{"id":10670,"date":"2026-05-14T15:26:54","date_gmt":"2026-05-14T15:26:54","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/?p=10670"},"modified":"2026-05-14T15:26:55","modified_gmt":"2026-05-14T15:26:55","slug":"north-american-households-still-spending-as-fuel-costs-rise","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/financial-markets-monthly\/north-american-households-still-spending-as-fuel-costs-rise\/","title":{"rendered":"North American households still spending as fuel costs rise"},"content":{"rendered":"\n
\n
\n

Highlights:<\/strong><\/h4>\n\n\n\n
\n
\n
\"\"<\/figure>\n<\/div>\n\n\n\n
\n

Oil prices continue to rise above prior assumptions, but U.S. and Canadian growth outlooks are little changed as consumers spend through the initial increase in fuel costs.<\/p>\n<\/div>\n<\/div>\n\n\n\n

\n
\n
\"\"<\/figure>\n<\/div>\n\n\n\n
\n

We continue to expect higher energy costs will have a neutral impact on North American economies, which are net energy exporters. Still, there are significant distributional impacts.<\/p>\n<\/div>\n<\/div>\n\n\n\n

\n
\n
\"\"<\/figure>\n<\/div>\n\n\n\n
\n

Labour market trends in North America diverged in April with Canada showing persistent slack while the U.S. demonstrated resilience\u2014keeping both the Bank of Canada and the U.S. Federal Reserve on the sidelines.<\/p>\n<\/div>\n<\/div>\n\n\n\n

Issue in focus:<\/strong><\/h4>\n\n\n\n
\n
\n
\"\"<\/figure>\n<\/div>\n\n\n\n
\n

Amid gloomy labour market reports in Canada this year, we continue to focus on healthier underlying details, resilient domestic demand, and structural constraints on labour supply to support our forecast for a gradually lower unemployment rate this year.<\/p>\n<\/div>\n<\/div>\n\n\n\n

\n\n\n\n

Forecast changes:<\/h3>\n\n\n\n

Higher oil prices aren\u2019t dampening household demand yet<\/h4>\n\n\n\n

We\u2019re watching consumption data closely for signs on whether higher energy costs from Middle East tensions are crowding out other spending in household budgets. So far, evidence in North America is limited. In Canada, consumers spent an average 18% more at gas stations over March and April compared to February, according to RBC\u2019s cardholder transactions<\/a>. Importantly, spending on non-energy items continued to rise, suggesting little demand destruction to date. This is consistent with our assumption that households are drawing on savings or taking on additional debt to cushion the immediate impact of rising fuel costs.<\/p>\n\n\n\n

Similar trends are playing out in the U.S., where a 21% surge in energy product prices between February and March did little to phase households. Overall, real spending (adjusted for inflation) edged up 0.2% in March and retail sales excluding gasoline stations were up another 0.3% in April (and 1.0% above February levels.). As spending holds up amid higher prices, the U.S. household savings rate dropped to 3.6% in March\u2014lowest since 2022.<\/p>\n\n\n\n

To be sure, headline spending resilience masks underlying weakness, especially among low-income groups where savings buffers are much smaller, and energy purchases take up a larger chunk of disposable incomes. Moreover, the path for oil prices remains highly uncertain. The longer they stay elevated, the bigger the risk of weakness creeping up the income scale. We continue to assume as a base case forecast that oil prices will track broadly in line with the current forward curve, which shows prices declining in the second half of the year (although not to levels expected before the conflict). But, we will continue to watch for signs of softening demand.<\/p>\n\n\n\n

North American labour market data diverges<\/h4>\n\n\n\n

Canada’s labour market surprised on the downside in April\u2014hiring demand remained soft with jobs edging lower, and the unemployment rate jumped to 6.9% from 6.7% in March. Still, details were less concerning with permanent layoffs continuing to decline.<\/p>\n\n\n\n

Our near-term unemployment rate forecast is marked higher. However, due to hidden resilience, we retain the profile of a gradual lowering to 6.3% in Q4, along with our cautiously optimistic outlook for Canada\u2019s labour market (see Issue in Focus below).<\/p>\n\n\n\n

Still, recent soft labour market trends should reinforce the BoC\u2019s view that an overnight rate at the lower end of the neutral range remains appropriate, arguing against a near-term pivot to rate hikes. We retain our forecast of no BoC moves this year with rate hikes not expected until 2027.<\/p>\n\n\n\n

In the U.S., the Fed is likely encouraged by accelerating job growth in March and April that flags stabilizing business hiring. Their stance is likely shifting further towards neutral from an earlier easing bias, consistent with our expectation the Fed will hold rates in 2026.<\/p>\n\n\n\n

A summary of all the changes we made in May:  <\/p>\n\n\n\n