Crude oil and geopolitical events continue to overshadow a solid U.S. economy

Trend watch

Travel activity is currently in the doldrums – a maritime term referring to the area north of the equator with calm and light breezes that would bedevil wind-powered sailing ships for days and sometimes weeks due to a lack of sufficient wind. Activity should resume in mid-May as college and high school graduation season ramps up.

We’ll continue to include the personal tax refunds chart (slide 7, available to clients in the full report) through the end of tax filing season. 

Our take

Crude oil and geopolitical developments continue to overshadow the rest of the U.S. economic landscape. Recent Middle East cease‑fire agreements have provided temporary relief to global markets. The exception is the price of crude oil, which is still hanging around $94 per barrel due to the dueling blockades of the Strait of Hormuz for commercial shipping traffic by the U.S. and Iran.

Meanwhile, the U.S. economy continues to power through this uncertainty. That was clear in the latest batch of data, which was highlighted by solid March retail sales and improvement in the S&P Global (SPG) indices for April.

Indeed, aside from the pain at the pump, the U.S. remains relatively insulated from a direct energy supply shock—given that more than 90% of our crude oil supply is sourced within North America and practically all our natural gas. That’s not the case in portions of Asia that are dependent on Middle East crude oil and natural gas.

To be sure, the U.S. will eventually feel the secondary effects through global supply chains. For instance, there’s been a roughly 30% year-to-date surge in global resin prices by most plastics manufacturers because of the shuttering of approximately 50% of global ethylene and polyethylene supply.

However, those costs will be small for most products. Furthermore, nearly two-thirds of consumer spending (63.6%) in the U.S. is on services rather than goods. Roughly 20% of total consumer spending is on health care.

Plainly, the Iran war matters, as do crude oil prices. But other things matter more to the U.S. economy. 

Bottom Line

While U.S. data still point toward a solid economy, crude oil and geopolitical uncertainty continue to dominate investor attention. Until the Strait of Hormuz is fully reopened and energy markets stabilize more convincingly, these external risks will continue to overshadow improvements elsewhere in the U.S. economy.