Will Gas Prices Keep Americans From Spending? The Answer May Surprise You

Some investors may have been spooked by a new Harris poll published this week that found 84% of Americans plan to cut back on their spending in response to higher gasoline prices.

A drop in consumer spending could be bad news for the SPDR S&P 500 ETF Trust SPY, but Bank of America economist Ethan Harris said Thursday that the poll results may not be as bad for the market as they seem at first glance.

Harris said there's no doubt soaring gas prices will have some negative impact on American consumers' spending, but a reopening economy will also drive upticks in spending in other areas of the market.

Related Link: 3 Ways To Invest If Inflation Is Here To Stay

"There is now a tug of war between the sticker shock of rising prices and a huge reserve of wealth and liquid assets," Harris said.

Actions Versus Words: He also noted that, while Americans are understandably annoyed at rising gas prices, actions may speak louder than words.

"We would be very surprised if a large portion of households make outright cuts in overall consumer spending," Harris said.

He noted that there is often a disconnect between what Americans say in polls and what they actually do. One common example of this behavior is that Americans typically say they will save the extra money they get from tax cuts, but data suggests their spending increases.

Smarter Shopping: If inflation continues to be an issue, Harris said Americans will likely shift their spending from higher-priced products to lower-priced ones rather than reduce their overall spending.

Lower-income Americans are hit the hardest by rising food and gas prices, but Harris said they are also benefiting from rising wages. Meanwhile, middle and upper-income houses have strong balance sheets, excess savings and near-record-level net worth coming out of the COVID-19 pandemic.

Benzinga's Take: So far, rising prices at the pump haven't slowed down American consumers. However, the first-quarter earnings season should help investors get more clarity on just how much of an impact inflation is having on the economy.