I recently published my research on the Pessimism Paradox, which describes an uneasy equilibrium between crashing consumer sentiment and disproportionately strong economic fundamentals. I identified four forces that maintain this tenuous balance – amplification, proximity, polarization, and indulgence.

While we were putting the research through our rigorous vetting process, a new war broke out in the middle east. War does not just move markets. It moves mindsets. And when the shock runs through energy—as it is doing now—it hits consumers where they are most vulnerable.

Will the Iran war change what we’ve said about consumer behavior in the post-pandemic era? Fortunately, we have the benefit of hindsight to answer that question. The best empirical window comes from the World War II surveys conducted by the U.S. Bureau of Labor Statistics. These surveys, covering 1941–42 and 1944, show a contraction in consumer spending in the immediate aftermath and a prominent shift in spending allocation toward essentials.

This war, so far, is a little different. We are in the early days relative to long-standing conflicts that shape behavior in a more sustained fashion. We also haven’t reached the point of scarcity and rationing that cramps consumption in major conflicts. But the bottleneck at the Strait of Hormuz has had immediate and drastic effects on energy prices, which typically cascade into all sorts of inflationary pressure across categories.

Here are four shifts to expect:

Sentiment will deteriorate. Even further.

Energy demand is inelastic – it is not a category consumers can easily avoid. It is embedded in commuting, heating, cooling, and, increasingly, in the delivered cost of almost everything else. In WWII, the constraint came through rationing; today it comes through price. Expect confidence measures to weaken accordingly, even before broader spending data reflects it.

Spending will shift from discretionary to essential.

The wartime data is unequivocal. Even in the early days, people get nervous and dial up their risk aversion. Expect spending to concentrate on essentials—food, fuel, and basic goods—while discretionary purchases will shrink. Historical data show that automobiles and household durables saw some of the steepest declines.

Consumers will trade down.

When budgets tighten, adjustments do not happen only at the category level—they happen within categories. WWII-era surveys showed that even as food spending rose, households shifted toward lower-cost options. Price sensitivity increased, and value became the dominant decision criterion. Expect degrees of difference as brands travel the K-shaped economy. If the markets hold up, the tippy-top of the scale may see little effect, but otherwise expect folks to trade down, be that from Prada to Coach or from Coke to Big K Cola.

Big-ticket spending will be deferred.

Volatility suppresses commitment. In the 1940s, the constraint was physical—many durable goods simply were not available. Today, the constraint is more psychological. When future costs (energy, borrowing, inflation) are harder to predict, consumers delay decisions. This creates a lag effect: even if incomes hold up in the near term, big-ticket spending softens as households adopt a wait-and-see posture.

 

Consumers adapt to war. They prioritize what cannot be avoided, optimize what can be adjusted, and postpone what can be delayed. The result is a consumer economy that does not contract uniformly but reshapes itself, and that reshaping, more than any headline number, is where the real economic story lies.

Additional Resources:

My blog post (no paywall) on the Pessimism Paradox: Americans Feel Miserable. Why Do They Keep Spending?

My Forrester report on the same topic, with all the underlying data and analyses: Down But Not Out: Growth Strategies For The Pessimism Economy

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