Food and energy price rises hit U.S. households; growth steady

Analysts at Shelton Capital Management report that higher food and energy prices are reducing household purchasing power in the United States, with lower-income families bearing the largest share of the burden. The firm identifies rising oil prices linked to the Middle East conflict as a primary driver of near-term inflation and weaker consumer sentiment.

Shelton’s report notes that energy and food account for a smaller share of U.S. consumption than in past decades. Spending on energy as a share of Personal Consumption Expenditures declined from nearly 10% in 1980 to about 4% today, and food spending has similarly trended lower. The firm says those shifts limit the economy’s sensitivity to temporary price spikes. Shelter costs remain the largest component of the Consumer Price Index but have broadly stabilized, the firm adds.

The firm examines recent labor market trends as a central factor for the economy. Monthly payroll gains over the past two years have run below the average pace seen in the 2009–2020 business cycle even as GDP growth has been broadly similar. Shelton applies a six-month moving average to smooth short-term volatility and attributes the slower employment growth mainly to structural labor constraints, including a decline in participation among older workers and a smaller pool of non-retirement-age workers.

Shelton projects year-over-year inflation to ease toward roughly 3 percent in coming months, citing shelter stabilization and favorable year-over-year comparisons in other categories. The report forecasts continued positive, if moderated, job growth and expects business investment in research and development and expanded industrial capacity to help support productivity and output over the next decade.

On fiscal and corporate developments, the firm identifies several factors that could support growth: larger personal tax refunds for some households, expanded immediate expensing of research and development costs for firms, and the possible return of tariff refunds to corporate balance sheets. Shelton notes business investment remains at a healthy pace.

The firm also describes portfolio adjustments aligned with its outlook. Shelton increased U.S. equity allocations across multiple strategies and reduced exposure to international equities. Sector focus includes U.S. industrials, information technology, regional banks and selected emerging markets. In fixed income, the firm added mortgage-backed securities, emphasized the belly of the yield curve and high-quality asset-backed securities. For alternatives, Shelton favors equity option overlay strategies for income and a multi-asset real return approach to address inflation and diversification.

Shelton’s Cash Indicator has moved closer to its long-term median after a period of low readings that the firm associated with investor complacency, a change the firm describes as reflecting compensation for measured risks amid geopolitical uncertainty and persistent inflation concerns. The report was published by Shelton Capital Management, an investment adviser based in Denver and registered with the U.S. Securities and Exchange Commission.