US retail sales rose 0.5% month-on-month in April, matching expectations and following a revised 1.6% increase in March, according to the Commerce Department's Census Bureau. The data shows mixed performance across different retail categories, with higher gasoline prices leaving less money for nonessential items. Sales excluding autos and gasoline also rose 0.3%, a slowdown from the 0.7% pace in March, while the closely watched control group category tied to GDP increased 0.5%. As per Associated Press, shoppers pulled back on spending in April as higher gas prices fueled by the Iran war meant less money left over for nonessentials like clothing and furniture. Online retailers and electronics stores posted solid sales gains, while department stores fell 3.2% and furniture sales dropped 2%. The lone services category - restaurants - registered a solid 0.6% increase, though the snapshot doesn't include travel and hotel stays.
Despite higher energy costs and weak consumer confidence, there is little sign that consumers are cutting back spending on other items, as reported by Reuters. However, the composition of spending matters more than the top-line number, with consumers increasingly directing larger portions of their budgets toward essentials and recurring expenses. Higher fuel, food, insurance, and housing costs can slowly pressure discretionary spending even when overall retail sales remain positive. Economists at Pantheon Macroeconomics estimated that individual income tax refunds in April were $22 billion higher than in the same month in 2025, equivalent to around 3% of monthly retail sales. Oliver Allen noted that "some of this money will have been saved, but much of it has been spent," but warned that "the flow of refunds will taper dramatically in May, leaving consumers far more exposed to the surge in fuel costs." The saving rate dropped to 3.6% in March, the lowest since October 2022, from 3.9% in February, as households quickly ran down tax refund proceeds.
Energy prices are expected to remain elevated throughout 2026, even if a deal allows reopening of the Strait of Hormuz, according to ING Economics analysis. The Iran war that began in late February has led to the shutdown of the Strait of Hormuz, cutting off one-fifth of the world's daily oil supply. The average price for a gallon of regular gasoline rose again overnight to $4.53 on Thursday, $1.35 more than it cost a year ago, according to motor club AAA. Inflation outpaced wage growth in April for the first time in three years, with imported fuel prices jumping 16.3%. The Labor Department reported Wednesday that the U.S. producer price index shot up 1.4% in April, the biggest monthly gain in more than four years, while the consumer price index jumped 3.8% from April 2025 - the biggest year-over-year increase in more than three years. Michael Pearce from Oxford Economics estimates that higher tax refunds have offset the impact of gas prices by a ratio of around 2 to 1, but warns "that will flip in the months ahead, putting downward pressure on spending growth."
The latest data shows retail sales increased 4.9% year-over-year, with consumer spending accounting for more than two-thirds of the economy. Despite the strong job market with employers adding a surprisingly strong 115,000 jobs last month, economists worry about the cumulative impact of rising energy prices. Weekly applications for unemployment benefits remained within a historically low range at 211,000, according to the Labor Department. However, some companies are already seeing warning signs of consumer strain. Coulter Lewis from Sunday Lawn and Garden noted that while sales soared 70% from January through April compared to a year ago, shoppers are "spending more money on fewer things" and leaning away from committing to subscription services. A clearer picture of how inflation is impacting Americans may arrive next week when major U.S. retailers like Walmart and Target begin to release quarterly financial results, with some companies already seeing customers trading down from professional services to do-it-yourself projects.
