concentrated and relatively swift. When they fall, those same cities tend to give back appreciation sharply -- Houston lost roughly 30% of its real house value when oil crashed in the 1980s. Whatever appreciation is accumulating in Midland and in Williston, N.D., today carries that tail risk embedded within it.

 

None of this constitutes a forecast of local booms or national recession. If the supply-side constraints with the Strait of Hormuz are resolved, we may very well see a corresponding fall in oil prices and an upward swing in consumer sentiment by summer. Additionally, the channels through which oil affects the economy have shifted considerably since the 1970s, and the U.S. is a meaningfully different energy producer today than it was then. But the behavioral channel -- the one running from gasoline prices through sentiment to spending -- doesn't require structural damage to the economy to operate. It requires only that enough people, seeing a number on a sign, conclude that something familiar and bad is beginning again.

 

That connection, forged in experience 50 years ago, has proved remarkably durable. It is being tested again.

 

---

 

Mr. Makridis is an associate research professor at Arizona State University, an associate faculty member at the Complexity Science Hub in Vienna, and a digital fellow at the Stanford Digital Economy Lab. Mr. Larson is a nonresident fellow at the George Washington University's Center for Economic Research.” [1]

 

1. High Gasoline Prices Signal Trouble to Older Americans. Larson, William D; Makridis, Christos A.  Wall Street Journal, Eastern edition; New York, N.Y.. 08 Apr 2026: A15.